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Princeton Digital Image Corporation v. Office Depot Inc.

United States Court of Appeals, Federal Circuit

January 22, 2019

PRINCETON DIGITAL IMAGE CORPORATION, Plaintiff-Cross-Appellant
v.
OFFICE DEPOT INC., J.C. PENNEY COMPANY, INC., QVC INC., SEARS HOLDINGS CORPORATION, LIMITED BRANDS INC., GAP, INC., WILLIAMS-SONOMA, INC., COSTCO WHOLESALE CORPORATION, NORDSTROM.COM LLC, NORDSTROM.COM INC., NORDSTROM INC., Defendants ADOBE INC., Defendant-Appellant

          Appeals from the United States District Court for the District of Delaware in Nos. 1:13-cv-00239-LPS, 1:13-cv-00287-LPS, 1:13-cv-00288-LPS, 1:13-cv-00289-LPS, 1:13-cv-00326-LPS, 1:13-cv-00330-LPS, 1:13-cv-00331-LPS, 1:13-cv-00404-LPS, 1:13-cv-00408-LPS, Chief Judge Leonard P. Stark.

          George Pazuniak, O'Kelly, Ernst, & Bielli, LLC, Wilmington, DE, argued for plaintiff-cross-appellant.

          Tara Elliott, Latham & Watkins LLP, Washington, DC, argued for defendant-appellant. Also represented by Rachel Weiner Cohen.

          Before Dyk, Taranto, and Stoll, Circuit Judges.

          DYK, CIRCUIT JUDGE.

         The parties appeal and cross appeal from various rulings by the U.S. District Court for the District of Delaware in a patent and breach of contract dispute. Because there was no final decision on the merits, we dismiss the appeal for lack of jurisdiction.

         Background

         Princeton Digital Image Corporation ("PDIC") owns U.S. Patent No. 4, 813, 056 ("the '056 patent"), which relates to methods for encoding image data and allegedly covers the encoding of digital images in the JPEG file format. In June 2011, PDIC licensed the '056 patent to Adobe, Inc. In the license agreement, PDIC promised not to sue Adobe or Adobe's customers for claims arising "in whole or part owing to an Adobe Licensed Product." J.A. 1538-39.

         Beginning in December 2012, PDIC sued numerous customers of Adobe, alleging that the encoding of JPEG images on the customers' websites infringed claims of the '056 patent. In November 2014, Adobe moved to intervene to defend nine of its customers, contending that its customers were using Adobe products to display images on their websites, which was covered by PDIC's license to Adobe. The district court granted Adobe's motion to intervene on May 5, 2015.

         On May 8, 2015, Adobe filed a complaint in intervention, asserting that PDIC breached its license agreement with Adobe by suing Adobe's customers. For this breach of contract claim, Adobe sought damages consisting of (1) its attorneys' fees expended in connection with defending its customers and responding to customers' indemnity requests and (2) its fees expended in bringing the breach of contract claim itself.

         By July 31, 2015, PDIC had dismissed each of the infringement actions brought against Adobe's customers in which Adobe had intervened. Adobe moved for attorneys' fees under 35 U.S.C. § 285, which permits an award of attorneys' fees to the prevailing party in "exceptional cases," and for sanctions under Federal Rule of Civil Procedure 11. The district court denied both fees and sanctions. As to § 285 fees, the district court concluded that it "cannot determine at this time whether PDIC or Adobe is the prevailing party." J.A. 26. Assuming that Adobe was the prevailing party, the court found that the case was "exceptional" in that it "stand[s] out from the rest," J.A. 39-40, but that in its discretion, it would deny the request for attorneys' fees because the conduct was not "so exceptional," J.A. 41 (emphasis in original) (citation omitted). As to Rule 11 sanctions, the court concluded that it "cannot say that PDIC's pre-suit investigation was inadequate or that any filing was made for any improper purpose." J.A. 42.

         Litigation continued on Adobe's breach of contract claim. On August 1, 2017, the district court granted in part and denied in part PDIC's motion for summary judgment based on liability and damages. As to liability, the court held that there were "genuine issues of material fact precluding summary judgment," because a "reasonable juror could accept Adobe's view that PDIC's infringement allegations . . . cover the use of Adobe products," which would violate the license agreement's covenant not to sue. J.A. 60. But as to damages, the court held that Adobe could only collect "defense" fees-"that is, those Adobe incurred in defending [its customers] from PDIC's infringement suit, suits that were brought in alleged violation of the covenant not to sue." J.A. 64. Adobe could not recover the fees that Adobe incurred "in attempting to vindicate its contract rights," that is, "any attorney fees Adobe incurred in the affirmative breach-of-contract suit." J.A. 64. The court ordered Adobe to file a supplemental report disclosing Adobe's defense fees. Adobe filed the supplemental report on August 7, 2017.

         On August 17, 2017, the court struck Adobe's supplemental report because it did "not separate Adobe's defense fees from its affirmative fees" but instead "claim[ed] all fees as defensive so long as they were incurred while at least one Defendant (who requested indemnification) was still involved in litigation with PDIC." J.A. 82. The court concluded, however, that "there is sufficient evidence in the record to determine the amount of Adobe's fees that are purely defense fees," and therefore directed Adobe to file a letter disclosing the total amount of such fees and the record support for the claimed amount. J.A. 86-87. When Adobe filed its letter, however, the court struck it because it too "did not disclose a purely defensive number." J.A. 106.

         The court nevertheless declined to grant summary judgment to PDIC on damages, explaining that it was "undisputed that some amount of Adobe's legal fees are purely defensive." J.A. 106. It ruled that Adobe would be permitted to present a purely defensive number to the jury, but Adobe would have to disclose that number to PDIC before opening statements.

         In an effort to secure an appealable decision, Adobe then requested that the court enter judgment in favor of PDIC, contending that in light of the court's rulings, "Adobe doesn't have damages to present," which Adobe contended was "an element of what is to be tried." Tr. of Pre-Trial Conference at 67:23-24, Princeton Digital Image Corp. v. Office Depot Inc., No. 1:13-cv-00239-LPS (D. Del. Sept. 1, 2017), ECF No. 281. The court reiterated its conclusion "that there are purely defensive damages that can be proven on this record," but granted Adobe's request and entered judgment in favor of PDIC. J.A. 106-08.

         Adobe appeals, contending that the district court erred in (1) not awarding fees under § 285 and sanctions under Rule 11; (2) limiting the damages for Adobe's breach of contract claim; and (3) refusing to compel PDIC to produce additional documents (regarding PDIC's pre-suit investigation and litigation ...


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