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Lawyers can’t turn around without being bombarded with CLE brochures announcing yet another e-discovery workshop. Electronic discovery is a new medium for storing information, but the time-tested rules concerning an attorney’s ethical duty to the court and opposing counsel in connection with discovery have not changed. On January 7, 2008, Magistrate Judge Barbara L. Major on the United States District Court, Southern District of California, issued an order granting sanctions against Qualcomm Incorporated and several of its attorneys in connection with discovery abuses. ( See Qualcomm Incorporated v. Broadcom Corporation, U.S.D.C., S.D. Cal. Case No. 05-CV-1958-B (BLM). The Qualcomm decision commands the attention of all corporate counsel and litigators involved in the discovery process. As stated by Magistrate Judge Major, the decision “provide[s] a roadmap to assist counsel and corporate clients in complying with their ethical and discovery obligations and conducting the requisite ‘reasonable inquiry.’”

Plaintiff Qualcomm sued defendant Broadcom alleging Broadcom’s infringement of several Qualcomm patents. Broadcom filed a counterclaim alleging inequitable conduct and waiver. Broadcom’s waiver defense was based upon Qualcomm’s participation in the Joint Video Team (“JVT”) in 2002 and early 2003 during which the digital video signals standards were adopted. Whether Qualcomm participated in the JVT in 2002 and early 2003 was a crucial fact because, if Qualcomm did participate, it would have to have granted royalty-free licenses to its technology.

Broadcom served document demands requesting all documents reflecting Qualcomm’s participation in the JVT and also requesting any emails received or sent by Qualcomm setting standards for processing digital video signals. Qualcomm, in response to those document demands, said that it produced all non-privileged documents it located after a reasonable inquiry.

Broadcom also took the deposition of the person most knowledgeable under Rule 30(b)(6). The court found the counsel’s conduct during the preparation and designation of the PMK to be extremely troubling. Qualcomm initially designated one PMK who did not have personal knowledge concerning Qualcomm’s participation, or lack of participation, in the JVT in late 2002 to early 2003 despite being so designated. Qualcomm recognized this deficiency and designated a new representative. That new representative testified falsely that Qualcomm did not participate until December 2003. Broadcom was able to impeach the witness with the only email it had in its possession dated December 2002, reflecting Qualcomm’s earlier participation. Nevertheless, Qualcomm and its counsel continued to deny any earlier participation in the JVT and even doubted that the December 2002 email was even received by Qualcomm.

While preparing a witness for trial, the trial team reviewed the witness’s laptop and discovered 27 separate emails dating back to August 6, 2002, which made it clear that Qualcomm had been involved with the JVT and in establishing the standards for digital signals prior to late 2002. The Qualcomm trial team decided not to produce the emails yet call the witness at trial, asking carefully-tailored questions if the witness had ever “read” emails from the JVT. During cross-examination, Broadcom’s attorney asked if the witness ever received such emails, to which she answered truthfully that she had. Broadcom demanded the immediate production of the emails.

Even after knowing of the 21 emails, trial counsel argued a motion in limine to exclude the one December 2002 email in Broadcom’s possession by arguing there was no evidence that the email was actually sent to Qualcomm and that there was no evidence of anything ever being sent. Trial counsel made these representations to the court after he had been made aware of the 21 emails on the witness’s computer.

Broadcom immediately demanded the production of all emails after the witness admitted she had several on her laptop. In a side-bar conversation, trial counsel, despite having participated in the decision not to produce them, told the court that he had seen the emails and was not even sure if Broadcom had previously requested or if they fell within a previously request of Qualcomm. Qualcomm turned over the 21 emails over the lunch hour.

The jury returned verdicts in favor of Broadcom, finding that Qualcomm was guilty of inequitable conduct and the patents were unenforceable due to waiver.

The court ordered a post-trial investigation into the discovery abuses. Qualcomm objected to the investigation and argued that it had performed an adequate search for documents. Despite Qualcomm’s argument that it conducted an adequate search, the post-trial investigation revealed that a simple word search of archived emails searching for “JVT” and other single search terms readily revealed the existence of 46,000 documents containing over 300,000 pages. Qualcomm’s in-house counsel wrote a letter to the court advising it of these further findings, apologizing to the court for not conducting a more thorough search earlier, and further acknowledging that the located documents were inconsistent with argument made by counsel at trial.

The court focused on Federal Rule 26(g)(2), which provides for sanctions against individual attorneys who failed to comply with their ethical obligations. Rule 26(g)(2) provides that every discovery response must be signed by an attorney and that the attorney’s signature “constitutes a certification that to the best of the signer’s knowledge, information, and belief, formed after a reasonable inquiry,” the response is consistent with the rules of law. The courts have confirmed that Rule 26(g)(2), like Rule 11, requires that the court impose “an appropriate sanction” on the attorney if a discovery response is not formed after a reasonable inquiry and therefore is without substantial justification.

Qualcomm argued in opposition to the sanctions that at no time did Broadcom file a motion to compel the production of documents. The court gave no weight to this argument, noting that the responding attorney has a duty to respond to discovery in good faith and the court will not require the asking party to file motions if the responding party affirms that it will produce all responsive documents. This is especially the case here, where Qualcomm had already affirmed that it would produce all non-privileged responsive documents. Litigants are not required to file motions to compel in order to preserve their rights in the event the opponents fail to properly discharge their obligations to produce relevant information.

The court emphasized that the parties and the attorneys have a duty to respond to discovery in good faith. That good faith must be after a reasonable inquiry, which will be dependent upon individual facts and circumstances. The court noted that, in the age of electronic discovery where clients and attorneys cannot physically touch each document, the attorneys must work closely with their clients to ensure that the attorney and the client have discharged their duty to respond in good faith after reasonable inquiries. “Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.”

The attorneys at Qualcomm produced no substantial justification for their failure to produce the 46,000 documents. This lack of justification is reinforced by the fact that trial counsel did not disclose the 21 emails when found, surgically asked questions of the witness to avoid disclosing that she had received the 21 emails, and did not voluntarily search for any additional documents after locating the first 21.

In view of all the factors, the court noted the following factors influencing its decision on sanctions: Trial counsel did not properly designate the Rule 30(b)(6) deponents; did not require a search of archived emails; did not give the 30(b)(6) witness relevant documentation; and, did nothing to ensure that the witness would be knowledgeable. The attorney has the obligation to ensure that the Rule 30(b)(6) witness is fully knowledgeable of the facts upon which he/she will testify. Secondly, Qualcomm’s attorney repeatedly argued that the court and the jury should to ignore the December 2002 email that Broadcom had obtained and repeatedly tried to discredit that the email ever existed in an effort to distort the evidence. Qualcomm even brought a motion for summary judgment, offering testimony that it had not participated in the JVT during 2002 and had not received any information from the JVT.

The court issued sanctions against Qualcomm and several of its attorneys; this article will focus on the duties of the attorneys and the sanctions imposed on them. The court relied upon the Rules of Professional Conduct, Rule 5-200, which provides that a lawyer shall not seek to mislead the judge or jury by a false statement of fact or law, and Rule 5-220, that a lawyer shall not suppress evidence when the lawyer or the lawyer’s client has a legal obligation to reveal or produce. The court, in reviewing the rules and in reviewing counsel’s activities, referred several attorneys to the State Bar for investigation. The court emphasized that it was inconceivable that Qualcomm had actively and successfully hidden this information so effectively from its lawyers that the lawyers could not know or suspect that suppressed documents existed. The court also immediately rejected any thought that the retained attorneys were so inept or disorganized that they could not have discovered this information if a reasonable inquiry had been made. The court then questioned whether there was sufficient evidence that the counsel actively participated with Qualcomm to hide the documents and all evidence of Qualcomm’s early involvement in the standards. The court noted that Qualcomm continued to exert the attorney-client privilege and, therefore, evidence on this issue was limited, although there was circumstantial evidence based on trial counsel’s failure to disclose the 21 emails promptly upon their discovery.

Ultimately, the court found the evidence supported a finding that Qualcomm did not tell its retained lawyers about the evidence. The lawyers suspected there was additional evidence or information but chose not to conduct a reasonable search. This was not a case where only one or two smoking-gun documents were not found, but instead 46,000 critical documents had not been produced. These documents were not from just one employee, but dozens of employees, several of whom testified falsely at trial and in depositions.

The court noted that different attorneys had different levels of culpability, but emphasized that lead counsel are responsible for the activities of the individuals working under their direction and that junior attorneys have an ethical obligation to comply with the rules and the ethical obligations independent of what they may be instructed by supervising attorneys. Emails and other electronic discovery impose differing challenges which attorneys must overcome in order to discharge their discovery obligations. The ethical rules and discovery obligations have not changed with e-discovery – an attorney must still make a reasonable inquiry and may sign a discovery response only if it is “formed after a reasonable inquiry.”

Dale is a shareholder with Weintraub Genshlea Chediak practicing in the Litigation and Intellectual Property Sections. Dale has a broad range of litigation experience in all areas of business, intellectual property and real estate litigation. He has tried over forty jury trials to conclusion and has had numerous court trials and binding arbitrations since his admission to practice law in 1981.

On December 28, 2007, the Ninth Circuit issued its opinion in the case titled Applied Information Sciences Corp. v. eBay, Inc., in which it clarified the plaintiff’s burden in a federally registered trademark infringement action. The Ninth Circuit’s opinion demonstrates the importance of a plaintiff in a trademark infringement claim being prepared to offer evidence of the likelihood of confusion in order to avoid dismissal of its trademark infringement claims.

Applied Information Sciences Corp. (“AIS”) is a specialized software vendor that applied in 1994 to register a trademark “SmartSearch”. In 1998, the U.S. Patent and Trademark Office issued AIS a registration for use of that mark on “computer software and instruction manuals sold together which allow the user to retrieve information from on-line services via phone line in the fields of agriculture and nutrition, books, chemistry, computers and electronics, education, law, medicine and biosciences, news, science and technology, social sciences and humanities.” AIS marketed a line of SmartSearch products from 1995 to 2004.

AIS claimed that eBay began using its SmartSearch mark without its consent in 2000 in violation of federal trademark and California unfair competition laws. eBay’s website displayed the words “Smart Search” as a link on its home page which allowed the user to utilize advance search options. AIS demanded that eBay pay a license fee or stop using the mark. eBay refused and AIS filed its trademark infringement claim against eBay in 2004. Both parties moved for summary judgment. The District Court granted eBay’s motion on the ground that it found that AIS did not have a valid protected interest in the mark.

The Ninth Circuit began by recognizing that AIS had to establish the following to prevail on its trademark infringement claim: (1) a valid, protectable trademark; and (2) eBay’s use of the mark in a manner likely to cause confusion. Thus, AIS first had to establish “whether the words used by a manufacturer in connection with his product are entitled to protection.” The Ninth Circuit recognized that AIS could satisfy this burden in one of three ways: (1) it has a federally registered mark in goods or services; (2) its mark is descriptive but has acquired a secondary meaning in the market; or (3) it has a suggestive mark which is inherently distinctive and protectable. AIS argued that its trademark was entitled to protection on the basis of its federal registration. Unlike the District Court, the Ninth Circuit agreed with AIS’ position.

The Ninth Circuit ruled that registration of a mark “on the principal register in the patent and trademark office constitutes prima facie evidence of the validity of the registered mark and of [the registrant’s] exclusive right to use the mark on the goods and services specified in the registration.” Without a registration, a plaintiff in a trademark infringement action would have to establish his right to the exclusive use of the mark in a common law infringement action. The Ninth Circuit concluded that AIS, by demonstrating that it held a federal registration, had made a prima facie showing that it held a valid protectable interest in the use of the SmartSearch mark.

The Ninth Circuit continued that “a registered trademark holder’s protectable interest is limited to those goods or services described in its registration.” Specifically, the Court recognized that the scope of validity and the scope of relief for infringement are not the same because “although the validity of a registered mark extends only to the list of goods or services, an owner’s remedies against confusion with its valid mark are not so circumscribed.” Thus, a trademark owner may only seek redress if another’s use of a registered mark on a different set of goods and services is likely to cause confusion with the owner’s use of the mark in connection with its registered goods.

The Ninth Circuit reiterated its holding in Interstellar Starship Services, Ltd. v. Epix Inc., 184 F.3d 1107 (9th Cir. 1999), in which it emphasized that a markholder’s rights to protect its interest in a registered mark were not limited to infringement actions against those using the mark in connection with the specified goods for services. In fact, the Court expressly rejected an argument that the plaintiff was required to show that the scope of its valid interests extended to the defendant’s use of the mark.

The Ninth Circuit recognized that a plaintiff trademark owner, upon establishing a valid protectable interest, could then proceed to the second prong of a trademark infringement analysis, the likelihood of confusion resulting from the defendant’s alleged infringing use. Once a plaintiff, such as AIS, had established a protectable interest by proving it is the owner of a registered trademark, it does not have the additional burden of showing that the defendants allegedly confusing use involves the same goods or services listed in the trademark registration.

Thus, the Ninth Circuit disagreed with the District Court’s analysis which found that AIS’ registration was limited to computer software and instruction manuals in the various fields listed in the registration. This led to the District Court’s erroneous conclusion that “because AIS’ federal registration did not include eBay’s use of the mark as `a hyperlink for its web based training service,’ AIS’ infringement action failed for a lack of a protectable interest.” The Ninth Circuit held that both eBay’s and the District Court’s reading of its previous decision in Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352 (9th Cir. 1985) was “questionable.”

The Ninth Circuit distinguished the Levi Strauss case from the present case by noting that in Levi Strauss the plaintiff was attempting to extend its own use of its registered mark to goods not specified in its federal registration. Specifically, Levi Strauss’ registered trademark was limited to pants pocket tabs but Levi Strauss was seeking to recover for infringement involving clothing pocket tabs generally. The Ninth Circuit concluded that this analysis was largely irrelevant in the present case because, having established a valid protectable interest by demonstrating its federal registration, AIS had discharged its burden of establishing the validity of the SmartSearch mark in connection with those goods listed in the registration. Thus, the sole question to address was the issue of the likelihood of confusion.

The Ninth Circuit held that AIS had failed, in opposing eBay’s motion for summary judgment, to produce any admissible evidence showing a likelihood of confusion or any evidence addressing any of the Sleekcraft [AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979)] factors required for a likelihood confusion analysis. On this sole basis, the Ninth Circuit affirmed summary judgment in favor of eBay.

The Ninth Circuit’s decision in the AIS case reaffirms the necessity and importance of a plaintiff in a trademark infringement claim being prepared to establish the likelihood of confusion to prevail. Although the plaintiff in AIS was able to demonstrate that it had a valid protectable interest, its failure to offer evidence as to the likelihood of confusion factor in opposing a summary judgment resulted in the Ninth Circuit affirming summary judgment in the defendant’s favor.

Patentable subject matter (i.e. what kinds of things can be patented) includes processes, machines, articles of manufacture, and compositions of matter. 35 U.S.C. §101. Abstract ideas, natural phenomena, and laws of nature are non-patentable (or non-statutory) subject matter. Computerized methods of doing business are increasingly likely to be rejected as non-patentable subject matter by the PTO, and the courts are becoming more likely to affirm these rejections. In re Comiskey, 499 F.3d 1365 (Fed. Cir. Sept. 20, 2007) is such a case.

Comiskey filed a patent application in 1999, claiming a method for performing mandatory arbitration of one or more documents. Claim 1 contained the following steps: registering the document and its author; inserting an arbitration provision into the document; enabling the complaining party to request arbitration; conducting an arbitration; supporting the arbitration; and determining an arbitration award. Claim 1 did not require the use of a computer, although the specification described an automated system and method and several dependent claims required an Internet connection or other electronic communication.

Not surprisingly, especially to lawyers who have been utilizing arbitration for many years, the PTO rejected most of Comiskey’s claims as obvious under §103 and repeated the rejection in four more office actions through the prosecution of the application. Comiskey appealed to the Board of Patent Appeals and Interferences, who affirmed the examiner’s rejections. Comiskey then appealed to the Federal Circuit.

The appellate court asked Comiskey and the PTO to brief the issue of patentable subject matter under §101. Comiskey contended that the court should not be permitted to rely on a new basis for rejecting the claims, but that even if §101 was considered, the claims satisfied its requirements. The court held that it could decide the case based on §101, even though the examiner had not made a rejection under that section.

The PTO asserted that Comiskey’s claims were not patentable subject matter, arguing that the claims were directed to an abstract idea because they did not require a particular machine and did not alter the state of a starting material. Rather, the PTO argued, Comiskey’s claims dealt with how humans interact in resolving disputes.

The court held that many of Comiskey’s claims were non-patentable subject matter under §101, citing two leading cases on the subject, Diamond v. Diehr, 450 U.S. 175, 188 (1981) and State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368, 1372 fn 2 (Fed. Cir. 1998). The court emphasized that the questions of novelty and obviousness are never reached unless §101 is first satisfied. “Only if the requirements of §101 are satisfied is the inventor allowed to pass through to the other requirements for patentability, such as novelty under §102 and, of pertinence to this case, non-obviousness under §103.” Id. at 1371.

The court reviewed the case law dealing with the patentability of business method inventions, emphasizing that the courts have clearly found abstract ideas to be non-patentable. The court identified two key concepts. First, abstract ideas with no practical application are not patentable. Id. at 1376. For example, a method for converting binary-coded decimal numerals into binary numerals was found not patentable because the claim would completely pre-empt the mathematical formula and allow a patent on an idea. Gottschalk v. Benson, 409 U.S. 63 (1972). The court explained that a mathematical algorithm must produce “a useful, concrete, and tangible result” to be patentable. Id. at 1376, quoting AT&T Corp. v. Excel Communications, 172 F.3d 1352 (Fed. Cir. 1999).

Second, in order to be patentable, an abstract idea, as used in a method claim, must be embodied in, or operate, transform, or involve another class of statutory subject matter. As explained by the Supreme Court, an abstract idea as used in a method claim must either be tied to a specific apparatus or operate or transform a machine, article of manufacture, or composition into a different state. See Parker v. Flook, 437 U.S. 584 (1978). In other words, a claim that involves an abstract idea as well as one of the other classes of statutory subject matter may be patentable. Id. at 1377. However, a mental process or a process of human thinking is not patentable standing alone even if it does have a practical application. Id.

Based on this analysis, the appellate court held that Comiskey’s claims were not patentable subject matter. The claimed invention was a business system for arbitration that depended on a mental process. Comiskey’s independent claims did not require a machine and did not describe an alteration in the state of another class of patentable subject matter. According the court, “Comiskey…seek[s] to patent the use of human intelligence in and of itself.” Id. at 1379.

With respect to Comiskey’s claims that did require a use of a machine, the appellate court found these claims to contain patentable subject matter. “When an unpatentable mental process is combined with a machine, the combination may produce patentable subject matter…” Id. However, the court believed that these claims were likely to be unpatentable under §103 as obvious. The court stated, “The routine addition of modern electronics to an otherwise unpatentable invention typically creates a prima facie case of obviousness”. Id. at 1380. The court remanded the case to the PTO to determine whether these claims were nonobvious.

Can a company go too far in preventing its employees from being hired away by its customers? The Fourth District Court of Appeal recently answered, “yes,” but gave some indication where the line of permissible restrictions is crossed. (VL Systems, Inc. v. Unisen, Inc. (June 2007) 152 Cal.App.4th 708.)

The plaintiff VL Systems (“VLS”) was a computer consulting company and defendant Unisen was its client. VLS employed consultants to work with its customers on their particular projects and billed the customer for the consultant’s time on an hourly basis. The contract between VLS and Unisen included a “no-hire provision” in which Unisen agreed that “[b]uyer will not attempt to hire seller’s personnel” for a period of 12 months after the work was completed. The contract further provided for liquidated damages equal to 60 percent of the employee’s compensation in the event Unisen breached the no-hire restriction.

The scope of the consulting contract between VLS and Unisen was rather small. VLS hired a new employee, David Rohnow (“Rohnow”), after the contract with Unisen was completed. Rohnow never worked on the project with Unisen since it was already completed. Rohnow worked for VLS for six months then elected to seek employment elsewhere. Rohnow responded to an advertisement placed by Unisen seeking a director of information technology. Unisen hired Rohnow knowing he had worked for VLS, but Unisen did not believe the no-hire provision applied since Rohnow had not work on the Unisen project. VLS demanded that Unisen pay the liquidated damages provided for under the contract. Unisen refused and VLS brought suit.

The Court balanced two important public policies. The first is the public policy established in Business and Professions Code section 16600 which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” The second public policy balanced by the Court is the freedom of contract. The Court acknowledged that it should not blithely apply public policy reasons to void contract provisions. (Dunkin v. Boskey (2000) 82 Cal.App.4th 171, 183-84.)

The only case in California that came close to the issues presented in this appeal was Webb v. Westside District Hospital (1983) 144 Cal.App.3d 946 (overturned on other grounds), which upheld a no-hire provision included in a contract between a hospital and temporary employee service. The Court distinguished the Webb case by noting that the no-hire provision in Webb was limited solely to employees who had actually worked for the hospital and that the employment agency had suffered actual damages by the contract being terminated prior to the hospital hiring away its employees.

Without any binding precidence, the Court looked to more general public policies to determine whether VLS’s no-hire provision was enforceable. Narrowly-drawn no-hire provisions that might otherwise limit the employment mobility of individuals if necessary to protect the legitimate business interests of the former employer. Examples include restrictions on a former employee’s right to solicit away other employees and restrictions on former employee’s right to use trade secrets. (See L’Oreal Corp. v. Moyes (1985) 174 Cal.App.3d 268, 279.) Here, the Court found that VLS’s no-hire provision was not so narrowly drawn. It applied to all employees, whether or not they actually worked for the client and whether or not they were actually employed by VLS during the period that VLS worked for the client. The Court found that this broad no-hire provision “is not necessary to protect VL Systems’ interests and is outweighed by the policy favoring freedom of mobility for employees is therefore unenforceable.” (VL Systems, supra, 152 Cal.App.4th at 718.)

VLS attempted to argue that its no-hire provision was not a restraint on employee mobility, noting that the provision did not prohibit a client from hiring away an employee, it only established an agreed-upon price for doing so through the liquidated damages provision. The Court rejected that argument, noting that the liquidated damages provision was sufficiently punitive and would “unfairly narrow the mobility of the employee.”

The Court made it quite clear that its decision was limited to the facts before it and that its decision should not be interpreted to mean that all no-hire provisions were unenforceable under Business and Professions Code section 16600. Conversely, the Court declined to establish a bright line test as to when a no-hire provision goes too far as to become unenforceable. However, some guidance can be gleaned by understanding the factual distinctions the Court noted between the Webb decision and the case before it.

A narrowly-drawn no-hire provision that is reasonable in time and that applies solely to employees who actually work for the client have the best chance of being senforced. The public policy upholding private party contracts should prevail over the public policy favoring employee mobility when necessary to protect the legitimate business interest of the employer. As stated by the VLS Court, “This is not a case where the happy client of a consulting firm attempts to poach an employee.” (Id. at 715.) Contractual no-hire provisions, if narrowly drawn and necessary to protect the business of the company, are quite different than the facts in VL Systems.