Intellect Wireless, Inc. v. Sharp Corp.

• Decision Date: 31 March 2015
• Docket Number: No. 10 C 6763,10 C 6763
• Parties: Intellect Wireless, Inc., Plaintiff, v. Sharp Corporation, Sharp Electronics Corporation Hewlett–Packard Company, Palm, Inc., and Dell Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

87 F.Supp.3d 817

Intellect Wireless, Inc., Plaintiff

v.Sharp Corporation, Sharp Electronics Corporation Hewlett–Packard Company, Palm, Inc., and Dell Inc., Defendants.

No. 10 C 6763

United States District Court, N.D. Illinois, Eastern Division.

Signed March 31, 2015

Amended April 3, 2015

David Joseph Mahalek, Joseph Albert Culig, Paul Christopher Gibbons, Paul K. Vickrey, Raymond P. Niro, Niro, Scavone, Haller & Niro, Ltd., Chicago, IL, for Plaintiff.

Richard de Bodo, Andrew Devkar, Morgan Lewis & Bockius LLP, Santa Monica, CA, Christopher Peter Broderick, Orrick, Herrington & Sutcliffe LLP, Los Angeles, CA, Monica L. Thompson, Steven John Reynolds, DLA Piper US LLP, Stephen Sandor Korniczky, Graham M. Buccigross, Martin R. Bader, Matthew M. Mueller, Sheppard Mullin Richter & Hampton LLP, San Diego, CA, Paul J. Korniczky, Leydig, Voit & Mayer, Ltd., Kimball Richard Anderson, Anthony Demarco Pesce, Imron T. Aly, Ivan Michael Poullaos, Kathleen B. Barry, Winston & Strawn LLP, Chicago, IL, Graham M. Buccigross, Martin R. Bader, Matthew M. Mueller, Stephen Sandor Korniczky, Sheppard Mullin Richter & Hampton LLP, San Diego, CA, for Defendants.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, United States District Judge

On October 20, 2010, Plaintiff Intellect Wireless (“IW”), represented by attorneys at the law firm Niro, Haller & Niro (“Niro”), filed a complaint in this court against Defendants Sharp Corporation, Sharp Electronics Corporation (together “Sharp”), Hewlett Packard Company (“HP”), Palm, Inc., Dell, Inc., and Garmin International, Inc.,¹ alleging infringement of two of IW's patents. The court granted partial summary judgment of non-infringement to Defendants in March 2012, and then stayed the case pending Judge William Hart's ruling on an inequitable conduct defense asserted against IW in a related case brought to enforce the same patents, see Intellect Wireless, Inc. v. HTC Corp., No. 09–cv–2945. Following a bench trial, Judge Hart concluded that IW's founder, Daniel Henderson, among other things, filed affirmatively false declarations with the United States Patent and Trademark Office. As a result, Judge Hart held the patents unenforceable due to inequitable conduct. SeeIntellect Wireless, Inc. v. HTC Corp., 910 F.Supp.2d 1056 (N.D.Ill.2012). The Federal Circuit affirmed Judge Hart's ruling. Intellect Wireless, Inc. v. HTC Corp., 732 F.3d 1339 (Fed.Cir.2013).

After the Federal Circuit's affirmance, Defendants in this case moved for an award of fees against IW, see 35 U.S.C. § 285, and on May 30, 2014, the court granted that request, finding that a pattern of deceit rendered this case “exceptional” within the meaning of the statute's language. In its opinion, the court noted that “[i]f trial counsel was indeed made aware of the false declarations, Rule 11 sanctions may also be a possibility.” (Op. & Order [168], hereinafter “Op.,” 13 n.11.) After conducting additional discovery, Defendants now assert that Niro's attorneys were aware of the false declarations, and therefore knew, or reasonably should have known, that the patents were invalid, but nevertheless forged ahead with this litigation. Defendants ask the court to award attorneys' fees [227] [233] against five attorneys at Niro—Joseph Culig, Paul Gibbons, David Mahalek, Raymond Niro, Sr., and Paul Vickrey—and the firm itself, under Rule 11, 28 U.S.C. § 1927, and the court's inherent authority. Niro's attorneys maintain that the motion for sanctions is untimely and that none of their conduct in this case is sanctionable. For the reasons explained below, the court concludes that sanctions under Rule 11 are procedurally barred, but counsels' conduct merits an award of sanctions against Paul Gibbons, David Mahalek, Raymond Niro, Sr., and Paul Vickrey under § 1927 and the court's inherent authority.

BACKGROUND

In 2007, Daniel Henderson obtained the two patents² at issue in this case—U.S. Patent Numbers 7,266,186 (“ '186 Patent”) and 7,310,416 (“ '416 Patent ”)—and assigned those patents to his company, Intellect Wireless (“IW”). (Op. at 2.) IW, represented by attorneys from the Niro firm, thereafter proceeded to enforce those patents aggressively, filing six federal law suits claiming infringement against a total of twenty-four defendants. (Id. at 2.) IW initiated this action against Defendants Sharp, HP, Palm, Dell, and Garmin in October 2010. Though the majority of the twenty-four defendants settled, including Garmin, the remaining Defendants here sought summary judgment, which this court granted in part and denied in part in March 2012. The court granted summary judgment on the direct infringement claims, but denied it with respect to induced infringement. (Mem. Op. & Order [132], 20.) Meanwhile, in a related case before Judge William Hart, Intellect Wireless v. HTC Corp., No. 09–cv–2945, IW and another telecommunications company, HTC, proceeded to a bench trial. Just twelve days after this court's summary judgment ruling, Defendants filed a motion to stay the case pending Judge Hart's ruling on HTC's inequitable conduct allegations. The court granted the motion. (See Mar. 23, 2012 Minute Entry [136].)

After hearing evidence at the bench trial, Judge Hart held both the '186 and '416 patents unenforceable due to IW's inequitable conduct. Intellect Wireless, Inc. v. HTC Corp., 910 F.Supp.2d 1056 (N.D.Ill.2012). That ruling was affirmed on appeal. Intellect Wireless, Inc. v. HTC Corp., 732 F.3d 1339 (Fed.Cir.2013). Specifically, Judge Hart found that Henderson filed a false Rule 131 Declaration³ with the Patent and Trademark Office (“PTO”) on February 9, 2007 in order to “swear behind” the priority date of another patent application, the “Albert patent,” which had a priority date of February 10, 1993. HTC Corp., 910 F.Supp.2d at 1073–74 ; (Op. at 5). The Declaration was submitted in the prosecution of a different patent—United States Patent number 7,257,210 (“ '210 patent”) —which is part of Henderson's larger patent family, and upon which the “picture claims” in the '186 and '416 patents directly depend. HTC Corp., 910 F.Supp.2d at 1065. In the Rule 131 Declaration, Henderson averred that his patent had priority because he had “conceived of the claimed invention prior to February 10, 1993 and did not abandon, suppress or conceal the invention from at least before February 10, 1993 to either an actual reduction to practice in July 1993 or to January 5, 1994, the filing date of this application” (Feb. 9, 2007 Rule 131 Decl., Ex. 1 to Dell's Mot. for Sanctions [228–1], hereinafter “Rule 131 Decl.,” ¶ 4), and that his invention “was actually reduced to practice and was demonstrated at a meeting with Kazuo Hashimoto of Hashimoto Corporation in July of 1993” through a “working prototype,” which transmitted a picture through a wireless network. (Rule 131 Decl. ¶ 9.)

The day after submitting the Rule 131 Declaration, Henderson e-mailed his patent prosecution attorney, Robert Tendler (who is not associated with the Niro firm), admitting that the affidavit was false: “I want to address what I perceive is a potentially lethal blow to the integrity and validity of my patent portfolio from the incorrect declaration faxed to the PTO on Friday.” (Henderson E-mail to Tendler, Feb. 10, 2007, Ex. 1 to Defs.' HP and Palm's Supplemental Auth. in Supp. of an Award of Fees against Atty's for IW [232–2], hereinafter “Henderson Feb. 10, 2007 E-mail.”) No evidence in the record explains what prompted Henderson's about-face, but he went on, stating that “the intellect device shown to Hashimoto in July 1993 HAD NO WAY of displaying a picture on a two line alphanumeric display, contrary to my recent inaccurate declaration.” (Henderson Feb. 10, 2007 E-mail.) (emphasis in original). Henderson expressed particular concern about the effect this false statement could have on subsequent enforcement litigation. He explicitly observed that “allegations of fraud on the patent office will now be the easiest way to invalidate the entire patent portfolio ... I fully expect that it will also introduce serious concerns for my litigation counsel.” (Id. ) Henderson directed Tendler to “contact Cliff Kraft at Niro's office to see what their take is on this development. As you suggested, it makes sense to discuss with them what they may recommend.” (Id. ) Tendler replied, counseling that the situation “is fixable with complete candor with the USPTO,” and suggesting that he and Henderson “address this on the phone” because “[t]here is no guarantee that this will not be discoverable.” (Tendler E-mail to Henderson, Feb. 10, 2007, Ex. 1 to Defs.' HP and Palm's Supplemental Auth. in Supp. of an Award of Fees against Atty's for IW [232–2].) As Judge Hart recounted, Henderson and Tendler neither withdrew the affidavit nor corrected the false representations. Instead, they made a “series” of false and obfuscating statements and repeated the inaccuracies in subsequent declarations. HTC Corp., 910 F.Supp.2d at 1073. The initial false Rule 131 Declaration was never withdrawn and remains part of the patent prosecution history. (See generally Excerpts from File History of U.S. Patent No. 7,257,210 [232–10], hereinafter “File History of '210 Patent.”)

On receiving Judge Hart's ruling, the court initially dismissed this case without prejudice on September 12, 2012, pending the Federal Circuit's resolution of the appeal. (See Sept. 12, 2012 Minute Entry [145].) That order was amended, in part, on October 10, 2012, with the following language: “Case will be dismissed with prejudice 30 days after a Federal Circuit decision affirming Judge Hart's ruling. In addition, Defendant will have leave to file a motion for an award of fees, if appropriate, 30 days after a ruling affirming Judge Hart's opinion.” (See Oct. 10, 2012 Minute Entry [150]; Oct. 11, 2012 Minute Entry [151].) The Federal Circuit issued its opinion on October 9, 2013, see Intellect Wireless, Inc. v. HTC Corp., 732 F.3d 1339 (Fed.Cir.2013), and on November...