Landmark Screens, LLC v. Morgan, Lewis, & Bockius, LLP

• Decision Date: 23 April 2012
• Docket Number: No. 2011–1297.,2011–1297.
• Citation: 102 U.S.P.Q.2d 1521,676 F.3d 1354
• Parties: LANDMARK SCREENS, LLC, Plaintiff–Appellant, v. MORGAN, LEWIS, & BOCKIUS, LLP, and Thomas D. Kohler, Defendants–Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

102 U.S.P.Q.2d 1521

676 F.3d 1354

LANDMARK SCREENS, LLC, Plaintiff–Appellant,

v.MORGAN, LEWIS, & BOCKIUS, LLP, and Thomas D. Kohler, Defendants–Appellees.

No. 2011–1297.

United States Court of Appeals, Federal Circuit.

April 23, 2012.

40,953. Cited.

Sanford Jay Rosen, Rosen, Bien & Galvan, LLP, of San Francisco, CA, argued for plaintiff-appellant. With him on the brief was Clark S. Stone, Haynes and Boone, LLP, of San Jose, CA.

Elliot R. Peters, Keker & Van Nest, of San Francisco, CA, argued for defendants-appellees. With him on the brief were Daniel E. Jackson and Steven P. Ragland.

Before BRYSON, CLEVENGER, and O'MALLEY, Circuit Judges.

Opinion for the court filed by Circuit Judge CLEVENGER. Concurring opinion filed by Circuit Judge O'MALLEY.

CLEVENGER, Circuit Judge.

Landmark Screens, LLC (“Landmark”) appeals from the final decision of the United States District Court for the Northern District of California dismissing its state law fraud claim against Morgan, Lewis & Bockius (“MLB”) and Thomas D. Kohler (“Kohler”). Landmark Screens, LLC v. Morgan Lewis & Bockius, LLP, No. 5:08–cv–02581, 2011 WL 482771 (N.D.Cal. Feb. 7, 2011) (hereafter “ Dismissal Order ”). Granting summary judgment to the defendants, the district court dismissed Landmark's complaint on the grounds that it was filed out of time under the relevant California statute of limitations and that Landmark's timeliness error was not correctible in equity. In addition, the court issued a partial summary judgment order, the effect of which would have been to limit damages available to Landmark had its complaint been both timely and successful. Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP, No. 5:08–cv–02581, 2010 WL 3629816 (N.D.Cal. Sept. 14, 2010) (hereafter “ Damages Order ”). For the reasons set forth below, we reverse the judgment dismissing the complaint because under California equitable tolling law, the state law fraud claim was timely filed in the United States district court. Further, because the record does not support the district court's manner of summarily limiting damages, we vacate the Damages Order and remand the case for trial on the fraud claim.

I

This case concerns Landmark's invention of a light-emitting diode (“LED”) electronic billboard. According to Landmark, the billboard's large size, high-quality images, and brilliance make it particularly effective for display advertising, and the ability to provide content in digital format reduces costs and time-to-market for advertisers. To protect its ability to develop and market its invention, Landmark retained Kohler to prepare and file a patent application. At the time, Kohler was a partner at Pennie & Edmonds LLP (“Pennie”).

On January 9, 2002, Kohler filed U.S. Patent Application No. 10/045,096 (“the '096 application”) on Landmark's behalf. The '096 application included 72 claims covering different aspects of Landmark's LED invention. In May 2003, the United States Patent and Trademark Office (“PTO”) informed Kohler that, in its view, Landmark's application contained multiple inventions. The PTO then asked Landmark to restrict the '096 application to one of the following four inventions: (1) claims 26–31 and 56–72, “drawn to an led [sic] having a threshold operator,” (2) claims 32–39, “drawn to calibrating a display and mapping the digital image,” (3) claims 40–55, “drawn to detecting absence of a second image and inputting a default image,” and (4) claims 1–25, “drawn to selecting a color gamut.” On May 5, 2003, Kohler elected to pursue claims 26–31 and 56–72 and withdrew the remaining claims. It appears undisputed that both Kohler and Landmark intended that the withdrawn claims would be timely pursued via one or more divisional applications, which would presumably benefit from the '096 application's filing date. However, that is not how the story unfolded.

Shortly after this, on July 10, 2003, the PTO published the '096 application. As discussed below, this publication would later create serious problems for Kohler and Landmark due to the printed publication rule of 35 U.S.C. § 102(b).

On August 13, 2003, Kohler submitted a divisional application to the PTO, and it was assigned Application No. 10/640,916 (“the '916 divisional application”). However, in filing the '916 divisional application, Kohler made two mistakes that left the application incomplete: (1) he failed to include copies of required drawings and specifications, and (2) his transmittal letter failed to incorporate by reference materials filed earlier with the original ' 096 application. Kohler also did not use the PTO's “postcard receipt” method, which would have enabled prompt notification when the PTO noticed deficiencies in the application.

It was not until June 22, 2004, that the PTO issued a Notice of Incomplete Nonprovisional Application, stating that the '916 divisional application was missing the required specification and therefore had not yet been granted a filing date. By this time, Kohler had left Pennie and was practicing law at MLB, with Landmark as a client of the firm. Neither Kohler nor any other MLB attorney took action for several weeks, and the one-year anniversary of the ' 096 application's publication passed on July 10, 2004. As a result, Landmark's own '096 application became prior art against the '916 divisional application under 35 U.S.C. § 102(b). Unless the PTO could be convinced to give the ' 916 divisional application the benefit of an earlier filing date, all claims in the '916 divisional application would be lost.

In mid-July 2004, Kohler discussed the matter with his partners at MLB and the attorneys representing Pennie, but none of these attorneys apprised Landmark of the situation. On August 23, 2004, Kohler filed the papers necessary to complete the '916 divisional application, along with a petition to grant it the original filing date of August 13, 2003. The PTO dismissed the petition for “failure to exercise due care, or lack of knowledge of, or failure to properly apply, the patent statutes or rules of practice” and granted the '916 divisional application a filing date of August 23, 2004, i.e., the date on which Kohler finally corrected the application.

For the reasons discussed above, this was a devastating outcome for Landmark. Nevertheless, neither Kohler nor MLB divulged the true nature or seriousness of the problem for another six months. Landmark states that the first time it could have had any inkling that there were problems with its '916 divisional application was in late December 2004, when a Landmark official telephoned Kohler to get a status report. Kohler told the Landmark official, without explanation, that the claims in the '916 divisional application were “lost” but assured Landmark that the firm was working to salvage the claims. Even then, Landmark states that Kohler and MLB actively misled it by falsely telling Landmark that there was a possibility of fixing the problem. Finally, in November 2005, Landmark fired Kohler and MLB.

On November 30, 2005, Landmark filed suit against Kohler, Pennie, and MLB in the Superior Court for Santa Clara, California, alleging legal malpractice, negligence, and breach of fiduciary duty. In March 2008, Landmark reached a settlement with Pennie and a partial settlement with Kohler, concerning his actions while he was a Pennie lawyer, and the California state court dismissed Landmark's claims against them. On April 28, 2008, MLB and Kohler filed a demurrer and asked the court to dismiss the suit against them.

On May 21, 2008, the California state court dismissed Landmark's claims against MLB and Kohler as a MLB lawyer for lack of subject matter jurisdiction. Citing Immunocept, LLC v. Fulbright & Jaworski, LLP, 504 F.3d 1281 (Fed.Cir.2007), and Air Measurement Technologies, Inc. v. Akin Gump Strauss Hauer & Feld, L.L.P., 504 F.3d 1262 (Fed.Cir.2007), the court reasoned that the federal courts had exclusive jurisdiction over this case as its resolution depended on a substantial question of patent law.

The same day that the California state court dismissed the action, Landmark filed a complaint in the United States District Court for the Northern District of California, making the same claims as in the state court action and adding a cause of action for breach of contract arising out of the same facts. On June 11, 2008, Landmark filed an amended complaint that included all previous claims and added a claim for actual fraud. Over the next two years the district court dismissed all of Landmark's claims except its fraud claim as barred by California's one-year statute of limitations governing any action for legal malpractice. Landmark does not appeal these rulings.

As to the fraud claim, the parties continued to litigate. Under California law, the elements of fraud are: “(1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.” Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 22 Cal.Rptr.3d 352, 102 P.3d 268, 274 (2004). Landmark asserted that the following conduct by Kohler and MLB constituted fraud: concealment of the June 22, 2004, notice from the PTO rejecting the '916 divisional application, malpractice committed in filing the '916 divisional application, and defendants' improper course of action in seeking correction of its malpractice. Dismissal Order at 4. Landmark alleged that such fraud damaged it because, absent the fraud, competent counsel could have prosecuted a divisional application in time to avoid the adverse prior art effect of 35 U.S.C. § 102(b). On September 14, 2010, the district court entered partial summary judgment as to damages on the fraud claim, limiting the possible recovery that Landmark might obtain at trial were it to succeed on the merits of its fraud claim. Damages Order at 10. We will return to the ...