Princeton Digital Image Corp. v. Office Depot Inc.

• Decision Date: 22 January 2019
• Docket Number: 2017-2632,2017-2597, 2017-2598, 2017-2630, 2017-2611, 2017-2628, 2017-2605, 2017-2600, 2017-2602, 2018-1006, 2017-2606, 2017-2634, 2017-2631, 2017-2627, 2017-2633, 2017-2612, 2017-2629, 2017-2609
• Citation: 913 F.3d 1342
• Parties: 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
• Court: U.S. Court of Appeals — Federal Circuit

913 F.3d 1342

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., DefendantsAdobe Inc., Defendant-Appellant

2017-2597

2017-2598

2017-2600

2017-2602

2017-2605

2017-2606

2017-2609

2017-2611

2017-2612

2017-2627

2017-2628

2017-2629

2017-2630

2017-2631

2017-2632

2017-2633

2017-2634

2018-1006

United States Court of Appeals, Federal Circuit.

Decided: January 22, 2019

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 conduct) that Adobe asserted were encompassed within PDIC’s waiver of attorney-client privilege.

PDIC cross appeals, contending that the district court erred in imposing two monetary sanctions on PDIC. The sanctions required PDIC to pay Adobe’s attorneys’ fees and costs in connection with (1) PDIC’s failure to timely answer Adobe’s complaint in intervention in one of PDIC’s infringement cases against an Adobe customer; and (2) PDIC’s failure to present a competent Rule 30(b)(6) witness for deposition.

DISCUSSION

Adobe contends that we have jurisdiction under 28 U.S.C. § 1295 because this is an appeal "from a final decision of a district court." Id. § 1295(a)(1). " Section 1295 ’s final judgment rule mirrors that of its counterpart found at 28 U.S.C. § 1291." Pause Tech. LLC v. TiVo Inc. , 401 F.3d 1290, 1292 (Fed. Cir. 2005) (quoting Nystrom v. TREX Co. , 339 F.3d 1347, 1350 (Fed. Cir. 2003) ). The central question is whether the judgment entered by the district court at Adobe’s request constitutes a final decision. We hold that it does not.

I

A

Generally, a final decision is a decision by the district court that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States , 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945). "If a ‘case is not fully adjudicated as to all claims for all parties,’ there is no ‘final decision’ and therefore no jurisdiction." Pandrol USA, LP v. Airboss Ry. Prods., Inc. , 320 F.3d 1354, 1362 (Fed. Cir. 2003) (quoting Syntex Pharm. Int’l, Ltd. v. K-Line Pharm., Ltd. , 905 F.2d 1525, 1526 (Fed. Cir. 1990) ).

At one time, several circuit courts recognized an exception to this rule, permitting an appeal from a denial of class certification if that denial sounded the "death knell" of the litigation. See Coopers & Lybrand v. Livesay , 437 U.S. 463, 469–70, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978), superseded on other grounds by rule as stated in Microsoft v. Baker , ––– U.S. ––––, 137 S.Ct. 1702, 1708–09, 198 L.Ed.2d 132 (2017). The rationale for this exception was that "without the incentive of a possible group recovery the individual plaintiff may find it economically imprudent to pursue his lawsuit to a final judgment and then seek appellate review of an adverse class determination." Id. Thus, under this doctrine, appealability turned on whether the plaintiff had an "adequate incentive to continue" litigating. Id. at 471, 98 S.Ct. 2454.

The Supreme Court in Coopers & Lybrand rejected the death knell doctrine. Id. at 476, 98 S.Ct. 2454. "[T]he fact that an interlocutory order may induce a party to abandon his claim before final judgment is not a sufficient reason for considering it a ‘final decision’ within the meaning of § 1291." Id. at 477, 98 S.Ct. 2454. Otherwise, many "other kinds of interlocutory orders" that "create the risk of a premature demise" of a plaintiff’s economic incentive to continue litigating would become appealable as a matter of right. Id. at 474, 98 S.Ct. 2454. The Court held that the order decertifying the plaintiffs’ class was not a final decision and therefore not appealable. Id. at 464–65, 98 S.Ct. 2454.

More recently, in Microsoft v. Baker , the Supreme Court again addressed appellate jurisdiction in the context of an adverse class determination. There, following the denial of class...