Ulead Systems v. Lex Computer & Management Corp.

• Decision Date: 22 January 2001
• Docket Number: No. CV 98-5880 DT(CTx).,CV 98-5880 DT(CTx).
• Citation: 130 F.Supp.2d 1137
• Court: U.S. District Court — Central District of California
• Parties: ULEAD SYSTEMS, INC., a California corporation, Plaintiff, v. LEX COMPUTER & MANAGEMENT CORP., a New Hampshire corporation, Defendant.

130 F.Supp.2d 1137

ULEAD SYSTEMS, INC., a California corporation, Plaintiff, v. LEX COMPUTER & MANAGEMENT CORP., a New Hampshire corporation, Defendant.

No. CV 98-5880 DT(CTx).

United States District Court, C.D. California.

January 22, 2001.

Jon E. Hokanson, Kenneth L. Wilton, Jill A. Schwartz, Small Larkin, LLP, Los Angeles, CA, for Ulead Systems, Inc.

Robert Jacobs, William H. Pavitt, Jr., Beehler & Pavitt, Culver City, CA, for Lex Computer & Managment Corp.

ORDER

GRANTING

ULEADS' (CALIFORNIA AND TAIWAN) JOINT MOTION NO. 1 FOR SUMMARY JUDGMENT OF UNENFORCEABILITY, INVALIDITY AND/OR EXPIRATION OF U.S. PATENT NO. 4,538,188

TEVRIZIAN, District Judge.

Background

A. Introduction

This action is brought by Plaintiff Ulead Systems, Inc., a California corporation, ("Ulead") against Defendant Lex Computer & Management Corp. ("Lex") for Declaratory Judgment of Non-Infringement, Invalidity and Unenforceability of U.S. Patent No. 4,538,188. Plaintiff and Counter-Defendant Ulead-California and Cross-Defendant and Counter-Claimant Ulead-Taiwan in Motion No. 1 for Summary Judgment of Unenforceability, Invalidity and/or Expiration of U.S. Patent No. 4,538,188 jointly move the Court for an order pursuant to Rule 56 of the Federal Rules of Civil Procedure granting Summary Judgment on their respective claims for a judicial declaration that U.S. Patent No. 4,538,188 (the "'188 Patent") is unenforceable and/or invalid due to the inequitable conduct of Defendant, Counter-Claimant, Cross-Claimant and Counter-Defendant Lex and its President, lead counsel, and sole shareholder, Simon V. Haberman, and is expired due to Lex's failure to pay the maintenance fees required under 35 U.S.C. § 41(b) and (c).

B. Factual Summary of Complaint

The following facts are alleged in Plaintiff Ulead's Complaint:

Plaintiff Ulead imports, uses and sells personal computer-implemented software products. See, Complaint at ¶ 6. Among the products offered by Ulead is one known as MediaStudio Pro. Id. The MediaStudio Pro software is used to manage and manipulate sound and image files that are stored in digital form and that have been pre-addressed prior to any manipulation by the MediaStudio Pro software. Id.

Defendant Lex is believed to be the owner of the entire right, title and interest in and to United States Patent 4,538,188 ("the '188 Patent"), entitled "Video Composition Method and Apparatus." The '188 Patent is directed to the manipulation of video and sound images that are stored in analog form on video tape and have not been pre-addressed prior to any manipulation by the patented apparatus and/or method. Id. at ¶ 7. Beginning in May 1997 and continuing to the present Lex has asserted that Ulead's sale, manufacture, use and/or leasing of its MediaStudio Pro software infringes the '188 Patent. Id. at ¶ 8. Plaintiff Ulead denies that its sale or use of the MediaStudio Pro software, challenged by Lex, infringes the '188 Patent and denies that it manufactures and/or leases the MediaStudio Pro software in the United States. Plaintiff Ulead also believes and alleges the '188 Patent is invalid and/or unenforceable. As a result, Ulead does not intend to cease the use of sale of the MediaStudio Pro software. Id. at ¶ 9.

Plaintiff Ulead alleges that there currently exists an actual and justiciable controversy over Ulead's right to continue to use and sell the MediaStudio Pro software that Lex claims infringes its alleged patent. As such, Plaintiff Ulead alleges that it is entitled to a declaratory judgment that its MediaStudio Pro software does not infringe the '188 Patent and/or that the '188 Patent is invalid and/or unenforceable. Id. at ¶ 10.

C. The Following Facts are Undisputed for Purposes of Motion No. 1 for Summary Judgment.¹

Simon V. Haberman is the President, director, and sole shareholder of Lex. See, Ulead's Statement of Uncontroverted Facts at ¶ 1.

Simon V. Haberman is a practicing attorney, licensed to practice law since 1950, and specializing in real estate and intellectual property law. See, Haberman Tr. at 125:3-13. Mr. Haberman failed the U.S. Patent Exam. See, Haberman Tr. at 158: 11; see also, Lex's Statement of Genuine Issues at ¶ 2.

Mr. Haberman has asserted himself as lead counsel in this patent case, and, inter alia, a related case for patent infringement filed by Lex in New York. See, Ulead's Statement of Uncontroverted Facts at ¶ 3.

Mr. Haberman has studied for and taken the patent bar examination. Prior to taking the patent bar examination, Haberman twice, once in 1995 and once in 1997, took a patent review course offered by the Practicing Law Institute ("PLI"). Id. at ¶ 4; Haberman Tr., 156:13-21.

The PLI courses taken by Haberman had written course material that covered maintenance fees, including the payment of "small entity" fees if the patent owner qualifies as a small business entity. See, Id. at ¶ 5; see also, Lex's Statement of Genuine Issues at ¶ 5; Haberman Tr. at 158:12-23, 159:18-21, 192:20-25.

Irving Weiner ("Weiner"), a patent attorney registered to practice before the United State Patent and Trademark Office ("PTO"), is responsible for maintaining the '188 Patent, including paying the maintenance fees due on the patent. See, Id. at ¶ 6; Haberman Tr. 191:10-192:15. Mr. Weiner knows that Lex is in the business of licensing its patents, including the '188 Patent. See, Haberman Tr. 189:3-6.

Lex's sole business is to license its patents and collect royalties; it does not manufacture, distribute or sell any products. See, Ulead's Statement of Uncontroverted Facts at ¶ 11; Haberman Tr., 80:10-25; 168:16-172:4; 215:1-5.

Lex's licensing program yielded twenty-one licenses by the summer of 2000 [the individual licenses are described in Paragraphs 14-39]. See, Ulead's Statement of Uncontroverted Facts at ¶ 12; see also, Hokanson Decl., Exhs. 520-540.

Haberman signed each of these licenses on behalf of Lex, and is familiar with the companies to which the '188 Patent has been licensed. See, Ulead's Statement of Uncontroverted Facts at ¶ 13; Haberman Tr. 185:22-24; 186:2-7.

Lex delegated the responsibility to pay the maintenance fees for the '188 Patent to its patent counsel, Irving Weiner. See, Ulead's Statement of Uncontroverted Facts at ¶ 40.

Weiner, on behalf of Lex, petitioned the PTO to accept "unintentionally delayed payment of maintenance fee" in an effort to reinstate the '188 Patent. See, Id. at ¶ 42.

In the Petition, Lex took the position that it qualified as a small entity and submitted a Verified Statement signed by Haberman asserting Lex's status as a small entity. See, Id. at ¶ 43. In the Petition, Lex did not identify its licensees. See, Id. at ¶ 44.

Haberman read the declaration, declaring that Lex "qualifies as a small business concern as defined in 13 C.F.R. § 121.3-18, and reproduced in 37 C.F.R. § 1.9(d), for purposes [sic] of paying reduced fees under section 41(a) and (b) of Title 25, United States Code ...," agreed with it, and signed it. Haberman did not read 37 C.F.R. § 1.9(d) prior to signing the declaration. It is Lex's opinion (as of January 8, 2000) that it qualifies as a small entity. See, Id. at ¶¶ 45-46; Haberman Tr. 201:8-15, 202:12-19; 206:10-18; 210:14-216; 217:15-218:10.

Lex delegated the responsibility to pay the maintenance fees for the '188 Patent to its patent counsel, Irving Weiner. See, Id. at ¶ 40. Weiner, on behalf of Lex, petitioned the PTO to accept "unintentionally delayed payment of maintenance fee" in an effort to reinstate the '188 Patent. See, Id. at ¶ 42. In the Petition, Lex took the position that it qualified as a small entity and submitted a Verified Statement signed by Haberman asserting Lex's status as a small entity. See, Id. at ¶ 43. In the Petition, Lex did not identify its licensees. See, Id. at ¶ 44.

Weiner failed to pay the 12th year maintenance fee for the '188 Patent. See, Id. at ¶ 35. On October 5, 1998, Weiner, on behalf of Lex, submitted a second petition to accept "unintentionally delayed payment of maintenance fee" to the PTO. See, Id. at ¶ 50. Weiner asserted in the Petition that "[a] verified statement establishing small entity status for this patent was filed November 2, 1993. It is confirmed that the small entity status for this patent has been checked and is still in effect." See, Id. at ¶ 51. Lex does not recall having any discussions with Weiner prior to the payment of the 12th year maintenance fee for the '188 Patent, and Weiner and Haberman have never discussed the issue of small entity/large entity status or whether the licensing of the '188 Patent affected whether Lex had an exclusive right in the '188 Patent. See, Id. at ¶ 52. The PTO accepted Lex's second petition to accept "unintentionally delayed payment of maintenance fee" and reinstated the '188 Patent. See, Id. at ¶ 53.

Lex has claimed small entity status with regard to all nine of the patents it owns even though Lex and Haberman believe that Microsoft, Sony, Matsushita, Hitachi, Adobe, Macromedia, Avid and Tectronix, all licensees of Lex, employ over 500 people. Haberman Tr. 218:11-21; 230:24-231:25; Exh. 42. As a result, Lex has saved approximately $25,000 in maintenance fees over the past ten years. See, Id. at ¶ 54; Hokanson Decl. at ¶ 14.

D. Procedural History

On July 21, 1998, Plaintiff Ulead filed its Complaint.

On April 7, 1999, Defendant and Counter-Claim Plaintiff Lex filed an Answer and Counter-Claim. In the Counter-Claim, Lex asserts a claim for patent infringement against Ulead.

On April 29, 1999, Plaintiff and Counter-Claim Defendant Ulead filed its Answer to the Counter-Claim.

On April 7, 2000, Defendant and Counter-Claim Plaintiff Lex filed a Motion to Join Ulead-Taiwan and to Continue Discovery Cutoff and Pre-Trial Dates, which was denied without prejudice by this Court.

On June 26, 2000, Lex filed the Renewed Motion to Join Ulead-Taiwan as an Indispensable Party and to Continue Discovery Cutoff and Pre-Trial Dates, which this Court...