Opinion
Case No. 6:07-CV-113-JDK
07-29-2019
I4I LIMITED PARTNERSHIP and Infrastructures for Information, Inc., Plaintiffs, v. MICROSOFT CORPORATION, Defendant.
Samuel Franklin Baxter, McKool Smith, Marshall, TX, Andrew Thompson (Tom) Gorham, Gillam & Smith LLP, Tyler, TX, Bradley Wayne Caldwell, Christopher S. Stewart, Daniel R. Pearson, John Austin Curry, Caldwell Cassady & Curry, PC, Dallas, TX, Charles Ainsworth, Robert Christopher Bunt, Robert M. Parker, Parker, Bunt & Ainsworth, P.C., Tyler, TX, Douglas A. Cawley, Gretchen H. Kleinman, Jeffrey A. Carter, Jennifer Lynn Henry, Jill Frances Lynch, Jonathan Randy Yim, Mike McKool, Thomas Guy Fasone, III, McKool Smith PC, Dallas, TX, Erick Scott Robinson, Dunlap Bennett & Ludwig PLLC, Houston, TX, John Bruce Campbell, Jr., Kevin Lee Burgess, Travis Gordon White, McKool Smith, PC, Austin, TX, Martin C. Robson, III, Charhon, Callahan, Robson & Garza PLLC, Dallas, TX, Thomas John Ward, Jr., Ward, Smith & Hill, PLLC, Longview, TX, for Plaintiffs. Matthew Douglas Powers, Tensegrity Law Group, LLP, Redwood Shores, CA, Amber Lee Hagy, Greenberg Traurig, LLP, Austin, TX, Ameet A. Modi, Cosmin Maier, John M. Desmarais, Joze F. Welsh, Desmarais LLP, New York, NY, Andrew Culbert, Pro Hac Vice, Isabella Fu, Microsoft Corporation, Redmond, WA, Ariane Nicole Newell, Pro Hac Vice, David Jason Lender, Lucy Muzzy, Weil Gotshal & Manges LLP, New York, NY, Cabrach John Connor, Kevin Sean Kudlac, Todd S. Patterson Connor Kudlac Lee PLLC, Austin, TX, Eric Hugh Findlay, Roger Brian Craft, Findlay Craft PC, Tyler, TX, Melissa Richards Smith, Gillam & Smith, LLP, Marshall, TX, Norma N. Bennett, McFall, Breitbeil & Eidman, P.C., Houston, TX, Paul E. Torchia, Steven Michael Kalogeras, Pro Hac Vice, Gibson Dunn & Crutcher, LLP, New York, NY, Samuel Franklin Baxter, McKool Smith, Marshall, TX, Jeffrey A. Carter, McKool Smith PC, Dallas, TX, for Defendant.
Samuel Franklin Baxter, McKool Smith, Marshall, TX, Andrew Thompson (Tom) Gorham, Gillam & Smith LLP, Tyler, TX, Bradley Wayne Caldwell, Christopher S. Stewart, Daniel R. Pearson, John Austin Curry, Caldwell Cassady & Curry, PC, Dallas, TX, Charles Ainsworth, Robert Christopher Bunt, Robert M. Parker, Parker, Bunt & Ainsworth, P.C., Tyler, TX, Douglas A. Cawley, Gretchen H. Kleinman, Jeffrey A. Carter, Jennifer Lynn Henry, Jill Frances Lynch, Jonathan Randy Yim, Mike McKool, Thomas Guy Fasone, III, McKool Smith PC, Dallas, TX, Erick Scott Robinson, Dunlap Bennett & Ludwig PLLC, Houston, TX, John Bruce Campbell, Jr., Kevin Lee Burgess, Travis Gordon White, McKool Smith, PC, Austin, TX, Martin C. Robson, III, Charhon, Callahan, Robson & Garza PLLC, Dallas, TX, Thomas John Ward, Jr., Ward, Smith & Hill, PLLC, Longview, TX, for Plaintiffs.
Matthew Douglas Powers, Tensegrity Law Group, LLP, Redwood Shores, CA, Amber Lee Hagy, Greenberg Traurig, LLP, Austin, TX, Ameet A. Modi, Cosmin Maier, John M. Desmarais, Joze F. Welsh, Desmarais LLP, New York, NY, Andrew Culbert, Pro Hac Vice, Isabella Fu, Microsoft Corporation, Redmond, WA, Ariane Nicole Newell, Pro Hac Vice, David Jason Lender, Lucy Muzzy, Weil Gotshal & Manges LLP, New York, NY, Cabrach John Connor, Kevin Sean Kudlac, Todd S. Patterson Connor Kudlac Lee PLLC, Austin, TX, Eric Hugh Findlay, Roger Brian Craft, Findlay Craft PC, Tyler, TX, Melissa Richards Smith, Gillam & Smith, LLP, Marshall, TX, Norma N. Bennett, McFall, Breitbeil & Eidman, P.C., Houston, TX, Paul E. Torchia, Steven Michael Kalogeras, Pro Hac Vice, Gibson Dunn & Crutcher, LLP, New York, NY, Samuel Franklin Baxter, McKool Smith, Marshall, TX, Jeffrey A. Carter, McKool Smith PC, Dallas, TX, for Defendant.
ORDER DENYING PLAINTIFFS' MOTIONS
JEREMY D. KERNODLE, UNITED STATES DISTRICT JUDGE This is a patent infringement case that was closed almost ten years ago. Plaintiffs i4i Limited Partnership and Infrastructures for Information, Inc. (collectively, "i4i") want to reopen the case and initiate contempt proceedings against Defendant Microsoft Corporation. Docket No. 444; Docket No. 445. i4i is not certain, but thinks it likely that Microsoft violated one aspect of the Court's 2010 Injunction—an injunction that expired on July 28, 2015. Microsoft denies violating the Injunction and opposes the motions. The Court heard oral argument on the matter on June 26, 2019.
For the reasons stated herein, the Court DENIES i4i's motions.
FACTUAL BACKGROUND
A.
i4i sued Microsoft for patent infringement on March 8, 2007. Docket No. 1. i4i alleged that a certain use of Microsoft Word 2003 and Word 2007—processing "XML documents" with "custom XML elements"—infringed U.S. Patent No. 5,787,449. Id. at ¶¶ 7–8.
After a seven-day trial in May 2009, the jury found that Microsoft's Word 2003 and Word 2007 products willfully infringed the '449 Patent. The jury awarded i4i $200 million in compensatory damages for all past infringing sales and uses. Docket No. 326. On August 11, 2009, the Court awarded i4i enhanced damages of $40 million for Microsoft's willful infringement, additional compensatory damages covering the period from May 21, 2009, to August 11, 2009, and approximately $37 million in pre-judgment interest. Docket No. 414.
The Court also issued a Permanent Injunction enjoining future sales and uses of infringing products or features. Docket No. 413. The Court adopted i4i's proposed injunction in its entirety with the "additional exception that Microsoft is permitted to provide support or assistance regarding the XML functionality to anyone purchasing the infringing WORD products before the injunction takes effect." Docket No. 412.
The Injunction states in full:
PERMANENT INJUNCTION
In accordance with the Court's contemporaneously issued memorandum opinion and order in this case, Microsoft Corporation is hereby permanently enjoined from performing the following actions with Microsoft Word 2003, Microsoft Word 2007, and Microsoft Word products not more than colorably different from Microsoft Word 2003 or Microsoft Word 2007 (collectively "Infringing and Future Word Products") during the term of U.S. Patent No. 5,787,449 :
1. selling, offering to sell, and/or importing in or into the United States any Infringing and Future Word Products that have the capability of opening a .XML, .DOCX, or .DOCM file ("an XML file") containing custom XML;
2. using any Infringing and Future Word Products to open an XML file containing custom XML;
3. instructing or encouraging anyone to use any Infringing and Future Word Products to open an XML file containing custom XML;
4. providing support or assistance to anyone that describes how to use any infringing and Future Word Products to open an XML file containing custom XML; and
5. testing, demonstrating, or marketing the ability of the Infringing and Future Word Products to open an XML file containing custom XML.
This injunction does not apply to any of the above actions wherein the Infringing and Future Word Products open an XML file as plain text.
This injunction also does not apply to any of the above actions wherein any of the Infringing and Future Word Products, upon opening an XML file, applies a custom transform that removes all custom XML elements.
This injunction further does not apply to Microsoft providing support or assistance to anyone that describes how to use any of the infringing products to open an XML file containing custom XML if that product was licensed or sold before the date this injunction takes effect.
This injunction becomes effective 60 days from the date of this order.
So ORDERED and SIGNED this 11th day of August, 2009.
Docket No. 413.
The Injunction took effect on January 11, 2010, and expired on July 28, 2015, upon expiration of the '449 Patent. See i4i Ltd. P'ship v. Microsoft Corp. , 598 F.3d 831, 861–64 (Fed. Cir. 2010), aff'd , 564 U.S. 91, 131 S.Ct. 2238, 180 L.Ed.2d 131 (2011) ; see Docket No. 445 at 3.
On appeal, the Federal Circuit upheld the Judgment, including the Injunction, and the Supreme Court affirmed. See i4i Ltd. P'ship , 598 F.3d at 864, aff'd , 564 U.S. at 131, 131 S.Ct. 2343.
B.
The present dispute centers on the Injunction's first prohibition, which enjoined Microsoft from "selling, offering to sell, and/or importing in or into the United States any Infringing and Future Word Products that have the capability of opening a .XML, .DOCX, or .DOCM file (‘an XML file’) containing custom XML." Docket No. 413.
i4i concedes that Microsoft took some steps to comply with this part of the Injunction. i4i does not dispute, for example, that before the Injunction took effect Microsoft redesigned Word to remove the infringing features. Docket No. 445 at 5. Thus, customers buying Word 2003 or Word 2007 at a retail store did not purchase infringing software once retailers restocked their shelves with the redesigned product. Docket No. 445 at 1; Docket No. 457-6.
Nor does i4i dispute that Microsoft notified its "enterprise customers" about the Injunction. Enterprise customers do not buy software at the retail level, but receive certain physical media (CDs or DVDs) or download software, install copies of the software onto their employees' computers as needed, and then pay for those copies on an installment or subscription basis. Docket No. 445 at 1; Docket No. 457 at 6. A week before the Injunction took effect, in January 2010, Microsoft emailed its U.S. enterprise customers about the Injunction and instructed them that, under the terms of their license agreements with Microsoft, the customers "must use updated software" for "any future deployment of Microsoft Word 2003 and 2007 or Microsoft Office 2003 and 2007." See Docket No. 445-7; Docket No. 457-4. The "updated software" was a redesigned or patched software without the infringing features (hereinafter "the Patch"). Docket No. 457 at 4; Docket No. 445 at 1. Six months later, on June 15, 2010, Microsoft also released the next edition of Word—Word 2010—without any of the infringing features. Docket No. 457 at 1, 4; Docket No. 457-5 at 3.
Enterprise customers are typically corporations, government entities, academic institutions, and other large organizations. Docket No. 454; Docket No. 454-15.
In time, however, i4i became concerned about Microsoft's compliance with the Injunction. For one thing, i4i's expectations to recapture market share lost to Microsoft never materialized. i4i had developed a "new plug-in that would add its patented XML functionality back into Word versions from which Microsoft had removed it." Docket No. 445 at 3; Docket No. 445-1. But the new plug-in "gained little traction in the market," and i4i was forced to "transition[ ] its business away from custom XML entirely." Id. at 3–4. i4i began to suspect that enterprise customers were not installing the Patch and were continuing to deploy and pay Microsoft licensing fees for the enjoined software. Id. at 4. i4i launched an "initial investigation," and in September 2015—two months after the Injunction expired—i4i wrote Microsoft asking for "payment of royalties" for "infringing copies of Word [sold] to Microsoft's enterprise customers" who did not install the Patch. Id. ; Docket No. 445-6. A few months later, in May 2016, i4i stated in a second letter to Microsoft that "we have no doubt that Microsoft sold many infringing Word products" after the effective date of the Injunction, and proposed $15 million to "settle this matter." Docket No. 457-12 at 2. Microsoft denied making any sales that violated the Injunction. See Docket No. 457 at 5; Docket No. 445-6.
Nearly three years later, on March 25, 2019, i4i filed the instant motions. i4i's first motion asks to reopen the case to initiate contempt proceedings and allow post-judgment discovery under Federal Rule of Civil Procedure 69(a)(2). Docket No. 444. The second motion seeks an order "directing Microsoft to show cause why it should not be held in contempt, and for post-judgment discovery under FRCP 69(a)(2)." Docket No. 445. The motions assert that Microsoft's efforts to comply with the Injunction "were woefully inadequate" and that "enjoined sales to enterprise customers likely continued after the [effective date of the] Injunction." Id. at 1, 3.
i4i's motions focus on two key aspects of Microsoft's compliance: Subscription Licenses and the Patch.
Subscription Licenses . i4i argues that, in January 2010, Microsoft advised some enterprise customers that they "did not have to install the Patch on certain copies of Word that, according to i4i's investigation, absolutely needed to be patched for Microsoft to comply with the Injunction." Id. at 5–6. Indeed, Microsoft's 2010 email notice stated that customers who had already purchased Word through a subscription license agreement did not need to install the Patch. Id. at 6; Docket No. 445-7. i4i claims that these customers should have installed the Patch because some of them may have continued making payments after the Injunction took effect. Docket No. 445 at 6–7. As a result, i4i asserts, "[a]ny payments made during the multi-year [subscription license] term after the Injunction Date would be new sales" violating the Injunction. Id. at 6.
The Patch . i4i also contends that Microsoft "did not enforce installation of the Patch even for customers [that Microsoft] acknowledged needed it." Id. at 7–9. The parties agree that enterprise customers were required to install the Patch if they (1) deployed and paid for additional copies of Word after the effective date of the Injunction ("True Ups") or (2) paid for the right to downgrade to a previous version of Word ("Downgrade Rights") when those Word versions included the infringing features. Docket No. 445 at 6–7; Docket No. 457 at 6. i4i contends, however, that Microsoft "barely encouraged" installation of the Patch for these customers, failed to characterize the Patch as a "critical update," and did not refuse payment from any customer who did not install the Patch. Id. at 7–9. i4i submitted the declaration of Josef Hans Lara, a "Senior Software Licensing Consultant," who stated:
In my opinion, because the Injunction Patch was only announced a few days before the injunction took effect, because the Patch actually degraded customers' software, because it was not listed as a critical update, and because of the frequency of True Up deployments in large companies, it is almost certain that at least some Microsoft enterprise customers deployed new True Up copies of Word 2003 or 2007 after the date of the injunction and without the Injunction Patch.
Docket No. 445-2 at ¶ 14; Docket No. 445-3. Mr. Lara also opined that "I know that Microsoft has the ability to determine whether any of the above occurred." Docket No. 445-2 at ¶ 16.
Microsoft responds that it fully complied with the Injunction and denies making any sales in violation of the Injunction. Docket No. 457.
LEGAL BACKGROUND
Violating an injunction in a patent case harms the patent owner and is "an affront to the court for failure to obey its order." E.g., KSM Fastening Sys., Inc. v. H.A. Jones Co., Inc. , 776 F.2d 1522 (Fed. Cir. 1985), overruled on other grounds by TiVo Inc. v. EchoStar Corp. , 646 F.3d 869 (Fed. Cir. 2011) (en banc); Fiber Sys. Int'l, Inc. v. Applied Optical Sys., Inc. , 2009 WL 10657667 (E.D. Tex. Dec. 30, 2009). A violator may be held in civil contempt, subject to penalties, and required to compensate the injured party, including for profits and expenses. See, e.g. , Leman v. Krentler-Arnold Hinge Last Co. , 284 U.S. 448, 456–57, 52 S.Ct. 238, 76 L.Ed. 389 (1932) ; Merial Ltd. v. Cipla Ltd. , 2011 WL 2489753, at *16 (M.D. Ga. June 21, 2011), aff'd , 681 F.3d 1283 (Fed. Cir. 2012) ; Gutierrez v. CogScreen, LLC , 2018 WL 6499374, at *8 (W.D. Tenn. Mar. 26, 2018) ; see generally 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure: Civil § 2960 (3d ed. 2017). The Federal Circuit has held that "[c]ontempt proceedings are generally summary in nature and may be decided by the court on affidavits and exhibits without the formalities of a full trial." KSM Fastening Sys., Inc. , 776 F.2d at 1524 (citing 11 Wright & Miller, supra , at 591). "[L]ack of intent to violate an injunction alone cannot save an infringer from a finding of contempt." TiVo , 646 F.3d at 880 ; cf. id. ("[G]ood faith efforts to comply with [an] injunction ... may be considered in assessing penalties.").
The Federal Circuit has expressly held that the "criteria for adjudicating a violation of a prohibition against continued infringement by a party whose products have already been adjudged to be infringing is a matter of Federal Circuit law." TiVo , 646 F.3d at 881.
Nevertheless, the Supreme Court has long held that the "[p]rocess of contempt is a severe remedy, and should not be resorted to where there is fair ground of doubt as to the wrongfulness of the defendant's conduct." Cal. Artificial Stone Paving Co. v. Molitor , 113 U.S. 609, 618, 5 S.Ct. 618, 28 L.Ed. 1106 (1885) ; see also TiVo , 646 F.3d at 881–82. For this reason, not every allegedly injured party is entitled to reopen a case and initiate a contempt proceeding. See TiVo , 646 F.3d at 880–82. Rather, a party must present "a detailed accusation ... setting forth the alleged facts constituting the contempt." Id. at 881. The decision whether to hold a contempt proceeding is "left to the broad discretion of the trial court to be answered based on the facts presented." Id. (citing Additive Controls & Measurement Sys., Inc. v. Flowdata, Inc. , 154 F.3d 1345, 1349 (Fed. Cir. 1998) ). The movant "bears the burden of proving violation of the injunction by clear and convincing evidence." Id. at 883.
TiVo overruled KSM , which had set forth a "two-step inquiry in finding a defendant in contempt of an injunction in patent infringement cases." TiVo , 646 F.3d at 880 (citing KSM , 776 F.2d at 1530–32 ). The first step in KSM required the district court to determine whether "a contempt hearing is an appropriate setting in which to adjudge infringement" by, among other things, "comparing the accused product with the adjudged infringing product." Id. But TiVo held that this step "confuses the merits of the contempt with the propriety of initiating contempt proceedings." Id. "As a result, we will telescope the current two-fold KSM inquiry into one, eliminating the separate determination whether contempt proceedings were properly initiated," and instead leave it to the "broad discretion of the trial court" to determine whether to initiate contempt proceedings "based on the facts presented." Id.
Both parties here agree that i4i must present "a detailed accusation ... setting forth the alleged facts constituting the contempt" in order to reopen this case and initiate a contempt proceeding against Microsoft. See Docket No. 445 at 15 (citing TiVo , 646 F.3d at 881 ); Docket No. 457 (citing id. ); Docket No. 458 at 2–3 (discussing the application of TiVo 's "detailed accusation" standard). During oral argument, i4i appeared to modify its position. It argued that, under Cardell Financial Corp. v. Suchodolski Associates, Inc. , 2012 WL 12932049 (S.D.N.Y. July 17, 2012), and Blackberry Ltd. v. Typo Products LLC , 2014 WL 4136586 (N.D. Cal. Aug. 21, 2014), the Court could reopen the case and authorize discovery of Microsoft's alleged violations if i4i makes "a prima facie case ... showing that the injunction might have been violated." Docket No. 469 at 6–8 ("THE COURT: So the decision just to reopen the proceeding and allow for discovery, does the TiVo standard apply to that issue? MR. CURRY [i4i's counsel]: No.... [T]he standard is that the party ... needs only to make a prima facie case ... showing that the injunction might have been violated.").
ANALYSIS
Based on the facts presented, the Court declines to reopen the case and institute contempt proceedings. i4i has set forth at most an accusation that Microsoft might have violated the Injunction, but is not certain that a single violation occurred. Cf. TiVo , 646 F.3d at 881. The Court also declines to reopen the case to authorize discovery under Cardell and Blackberry . In exercising its discretion, the Court notes i4i's significant delay in seeking relief—a delay that casts doubt on i4i's alleged concern about Injunction violations and calls into question the fairness of any contempt proceeding. See generally Gilead Scis., Inc. v. Merck & Co. , 888 F.3d 1231, 1239 (Fed. Cir. 2018), cert. denied , ––– U.S. ––––, 139 S. Ct. 797, 202 L.Ed.2d 572 (2019).
A.
i4i claims that it "has marshaled detailed factual allegations that Microsoft made enjoined sales in violation of [the Injunction]" and that initiating a contempt proceeding is therefore proper under TiVo . Docket No. 445 at 12. The Court disagrees.
TiVo 's requirement of "a detailed accusation ... setting forth the alleged facts constituting the contempt" is vague at best. 646 F.3d at 881. But TiVo 's facts are instructive. Less than a month after the injunction took effect, TiVo moved the district court to find EchoStar in contempt for selling a modified version of the infringing product. Id. at 878–81. TiVo argued that the modified product "was not more than colorably different from the infringing software." Id. TiVo explained how EchoStar's modifications "do not render the products noninfringing" and detailed other ways that EchoStar was violating the injunction. See TiVo Inc. v. EchoStar Corp. , No. 2:04-cv-0001, Docket No. 824 at 3–6 (E.D. Tex. May 16, 2008). The district court conducted "a series of hearings on TiVo's motion" and later "ruled that EchoStar was in contempt of both provisions of its permanent injunction." TiVo , 646 F.3d at 878. On appeal, the Federal Circuit held that, "[g]iven [the district court's] familiarity with the parties, the patent at issue, and the infringing products, we do not find an abuse of discretion in the district court's decision to hold contempt proceedings." Id. at 881.
Consistent with TiVo , other courts have initiated contempt proceedings only where the injured party provided detailed allegations of injunction violations. In Eli Lilly & Co. v. Zenith Goldline Pharmaceuticals, Inc. —cited by i4i—for example, the court reopened the case and initiated contempt proceedings where the injured party alleged that the defendant had violated an injunction by repeatedly selling an infringing product. 2017 WL 1365368 (S.D. Ind. April 14, 2017). In support, the movant presented the testimony of the enjoined party's employee, who acknowledged the improper sales and testified in a Canadian proceeding that "he was unaware of [the injunction] and did not change his business practices as a result of the [injunction]." Id. at *1. In contrast, the court in Fiber Systems International, Inc. v. Applied Optical Systems, Inc. declined to initiate contempt proceedings because, "[c]onsidered as a whole, the record [did] not persuade the undersigned that the defendant violated the terms of the court's preliminary injunction." 2009 WL 10657667 (E.D. Tex. Dec. 30, 2009). The injured party in that case had identified at most two "mistaken[ ] ship[ments]"—which the defendant "corrected ... by shipping non-infringing replacement products"—while the defendant detailed numerous steps taken to ensure that no prohibited sales were made. See id. at *2–3.
In light of this authority, the Court finds that i4i's allegations are insufficient to reopen this case.
First , it is undisputed that Microsoft took numerous steps to ensure compliance with the Injunction. The company redesigned Word to remove the infringing features and halted shipment of Word products containing the infringing features. Docket No. 457 at 15; see Docket No. 445-5; Docket No. 445-12; Docket No. 457-1; Docket No. 457-2. Microsoft also replaced all downloadable versions of Word 2003 and 2007 with redesigned, non-infringing versions and then redesigned Word 2010 within a few months of the Injunction's effective date to exclude the infringing features. Id. Microsoft notified all enterprise customers about the Injunction and insisted that they "must use updated software"—the Patch—"for any future deployment of Microsoft Word 2003 and 2007." Docket No. 457-4. Later, Microsoft issued reminders and provided technical support to help customers install the Patch. Docket No. 457 at 16; see Docket No. 457-22.
Many of Microsoft's actions, moreover, were discussed publicly at the time, and yet i4i did not complain about them. See Docket No. 445-7; Docket No. 445-12; Docket No. 445-13. The notice to enterprise customers was posted on the Internet the same day it was sent. Docket No. 445 at 5; Docket No. 445-7. The media reported on Microsoft's actions. See, e.g. , Docket No. 445 at 12; Docket No. 445-7; Docket No. 445-12; Docket No. 445-13; Docket No. 457-1. And on January 13, 2010, i4i's chairman Louden Owen publicly stated that i4i was monitoring Microsoft's efforts: "In terms of the actual compliance, we're doing our analysis right now[.] ... We're looking at what Microsoft is doing, not only with the product, but the full scope of the injunction." Docket No. 457-6 at 2. Despite all this, i4i inexplicably waited nearly ten years to complain that Microsoft's actions were "woefully inadequate"—a delay that weighs heavily against i4i now. Docket No. 445 at 1.
Second , i4i has not identified an actual Injunction violation. Instead, i4i is careful to say at most that a violation "likely" occurred:
• "i4i's investigation has revealed that enjoined sales to enterprise customers likely continued after the Injunction." Docket No. 445 at 3 (emphasis added).
• "i4i's investigation confirmed that ... it is highly probable that Microsoft sold numerous copies of Word in violation of the Court's Injunction." Id. at 5 (emphasis added).
• "Microsoft likely violated the Injunction by making prohibited sales." Id. at 9 (emphasis added).
• "[I]t is almost certain that, even for the customers Microsoft reluctantly told to install the Patch, Microsoft would have made enjoined True Up sales before customers would have installed the Patch." Id. (emphasis added).
• "Microsoft likely has a trove of detailed information about the versions of Word sold post-injunction for the
majority of its customers." Id. at 11 (emphasis added).
• "i4i's motion went into great detail about Microsoft's enterprise licensing and how it very likely continued receiving payments for infringing versions of Word during the term of the injunction." Docket No. 459 at 1 (emphasis added).
Similarly, at oral argument counsel for i4i repeatedly stated that Microsoft, "might have," "probably," or "likely" violated the Injunction. Docket No. 469 at 10–11, 25. i4i acknowledged that it spent two years trying to identify a single customer who "purchas[ed] Word 2003 or 2007 post-Injunction without installing Microsoft's Injunction Patch"—but that, "[u]nsurprisingly, no one would volunteer that information." Docket No. 445 at 9–10.
i4i argues that it need not "identify[ ] and prov[e] ... the details of specific, enjoined sales transactions" at this stage. Docket No. 459 at 2. But i4i must offer more than conjecture—especially where the conjecture is itself built only on speculation. See TiVo , 646 F.3d at 881–82. Here, i4i claims that it first suspected Microsoft's alleged Injunction violations when sales of its plug-in to replace the infringing features of Word failed to grow. Docket No. 445 at 3–4; Docket No. 445-1. i4i's Chief Technology Officer infers that the company's poor sales resulted from Microsoft's repeated violations of a court order, but there are myriad innocent explanations for sales failing to meet expectations. Docket No. 445-1. For example, perhaps customer demand for these XML features was simply lower than i4i expected. i4i also cites a three-page affidavit from its retained expert, Josef Hans Lara, who speculates that, based on his experience with Microsoft enterprise customers, "it is almost certain that at least some" enterprise customers did not install the Patch or "likely " used "old, unpatched software well after the effective date of the Injunction." Docket No. 445-2 at 2–3 (emphases added). Mr. Lara has no first-hand knowledge of any actual Injunction violation; he merely speculates that violations "likely" occurred. If mere speculation could satisfy the TiVo standard, then every successful plaintiff in a patent case could reopen the proceeding years—even decades—after judgment, assert that the defendant "likely" violated the now-expired injunction, and obtain wide-ranging discovery regarding stale conduct and old sales. See Docket No. 469 at 31.
i4i also cites a January 2010 blog post in which a "technology blogger" unaffiliated with Microsoft stated that the Patch "is only required if Microsoft tells you to use it and we'd quietly suggest ignoring Microsoft's request if you receive one." Docket No. 445 at 8; Docket No. 445-13. i4i presents no evidence that anyone at Microsoft endorsed the blogger's advice, which directly refuted what Microsoft was telling its enterprise customers, or that a single customer followed the blogger's suggestion.
A closer look at the two aspects of Microsoft's alleged noncompliance further supports disallowing contempt proceedings here.
Subscription Licenses . i4i argues that Microsoft failed to advise customers to install the Patch if they purchased Word through a subscription license agreement before the effective date of the Injunction. Docket No. 445 at 5–7. For customers "in the midst of one of these agreements on the Injunction Date," i4i asserts, "any payments made during the multi-year [license] term after the Injunction Date would be new sales" in violation of the Injunction. Id. at 6. Microsoft explains, however, that the parties previously treated a subscription license as a single sale, that sales made before the effective date of the Injunction were not subject to the Injunction, and that i4i's own damages expert affixed a "$98 per-unit royalty to all licenses, including subscription licenses" in calculating i4i's damages. Docket No. 457 at 11–12; see, e.g. , Docket No. 457-19; Docket No. 454-20. Microsoft contends that, "[i]f i4i's damages expert wanted to tether his damages model to payments (rather than license sales), he would have had to reduce his royalty base by 1/3 or 2/3 for each multi-year subscription license that required payments beyond the damages period accounted for at trial." Docket No. 457 at 12.
i4i does not sufficiently address this argument. The parties agree that i4i has already recovered damages for pre-Injunction sales, and i4i does not dispute that the parties treated subscription licenses as single sales at trial. Docket No. 459 at 3–4. Instead, i4i argues that subscription payments are "sales" under Federal Circuit law and that its expert included only "approximately 2 percent" of such sales in i4i's damages calculation. Id. The case cited by i4i, however, treats "sales" as the "transfer of property or title," but here, title did not transfer as part of a Microsoft subscription license. See NTP, Inc. v. Research in Motion, Ltd. , 418 F.3d 1282, 1319 (Fed. Cir. 2005) ; Docket No. 445 at 13 (citing Docket No. 445-17). And, as Microsoft points out, i4i was entitled to only 2% of sales because of the claims at issue. Docket No. 333 [TT 5/13/09] at 63:21–23. In its reply, i4i urges the Court not to "resolve this dispute" at this stage of the proceeding because it "relates to the underlying merits of the contempt." Docket No. 459 at 3. But i4i has the burden now to set forth "alleged facts constituting the contempt." TiVo , 646 F.3d at 881. And its failure to explain how license payments are new "sales" violating the Injunction—despite how the parties treated them at trial—does not satisfy that burden.
i4i also overstates Federal Circuit law in this regard, as that court has held only that "a commercial transaction arranged as a ‘license’ or a ‘lease’ of a product or a device ... may be tantamount to a sale." Minton v. Nat'l Ass'n of Sec. Dealers, Inc. , 336 F.3d 1373, 1378 (Fed. Cir. 2003) (emphasis added) (ellipsis in original).
The Patch . i4i argues that Microsoft did not sufficiently urge enterprise customers who paid for "True Ups" or "Downgrade Rights" to install the Patch. Docket No. 445 at 7–9. According to i4i, Microsoft "downplayed" the Patch, failed to label it as a "critical update," and either failed to monitor whether customers installed the Patch or knowingly accepted payments from those who did not. Id. at 7–10; Docket No. 459 at 4–6. Microsoft, in turn, presented evidence of all that it did to ensure customers installed the Patch: immediately notifying U.S. enterprise customers of the Injunction, instructing them that they "must use updated software" (i.e. , the Patch), periodically reminding customers of the Patch, and providing necessary customer support. Docket No. 457 at 15–16; Docket No. 457-4; see also Docket No. 457-1; Docket No. 457-22. Microsoft also represents to the Court that it is "unaware of anyone who has ever installed enjoined software or paid Microsoft for enjoined software." Docket No. 460 at 1.
As with subscription licenses, i4i's allegations about the Patch do not constitute contempt. Courts have held that a party generally complies with an injunction by notifying its customers about the injunction and instructing them to comply. E.g. , Smith & Nephew, Inc. v. Synthes (U.S.A.) , 2007 WL 9706817, at *23 (W.D. Tenn. Nov. 27, 2007) ; see also Fiber Sys., Int'l , 2009 WL 10657667, at *3. Perhaps Microsoft could have taken the additional steps now recommended by i4i. But failing to take those steps did not violate the Injunction. And evaluating Microsoft's efforts more than nine years after the Injunction's effective date—and four years after the Injunction expired—is especially problematic. i4i claims that the delay in raising its concern is completely irrelevant, but the delay dramatically undercuts i4i's argument. How could Microsoft's efforts to comply with the Injunction be "woefully inadequate," as i4i now contends, when i4i waited nearly a decade to complain about them? Docket No. 445 at 1. As noted above, Microsoft's actions were widely reported in the media, and i4i's own chairman stated at the time that the company was monitoring "what Microsoft is doing ... [with] the full scope of the injunction." Docket No. 457-6. The time to raise concerns was then—when Microsoft could have addressed them. Yet, i4i did nothing. As noted above, the "[p]rocess of contempt is a severe remedy, and should not be resorted to where there is fair ground of doubt as to the wrongfulness of the defendant's conduct." Cal. Artificial Stone Paving Co. v. Molitor , 113 U.S. 609, 618, 5 S.Ct. 618, 28 L.Ed. 1106 (1885).
* * *
Considered as a whole, the record does not persuade the Court to reopen the case and institute contempt proceedings. This case is not Eli Lilly , where an employee of the defendant confirmed injunction violations in sworn testimony, nor TiVo , where the only real question was whether the modified and enjoined products were colorably different from each other. Eli Lilly , 2017 WL 1365368, at *1–2 ; TiVo , 646 F.3d at 881–85. Rather, this case is more like Fiber Systems , where the court found that the enjoined defendant had taken numerous steps to comply with the injunction, while the movant failed to identify any "actual sales [that] violated the terms of the decree." 2009 WL 10657667, at *2–3. In light of i4i's significant delay in bringing these motions, moreover, the Court concludes that i4i has not satisfied the TiVo standard for instituting contempt proceedings.
B.
At oral argument, i4i argued that the Court should reopen the case and permit discovery under a less demanding standard, citing Blackberry Ltd. v. Typo Products LLC , 2014 WL 4136586 (N.D. Cal. Aug. 21, 2014), and Cardell Financial Corp. v. Suchodolski Associates, Inc. , 2012 WL 12932049 (S.D.N.Y. July 17, 2012). Under this standard, i4i asserts, it need not "definitively identify any instances of the Injunction being violated." Docket No. 469 at 6. Instead, i4i need only make "a prima facie showing that the Injunction might have been violated." Id. Again, the Court disagrees.
Although Blackberry was a patent case, the court inexplicably did not cite TiVo , 646 F.3d 869. See generally 2014 WL 4136586. Cardell was not a patent case, and thus TiVo was not binding. See generally 2012 WL 12932049.
Neither Blackberry nor Cardell supports reopening a case and authorizing discovery based only on allegations that an injunction "might have been violated." Id. As an initial matter, the Blackberry court did not "reopen" the case because it was still ongoing. The injunction at issue was a preliminary injunction, and the parties had not yet reached the merits. 2014 WL 4136586, at *1–3. Further, although the court authorized discovery in that case to "determine whether [the defendant] ha[d] in fact violated the preliminary injunction," substantially more evidence demonstrated injunction violations than i4i has presented here: (1) invoices and payments indicated that "sales or offers to sell occurred within the United States," violating a prohibition against domestic sales; (2) documents demonstrated that a separate entity selling the infringing product was "acting in concert" with the defendant; and (3) the defendant had conceded that certain sales violated the injunction but argued "that the violation was minimal." Id. at *3–4. Discovery was largely needed to determine the extent of the violations. See id.
Cardell is no better for i4i. In that case, the court found clear and convincing evidence that one defendant had violated an anti-suit injunction by filing a pair of lawsuits in Brazil. 2012 WL 12932049, at *56. The court then permitted discovery to determine whether a second defendant "aid[ed] and abett[ed]" the violation. Id. at *57. Although the plaintiffs lacked "sufficient evidence to meet the stringent clear-and-convincing standard required for a finding of contempt" by the second defendant, the court found that the plaintiffs had "made a prima facie case" that the second defendant also violated the injunction. Id. at *57–58. Indeed, the plaintiffs presented (1) "a bountiful list of [the second defendant's] prior actions reflecting his involvement with [the first defendant]," (2) the testimony of a witness stating that the second defendant offered to "intermediate" and settle the Brazilian actions for $2 million, (3) and a declaration from a Brazilian lawyer stating that he had "at least four conversations" with the second defendant to resolve the Brazilian cases. Id. at *58–59. As the Cardell court concluded, all of this, "if true, could lead to a strong case for contempt against [the second defendant]." Id. at *59.
i4i has not made a similar showing here. As noted above, i4i has presented the declaration of its founder and Chief Technology Officer, who stated that i4i never saw the "rebound in sales" the company expected once the Injunction was entered, and the declaration of Mr. Lara, who opined that "at least some Microsoft enterprise customers" "almost certain[ly]" failed to install the Patch. Docket Nos. 445-1; 445-2. That is not enough to reopen a years-old case and authorize the broad discovery now sought by i4i. As the Cardell court held, "[f]iling a motion for sanctions should not lead to free rein for a fishing expedition." 2012 WL 12932049, at *58. "A party should first be required to make a prima facie showing that a violation has occurred." Id. Even assuming that this standard governs here, the Court concludes that, viewing the record a whole, i4i has not satisfied it.
i4i asks the Court to enter an order requiring Microsoft, among other things, to "produce a copy of all documents related to its compliance with the Court's permanent injunction, including an accounting of all revenue received for licenses to Word 2003 or Word 2007 after the effective date of the injunction." Docket No. 444-1.
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CONCLUSION
For the reasons stated herein, the Court DENIES i4i's motions, Docket Nos. 444 & 445.
So ORDERED and SIGNED this 29th day of July, 2019.