U.S. District Court for the Northern District of California Approves Changes to Its Patent Local Rules

February 3, 2017

The U.S. District Court for the Northern District of California recently approved changes to its Patent Local Rules.  The changes were approved on January 17, 2017, and became effective immediately.  The primary substantive changes are summarized below, and some preliminary reactions are included.

But first, a note to those with patent cases pending in the Northern District of California:  The publication of the changes to the Patent Local Rules did not contain any explicit instruction as to whether the changes to the rules apply retroactively to cases pending in the District.  Should the parties in those cases supplement their disclosures now to comply?  What about cases pending trial, long after expert reports have identified the information now to be disclosed so much earlier in the case?  Notably, the rules’ effective date (December 1, 2009) did not change and the duty to supplement remains (see generally Fed. R. Civ. P. 26(e)).  Consequently, the parties affected should consider whether guidance should be sought from the assigned Judge. 

Revisions to Patent Local Rule 2-1: Initial Case Management Conference

Patent L.R. 2-1(b) lists the topics that must be discussed during the initial Case Management Conference and addressed in the Case Management Statement.  It now requires that the scope and timing of any damages discovery be included among the topics covered.[1]  Additionally, the rule now requires the parties to provide the court with a "non-binding, good-faith estimate of the damages range expected for the case along with an explanation for the estimates."[2]  If a party cannot provide such an estimate, the party must "explain why it cannot" and identify the "specific information" it needs before it can comply with the disclosure requirement.[3]  The party must also state a time by which it "should be in a position to provide that estimate and explanation."[4] 

Even though this language is new to the Patent Local Rules, a requirement to disclose damages-related information early in a case, at least with respect to patent plaintiffs,[5] is not.  Since 1993, Federal Rule of Civil Procedure 26 has required the party seeking damages–i.e., the patent plaintiff–to disclose in its initial disclosures a "computation of each category of damages claimed. . . ."[6]  In recent years, courts in the Northern District of California have interpreted that to mean a patent plaintiff must "do the best it can on pain of preclusion" to "disclose and specify damages at the outset of the litigation even though some of the necessary information lies with the accused infringer."[7]  Thus, this rule-change does not necessarily impose a new substantive burden on patent plaintiffs, but rather may be interpreted as providing further explanation of how and when a patent plaintiff is to comply with Federal Rule of Civil Procedure 26(a)(1)(A)(iii) in the Northern District of California. 

That said, the plain language of Patent L.R. 2-1(b)(5) clearly applies to all parties, not just patent plaintiffs.  Thus, this rule-change extends the scope of Federal Rule of Civil Procedure 26(a)(1)(A)(iii) to patent defendants as well.

Revisions to Patent Local Rule 2-5: Relationship to Federal Rules of Civil Procedure

Patent L.R. 2-5(a) provides that a party may object to a discovery request seeking to elicit the party’s claim construction position on the grounds that the request is premature in light of the timetable provided in the Patent Local Rules.  In light of new Patent L.R. 3-8 and 3-9 (infra), the revised rule extends its scope to include discovery requests seeking to elicit the party’s damages position.

Revisions to Patent Local Rule 3-1: Disclosure of Asserted Claims and Infringement Contentions

Patent L.R. 3-1(c) formerly required that infringement contentions contain a chart "identifying specifically where each limitation of each asserted claim is found within each Accused Instrumentality."  The revised rule now more particularly requires that infringement contentions "identify[] specifically where and how each limitation of each asserted claim is found within each Accused Instrumentality."  Thus, the revised rule requires further detail from patent plaintiffs.

Patent L.R. 3-1(g) requires the patent plaintiff to disclose whether and how its products practice the asserted claims if it wants to preserve its ability to rely on its own products as commercial embodiments.  The revised rule clarifies that this disclosure requirement applies to a patent plaintiff’s licensee’s products as well. 

Patent L.R. 3-1(h) adds a new requirement to identify the timing of first infringement, the start of claimed damages, and the end of claimed damages.      

Revisions to Patent Local Rule 3-2: Document Production Accompanying Disclosure

Patent L.R. 3-2 lists categories of documents that must be produced along with the Disclosure of Asserted Claims and Infringement Contentions.  The revised rule adds the following to the list of documents that must be produced early in the case: (i) all agreements, including licenses, transferring an interest in any patent-in-suit;[8] (ii) all agreements the patent plaintiff contends are comparable to a license that would result from a hypothetical reasonable royalty negotiation;[9] (iii) all agreements that "otherwise may be used to support" the plaintiff’s damages case;[10] (iv) if a party identifies commercial embodiments under Patent L.R. 3-1(g), it must produce documents sufficient to show that those products are/were marked, and, if a party wants to preserve the right to recover lost profits based on such embodiments, it must also include documents sufficient to show sales, revenues, costs, and profits of those embodiments;[11] and (v) all documents reflecting a F/RAND agreement with respect to the asserted patent(s).[12]

The additions to Patent L.R. 3-2, like those to Patent L.R. 3-4 (explained infra), significantly fast-track the production of documents relating to damages for all parties.  Of note is the requirement to produce any license to the asserted patent(s) and any agreement or license a party contends is comparable to the license that would result from a hypothetical reasonable royalty negotiation.[13]  First, it should be noted that the plain language of the rule does not explicitly exempt settlement agreements, notwithstanding the varying extent to which settlements agreements are discoverable and/or admissible.  Second, patent licenses and transfer agreements typically contain highly confidential business information that a party may not want to produce without a strong protective order in place.  To the extent a party wishes to negotiate an agreed protective order (rather than relying on a model), this new early production obligation underscores the need for parties to begin the negotiation process as soon as possible.  Third, the production of licenses typically requires significant advance planning because many licenses require notice be given to third-party licensors/licensees, and some further specify a period for objection before production is permitted.  For at least these reasons, litigants would be well-advised to focus early on the myriad issues raised by this new early production requirement.

The additional requirement that a patent plaintiff produce documents sufficient to show the marking of the asserted patent(s) on any of its or its licensee’s commercial embodiments[14] is notable because it is not conditioned on the type of claim(s) asserted.  The case law on whether the marking obligation of 35 U.S.C. § 287(a) applies to patents containing only method claims (or to patent plaintiffs who elect to assert only method claims) is unsettled, but this disclosure requirement does not make any such distinction.  In addition, it is remarkable to the extent it may require a patent plaintiff to obtain documents from its third-party licensee(s) to demonstrate that its licensee’s embodying products were/are marked with the asserted patent(s).  Thus, patent plaintiffs would be well-advised to consider this possibility early on to ensure they have sufficient time to issue, and get a response to, one or more third-party subpoenas before this early discovery deadline. 

Revisions to Patent Local Rule 3-3:  Invalidity Contentions

As with revised Patent L.R. 3-1(c), Patent L.R. 3-3(c) now requires invalidity charts to "identify[] specifically where and how in each alleged item of prior art each limitation of each asserted claim is found." 

Revisions to Patent Local Rule 3-4:  Document Production Accompanying Invalidity Contentions

Patent L.R. 3-4 lists the categories of documents that must be produced with the Invalidity Contentions.  It now additionally requires the following documents to be produced: (i) all agreements that the patent defendant contends are comparable to a license that would result from a hypothetical reasonable royalty negotiation;[15] (ii) documents sufficient to show the sales, revenue, cost, and profits for accused instrumentalities identified under Patent L.R. 3-1(b);[16] and (iii) all agreements that may be used to support the patent defendant’s damages case.[17]

Revisions to Patent Local Rule 3-7: Advice of Counsel

The time for disclosing a party’s intention to rely upon advice of counsel has been shortened from 50 to 30 days after service of the court’s Claim Construction Ruling.

New Patent Local Rule 3-8:  Damages Contentions

Patent L.R. 3-8 newly provides that within 50 days of service of Invalidity Contentions, each patent plaintiff must serve Damages Contentions that identify each of the categories of damages it seeks as well as "its theories of recovery, factual support for those theories, and computations of damages within each category."[18]  As with Patent L.R. 2-1, however, this rule allows a party who believes it cannot provide a "fulsome response to the disclosures required by this rule" to identify the information it needs to do so.[19]

While existing Rule 26 initial disclosure requirements may call for much the same information, the very inclusion of Damages Contentions in the Patent Local Rules is itself significant.  Courts in the Northern District regularly preclude untimely changes to disclosures mandated by the Patent Local Rules (e.g., late-disclosed infringement theories).[20]  Thus, it remains to be seen to what extent courts will be inclined to hold parties to their initial Damages Contentions.

New Patent Local Rule 3-9:  Responsive Damages Contentions

Patent L.R. 3-9 newly provides that within 30 days of service of the Damages Contentions, each patent defendant must respond and include the party’s affirmative position on each issue.[21]  Like Patent L.R. 3-8(b), if a party cannot provide a "fulsome response to the disclosures required by this rule," the party must identify the information it needs in order to do so.[22]

Revisions to Patent Local Rule 4-3:  Joint Claim Construction and Prehearing Statement

Patent L.R. 4-3 requires that a party proposing to call witnesses at the Claim Construction Hearing must now disclose the identity of each such witness and provide a summary of each witness’s testimony.[23]  Additionally, parties must now include in the Prehearing Statement an identification of any factual findings requested from the court related to claim construction.[24]      

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The above is only a summary of the primary substantive changes to the rules with some preliminary reactions and suggestions.  A redline version of the Patent Local Rules detailing all of the changes may be found here. 

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The new Patent Local Rules requiring early damages disclosures and discovery mark a shift from a practice of certain courts and many parties to forestall expensive damages discovery until after the liability issues crystalize through the infringement/non-infringement contentions, invalidity/validity contentions, and claim construction proceedings.  As a result, the new changes to the Patent Local Rules may have the effect of increasing a party’s early litigation expenditures because the party will have to gather the information necessary to meet the new disclosure obligations and discovery deadlines.

That said, all of the additional rules on early disclosures of damages do provide a mechanism for a party to defer the disclosure if it lacks information it thinks it needs to make a "fulsome" response.  It remains to be seen how this exception will apply in practice.  For example, if the patent plaintiff intends to conduct a survey to inform its damages model and calculation, and identifies that intention as a reason for not disclosing its damages calculation on schedule, how will the court respond?  Will it set a deadline for completing the survey?  Will that cause the patent plaintiff to incur the significant expense of conducting a survey early in the case, possibly before the scope of the claims has been clarified through claim construction?  And if the patent plaintiff does not disclose on schedule or completely, how will that affect the defendant’s obligation to respond?  Gibson Dunn will continue to closely monitor how the new Patent Local Rules are interpreted and applied in practice, and our Intellectual Property attorneys are available to discuss further at your convenience.

                [1]              Patent L.R. 2-1(b)(2).

                [2]              Id. 2-1(b)(5).

                [3]              Id.

                [4]              Id.

                [5]              For simplicity, "patent plaintiff" is used to refer to "the party asserting infringement," but it should be read to include counter-claim defendants.

                [6]              Fed. R. Civ. P. 26(a)(1)(A)(iii). 

                [7]              Brandywine Commc’ns Techs., LLC v. Cisco Sys., Inc., No. C 12-01669 WHA, 2012 WL 5504036, at *1 (N.D. Cal. Nov. 13, 2012) ("[Rule 26] initial disclosures does [sic] not require a full exposition of the type required at trial or in an expert report but it does expressly require an initial computation and disclosure of the evidence that will be relied on to the full extent the patent plaintiff could or should know of it in the exercise of the type of pre-suit diligence required by Rule 11."); see also Corning Optical Commc’ns Wireless Ltd. v. Solid, Inc., 306 F.R.D. 276, 279 (N.D. Cal. 2015) (granting motion to compel damages-related early disclosure where "neither [party] ha[d] any firm sense of whether this [was] a $1 case or a case worth billions"); see generally EON Corp. IP Holding LLC v. SENSUS USA Inc., No. C-12-01011 EMC (EDL), 2013 WL 3982994 (N.D. Cal. Mar. 8, 2013) (explaining reason to require early damages disclosures).

                [8]              Patent L.R. 3-2(f).

                [9]              Id. 3-2(g).

                [10]           Id. 3-2(h).

                [11]           Id. 3-2(i).

                [12]           Id. 3-2(j).

                [13]           Id. 3-2(f)-(g).

                [14]           Id. 3-2(i).

                [15]           Id. 3-4(c).

                [16]           Id. 3-4(d).

                [17]           Id. 3-4(e).

                [18]           Id. 3-8(a);

                [19]           Id. 3-8(b).

                [20]           E.g., VIA Techs., Inc. v. ASUS Comp. Int’l, No. 14-cv-03586-BLF (HRL), 2017 WL 396172, at *4 (N.D. Cal. Jan. 30, 2017) (denying motion for leave to amend infringement contentions); CyWee Grp. Ltd. v. Apple Inc., No. 14-cv-01853-HSG (HRL), 2016 WL 7230865, at *3 (N.D. Cal. Dec. 14, 2016) (denying motion for leave to amend priority date contentions and to add new products to infringement contentions); Tristrata, Inc. v. Microsoft Corp., No. 11-cv-03797-JST, 2013 WL 12172909, *2-3 (May 13, 2013) (striking late-filed expert declaration on claim construction for violating Patent L.R. 4-3(b))

                [21]           Patent L.R. 3-9.

                [22]           Id.

                [23]           Id. 4-3(e).

                [24]           Id. 4-3(f).