Thursday, November 16, 2006

N.D. Cal. Patent Rules Governed by Federal Circuit Law

O2 Micro International Ltd. v. Monolithic Power Systems (06-1064) - November 15, 2006

02 Micro appealed the lower court’s grant of summary judgment of non-infringement in favor of Monolithic Power Systems ("MPS"), where the reason for non-infringement was primarily based on the district court denying Micro leave to amend its infringement contentions and refusing to allow supplementation of its expert report.

This case concerned the interpretation and application of the N.D. California's local rules for patent cases (download rules here). Generally, a party claiming patent infringement in the Northern District must serve preliminary infringement contentions within ten days of the initial case management conference. The preliminary contentions generally become the final contentions thirty days after the claim construction ruling unless a party serves final infringement contentions. Outside of this thirty day period, amendments or modification to the contentions can only be made "by order of the Court…upon a showing of good cause."

02 Micro filed preliminary infringement contentions and served its final infringement contentions after a Markman hearing was held. While discovery was ongoing during this time, the contentions relied on the same theory of infringement.

However, after Micro deposed MPS's chief engineer, Micro developed a new, and presumably better, theory of infringement, even though Micro had documents supporting the new theory almost a year earlier. After (unsuccessfully) attempting to negotiate with MPS to stipulate to the new theory, Micro went ahead and introduced the new infringement contentions to the judge 3 months later. The judge refused to grant the motion to amend the infringement contentions, finding the delay constituted a lack of diligence, and that MPS would be prejudiced by the delay.

On appeal, the Federal Circuit decided that the N.D. Cal. Patent Rules were governed by Federal Circuit law. While declining to broadly rule on all local patent rules, the court decided that, in this instance, "issues concerning the validity and interpretation of such local rules are 'intimately involved in the substance of enforcement of the patent right,' . . . and must be governed by the law of this circuit."

The Federal Circuit acknowledged Micro's argument that refusing to allow any amendment to contentions based on new information developed in discovery could be contrary to the spirit of the Federal Rules. However, the court added:

[W]e see nothing in the Federal Rules that is inconsistent with local rules requiring the early disclosure of infringement and invalidity contentions and requiring amendments to contentions to be filed with diligence. If the parties were not required to amend their contentions promptly after discovering new information, the contentions requirement would be virtually meaningless as a mechanism for shaping the conduct of discovery and trial preparation.

Thus, we reject 02 Micro’s apparent argument that "good cause" must exist for amending its infringement contentions, without regard to its diligence in doing so,
merely because new evidence was revealed during discovery.

Finding that Micro was not diligent in submitting the new contentions, the court affirmed the lower court and also found no abuse of discretion in refusing to supplement Micro's expert report.

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