United States District Court, D. Nebraska
MEMORANDUM AND ORDER
Joseph F. Bataillon Senior United States District Judge
This matter is before the court on a motion for summary judgment of no invalidity filed by the plaintiff Joao Bock Transaction Systems, LLC (hereinafter, "Joao Bock, ") Filing No. 146, and on an objection, Filing No. 177, to the magistrate judge's order, Filing No. 176, on a motion to amend the progression order, Filing No. 149, filed by defendant Online Resources Corp. (hereinafter, "Online"). This is a patent infringement action under 15 U.S.C. § 1, et seq. The action involves United States Patent No. 7, 096, 003, titled "Transaction Security Apparatus" (hereinafter, "the '003 Patent"). Joao Bock is the owner of the patent and alleges that Online infringed it.
Online objects to the magistrate judge's order denying its motion for leave to amend the progression order to allow Online to file invalidity contentions out of time. In its motion for summary judgment, Joao Bock seeks a declaration of "no invalidity" with respect to the claims of the '003 patent at issue, based on Online's failure to file invalidity contentions as ordered in the progression order. See Filing No. 146, Motion; Filing No. 36, Progression Order; Filing No. 50, Order modifying progression order. For the reasons set forth below, the court finds Online's objection to the magistrate judge's finding should be sustained and the magistrate judge's order denying leave to file invalidity contentions should be reversed. The court finds, in view of the convoluted procedural history of this case, that the patent action should be decided on the merits, not on a technical application of the progression order and discovery rules. The resolution of that issue also resolves Joao Bock's summary judgment motion on validity.
The facts are set out in other orders and need not be fully repeated herein. See Filing No. 135, Memorandum and Order (sealed) at 2-9; Filing No. 188, Memorandum and Order (redacted) at 2-9; Filing No. 136, Memorandum and Order at 2-3; Filing No. 144, Order at 1-2; Filing No. 141, Order at 1-3. This case was originally consolidated with a breach of contract action filed by Applied Communications, Inc., ("ACI") against Joao Bock in this court. See ACI v. Joao Bock, Case No. 8:13-CV-231 (D. Neb.). ACI is Online's successor in interest. Filing No. 188, Memorandum and Order at 12-13. Joao Bock counterclaimed for patent infringement in the breach-of-contract case and Online/ACI counterclaimed for breach of contract in this case. Id., Filing No. 17 in Case No. 8:13-CV-231, Answer and Counterclaim; Filing No. 32 in Case No. 8:13-CV-245, Answer and Counterclaim; Filing No. 145, Amended Answer and Counterclaim in 8:13-CV-245. On motions for summary judgment, this court dismissed the breach-of-contract claims in both cases. Filing No. 188 in 8:13-CV-245, Memorandum and Order (redacted) at 15; Filing No. 144-2 in 8:13-CV-231, Memorandum and Order (redacted) at 15. The patent infringement counterclaim in the breach-of-contract action was dismissed as duplicative of the patent infringement claims asserted herein and those allegations were merged into this action. Filing No. 144-2 in 8:13-CV-231, Memorandum and Order at 15. Notably, the court commented, "[j]ust as JBTS may assert an infringement claim for premerger conduct, ACI, as ORCC's successor, may assert the defense of invalidity." Id. at 14. Both parties have appealed the orders.See Filing Nos. 151, 162 and 166. The case has not been stayed pending the appeals.
The record shows that the magistrate judge originally issued a progression order in this case on November 27, 2013, setting a deadline for filing invalidity contentions of March 21, 2014. Filing No. 36. Some deadlines in that order, including the invalidity contention deadline, were extended for one reason or another on motions of both parties, including the invalidity contention deadline. See, e.g., Filing No. 50, Order extending invalidity contention and claim construction deadlines; Filing No. 52, text order extending summary judgment deadline; Filing No. 48, Index of Evid., Ex. A, E-mail dated March 27, 2014 from Joao Bock counsel (agreeing to an extension of time for Online to serve preliminary invalidity contentions).
Online did not file invalidity contentions in this case, it focused instead on the breach of contract claims and pending summary judgment motions, stating, “[w]e don’t intend to serve patent invalidity contentions, given the expense involved and the merits of our [motion for summary judgment]." Filing No. 79-4, E-mail dated June 2, 2014. Joao Bock moved for "terminating sanctions, " alleging that Online was guilty of several bad acts, including failing to do a sufficient analysis of the patent before filing the breach of contract claim, disobeying the court's progression orders, and failing to file invalidity contentions. Filing No. 77, Motion. It sought dismissal of Online's invalidity assertions as a sanction for the alleged improprieties. See Id. In opposition to that motion, Online stated that it had “recently located an expert” and that “[i]f such expert has opinions as to the invalidity of the patent-in-suit, [ACI and Online] will at that time, as necessary, ask the Court for permission to file invalidity contentions out of time.” Filing No. 89, Brief at 2. Online also argued that it was unable to serve invalidity contentions because Joao Bock had not yet produced certain invalidity-related documents. Id. at 3. While the sanction motion and cross-motions for summary judgment were still pending in the cases, Online moved to amend its Answer in this case in light of a finding by the United States District Court for the District of Delaware that certain claims of the '003 patent are invalid. Filing No. 131, Motion, Ex. C, Joao Bock Transaction Sys., LLC v. Jack Henry & Assocs., 76 F.Supp.3d. 513, 520 (D. Del. 2014), aff'd, 803 F.3d 667 (Fed. Cir. 2015) (per curiam) ("Jack Henry").
This court denied Joao Bock's motion for the sanction of dismissal contemporaneously with the order dismissing the breach-of-contract action on March 2, 2015, noting that neither party was blameless. Filing No. 136, Memorandum and Order at 6. The court found "both parties have engaged in some degree of gamesmanship, posturing, tactical maneuvering, and dilatory conduct in zealously prosecuting their positions, although it appears to the court that [Online's successor, ACI] has been more responsible for needlessly prolonging and overcomplicating the proceedings." Id.
Thereafter, Online filed a renewed motion to stay the patent action pending resolution of Jack Henry on appeal to the Federal Circuit. Filing No. 122, Motion. The magistrate judge denied the motion, stating that "Joao Bock alleges infringement on more than the claims found invalid in Jack Henry" and noting that Joao Bock "would at a minimum eliminate any claims found to be invalid or unresolved in the Jack Henry appeal." Filing No. 141, Order at 3-4. On March 19, 2015, the magistrate judge granted Online leave to amend the answer, stating "[u]nder the circumstances, the court finds [Online] has shown good cause for the timing of filing the motion to amend." Filing No. 144, Order at 3. The magistrate judge noted that although the amendment deadline had passed, the reason for the amendment was recent, the case was in the early stages of discovery, the Markman hearing not been held and the case was not set for trial. Id. Further, it found Joao Bock failed to show unfair prejudice as the result of any delay, noting that "Joao Bock, aware of the Jack Henry court’s decision, had ample notice of its impact on this matter." Id.
Shortly thereafter, on March 25, 2015, Joao Bock filed its motion for summary judgment of no invalidity. Filing No. 146, Motion. That same day, Online filed a motion to extend the progression order. Filing No. 149, Motion. Online sought a modification of the progression order in this case to allow it 21 days after the court's ruling on the motion to file its invalidity contentions. Id. In its brief, it identified the two experts on which it intends to rely and stated that it anticipated the invalidity contentions would "be substantially similar to the contentions filed in the Jack Henry matter, which [Joao Bock] has been aware of since at least September 29, 2014, when such experts' reports were filed in Jack Henry." Filing No. 150, Brief at 3.
The magistrate judge found Online had not shown good cause or excusable neglect for the delayed filings and denied the motion. Filing No. 176, Order at 6. The magistrate judge found that Online made a measured choice to forego filing invalidity contentions based on balancing cost savings and relying on optimistic views on the merits of the then-pending summary judgment motion. Id. at 5. The magistrate judge alternatively found undue prejudice to Joao Bock precluded the requested extension. Id. He declined, however to assess any ill motive to Online. Id., n.2.
Online has now filed a notice of additional authority, a decision of the United States District Court for the Middle District of Florida granting a summary judgment of invalidity with respect to 19 claims of the '003 patent. Joao Bock Transaction Sys. v. Fidelity National Information Servs., No. 3:13cv223, 2015 WL 4743669, at *6 (M.D. Fla. Aug 10, 2015), appeal docked, No. 15-1956 (Fed. Cir. Aug. 28, 2015) (hereinafter, "FNIS"). In response, Joao Bock has shown that the FNIS action has been appealed and has stated that it will not assert infringement with respect to the claims of the '003 patent that were found invalid in FNIS. Filing No. 201-1, Response, Ex. A, Notice of Appeal; Filing No. 201, Response at 1.
A Markman hearing has now been held and the court contemporaneously enters an ...