Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_02-cv-04483/USCOURTS-cand-3_02-cv-04483-7/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:145 Patent Infringement

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

POSTX CORPORATION,

Plaintiff,

 v.

SECURE DATA IN MOTION, d/b/a SIGABA,

Defendant,

 /

AND RELATED COUNTERCLAIMS.

______________________________________/

No. C 02-04483 SI

(Related Case No. 03-0521)

ORDER RE: SUMMARYADJUDICATION

MOTIONS

On April 22 and July 15, 2005, the Court heard oral argument on the parties’ various motions for

summary adjudication. In a separate order the Court has addressed PostX’s motion for summary adjudication

of Sigaba’s “antitrust conspiracy” counterclaims (Counts I, III, and V); this order deals with the balance of the

motions. 

Having carefully considered the arguments of counsel and the papers submitted, the Court hereby

ORDERS as follows: Sigaba’s motion for summary adjudication of PostX’s common law unfair competition

claim is DENIED. PostX’s motion for summary adjudication based on Noerr-Pennington immunity is

GRANTED as to Sigaba’s antitrust counterclaims (Counts I, II and III) and DENIED as to Count IV, the

Lanham Act counterclaim. PostX’s remaining motions for summary adjudication of Counts I, II, and III are

DENIED as moot. PostX’s motion forsummary adjudication of Sigba’s Counts IV and VI, the Lanham Act

and common law unfair competition counterclaims, is DENIED.

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1 On August 22, 2004, PostX and Reid entered into a stipulation dismissing the claims and

counterclaims between them. 

2 PostX brought a summary adjudicationmotion regarding Counts I, III, and V on the ground that the

“intracorporate conspiracy doctrine” bars the two antitrust conspiracy claims against PostX and the Mayfield

Funds. The Court addresses this issue by separate order.

2

BACKGROUND

OnSeptember 13, 2002, PostX Corporation ("PostX") filed a complaint for patentinfringementagainst

Secure Data InMotion, d/b/a Sigaba ("Sigaba"), alleging infringement ofU.S. Patent No. 6,014,688 ("the '688

patent"). In February 2003, after the U.S. Patent Office issued United States Patent No. 6,477,647 ("the '647

Patent") to PostX, PostX filed a second infringement suit against Sigaba. On September 29, 2003, and

November 25, 2003, the Court granted Sigaba's motions for summary judgment of non-infringement of both

patents. The Federal Circuit affirmed without opinion on November 15, 2004. On February 4, 2004, the

Court granted summary judgment for defendants on PostX's claim for misappropriation oftrade secrets under

the Uniform Trade Secrets Act ("UTSA") because of PostX's failure to adequately disclose the trade secrets

at issue in that claim. 

On June 28, 2004, this Court granted PostX leave to file a Third Amended Complaint, amending a

claim for breach of confidentiality agreement by former PostX and current Sigaba employee James Reid

(“Reid”), and adding a claim for common law unfair competition. See June 28, 2004 Order at 1-2. Sigaba

and Reid filed counterclaims against PostX for violations of the Sherman Act and false advertising under the

Lanham Act.1 On November 22, 2004, the Court denied a motion by Sigaba to dismiss PostX’s unfair

competition claim. The remaining claims in the case are: PostX’s claim for common law unfair competition;

Sigaba’s Sherman Act counterclaims for conspiracy to restrain trade under Section 1 (Count I), attempted

monopolization under Section 2 (Count II), and conspiracy to attemptmonopolizationunder Section 2 (Count

III);2 Sigaba’s counterclaim under Section 43(a) of the Lanham Act; and Sigaba’s counterclaim for common

law unfair competition.

For its unfair competition claim, PostX alleges that James Reid sent Sigaba employee StanleyChin an

email on June 11, 2002, containing “a list of customers and potential customers with whomhe had interacted

while employed byPostX,”and Chin passed this email along to Sigaba’s President and ChiefOperating Officer

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John Ferraro and Vice President Rodger Kobayashi. Third Am. Compl. ¶¶ 36, 38. PostX alleges that

information about customers and potential customers, as well as confidential information about business and

personnelstrategy, was proprietary to PostX, and that without it, Sigaba would not have known thatsome of

these entities were using or seeking secure messaging products, who at these entities was responsible for

making decisions about such products, and what their purchasing needs and methods were. Id. at ¶¶ 39-40.

In its counterclaims, Sigaba alleges that PostX initiated the patent suit forimproper and anticompetitive

purposes. Sigaba’s Answer and Counterclaims ¶ 20. The factual predicate to this charge is as follows: In

August 2000, officers of both companies met to explore business opportunities and entered into a NonDisclosure Agreement. Id. at ¶ 14. After these discussions ended, PostX and Sigaba remained competitors

in the market for “non-PKI-based Secure Document Delivery Systems,” particularly for the business of Bank

of America. Id. at ¶ 10, 16. On about August 28, 2002, Bank of America signed a contract to purchase

Sigaba’s secure document delivery system. Id. at ¶ 16. 

According to Sigaba, PostX learned that it had lost the Bank of America contract to Sigaba and, on

September 12, 2002, sent a fax to Bank of America informing the bank that it had filed a patent infringement

suit against Sigaba. Id. at ¶ 18. PostX did not actually file the patent infringement suit until September 13,

2002. Id. at ¶ 19. At about the same time, PostX posted a press release on its website announcing the filing

of the suit. Id. Sigaba alleges that, because of the 2000 meeting between the companies, PostX knew that

Sigaba’s products did not infringe the ‘688 patent, and in fact PostX’s ChiefTechnology Officer admitted that

the suit had no technical merit. Id. at ¶ 21-22. Sigaba claims that PostX’s second patent infringement suit

against Sigaba, filed after the ‘647 patent was issued to PostX in November 2002, is also sham litigation. Id.

at ¶ 23. According to Sigaba’s counterclaims, PostX conspired with counterdefendant the Mayfield Funds

(“Mayfield”) and attempted to monopolize the marketfor non-PKI-based Secure DocumentDeliverySystems.

Id. at ¶¶ 10-11. The Mayfield Funds are the investment vehicles for a venture capital firm that invested in

PostX multiple times since 1998 and has owned approximately 20% of PostX’s stock during this time. 

Now before the Court are four summary judgment motions filed by the parties: (1) Sigaba’s motion

for summary adjudication of PostX’s unfair competition claim; (2) PostX’s motion for summary adjudication

of Noerr-Pennington immunity as to the antitrust and false advertising counterclaims; (3) PostX’s motion for

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summary adjudication ofSigaba’s ShermanAct counterclaims (Counts I, II, and III); and (4) PostX’s motion

forsummary adjudication ofSigaba’s Fourth and Sixth counterclaims (the LanhamAct and common law unfair

competition counterclaims).

LEGAL STANDARD

Summary judgment or adjudication is proper when "the pleadings, depositions, answers to

interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to

any materialfact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c).

In a motion forsummary judgment, "[if] the moving party forsummary judgment meets itsinitialburden

ofidentifying forthe court those portions of the materials on file that it believes demonstrate the absence of any

genuine issues ofmaterialfact, the burden ofproduction then shifts so that the non-moving party mustsetforth,

by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial."

See T.W. Elec. Service, Inc., v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 ( 9th Cir. 1987) (citing

Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 317 (1986)). In judging evidence at the summary

judgment stage, the court does not make credibility determinations or weigh conflicting evidence, and draws

all inferences in the light most favorable to the non-moving party. See T.W. Electric, 809 F.2d at 630-31

(citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348 (1986)); Ting

v. United States, 927 F.2d 1504, 1509 (9th Cir. 1991). The evidence presented by the parties must be

admissible. Fed. R. Civ. P. 56(e). Conclusory, speculative testimony in affidavits and moving papers is

insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Publ'g Co., Inc. v. GTE

Corp., 594 F.2d 730, 738 (9th Cir. 1979). 

DISCUSSION

I. Sigaba’s motion for summary adjudication of PostX’s common law unfair competition claim

Sigaba contends that it is entitled to summary adjudication because PostX cannot show that Sigaba

used any informationprovided by James Reid to win an account with Fidelity bank. As a threshold matter, the

parties dispute whether PostX has alleged damages from unfair competition for a single customer – Fidelity –

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or whether it may also seek unfair competition damages unrelated to this account. In its responses to Sigaba’s

interrogatories regarding the unfair competition claim, PostX stated:

As a result ofthe informationprovided to it by Reid, Sigaba learned what First Union’ssecure

development delivery needs were, who at First Unionwas in favor of the PostX solution and

who was against it, and who was involved in negotiating contracts on behalf ofFirst Union and

used this information to solicit First Union as a customer . . . Additionally, Sigaba used the

information it obtained from Reid in order to interfere with PostX’s contractual relationships

with Schwab and DST.

Fisher Decl., Ex. F at 4:9-16. 

PostX responded to the interrogatory regarding the damages it suffered as a result of Sigaba’s alleged unfair

competition by stating: “PostX’s damages include lost customers opportunities, which include, at a minimum,

the Fidelity account.” Id. at 7:24-25. According to Sigaba, these statements limit PostX’s claim for damages

to the Fidelity account, and this account is the only one discussed in the report of Michael Wagner, PostX’s

damages expert. As PostX points out, the Wagner report is not limited in this way, but rather specifies two

categories ofdamages:(1) $1,514,447 fromthe lost Fidelity account, and (2) the $487,644 “opportunity cost”

of an additional 1,400 hours PostX spent servicing actual and potential clients. The Court concludes that

PostX’s alleged unfair competition damages include both of these figures.

Sigaba contends that PostX cannot prove that Sigaba won the Fidelity account because of the

informationprovided by Reid. According to Sigaba, its relationship with Fidelity predated any contact between

Reid and Sigaba, and PostX lacks any evidence that Sigaba actually used information provided by Reid to

interfere with PostX’s customers. In addition, Sigaba contends that, even if it obtained and used confidential

informationfromReid about the “technical deficiencies” in PostX’s technology, specifically, the use of “out-ofband passwords” and 8-bit encryption, this conduct does not constitute the tort of unfair competition. 

It is possible that the “technical deficiencies” allegedly pointed out by Sigaba representatives to

prospective PostX customers would not, in isolation, give rise to an unfair competition claim. Sigaba

distinguishes this allegation from the leading unfair competition cases, United States Golf Ass’n v. Arroyo

Software Corp., 69 Cal. App. 4th 607 (1999), and City Solutions v. Clear Channel Communications, Inc.,

365 F.3d 835 (9th Cir. 2004), which did not involve a comparison between one’s own product and a

competitor’s. To establish unfair competition under California law, a plaintiff must show: (1) that the plaintiff

invested substantialtime,skill or money in developing its property; (2) that the defendant appropriated and used

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 Reid was also bound by a Non-Disclosure Agreement with PostX. See Ullman Decl., Ex. A.

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this property at little or no cost; (3) that the defendant’s appropriation and use ofthe property was without the

plaintiff’s authorization or consent; and (4) injury. City Solutions, Inc., 365 F.3d at 842. The Court agrees

that this allegation cannot, on its own, form the basis for PostX’s unfair competition claim, in part because it

is difficult to see how pointing out the differences between two products is an appropriation or use of the

plaintiff’s confidential information. 

Nonetheless, the Court findsthat PostX has raised a triable issue offact on the unfair competition claim

based on circumstantialevidence. PostX’s claim rests on alleged disclosures made by James Reid of PostX’s

confidential information to Sigaba after he left PostX on April 4, 2002. Reid was terminated from PostX and

signed a Separation Agreement stating that he would keep confidential “all information [he] received while

employed by Company concerning Company’s products and procedures, the identities of Company

customer’s, Company’s sales, Company’s prices, the terms ofany ofCompany’s contracts with third parties,

and the like.” Ullman Decl., Ex. C.3 In a declaration submitted in this case on March 25, 2003, Reid disclosed

that he had met with Sigaba representatives after he left PostX. In a June 11, 2002 email to Stanley Chin, a

Sigaba consultant, Reid provided a list of PostX customers with whom he had interacted, including Schwab,

Fidelty, First Union, Morgan Stanley, Bank ofAmerica, Wells Fargo, Prudential, Aetna, DST, and Ceridian.

Bell Decl., Ex. A. Chin sent this list to Sigaba’s President and CFO the next day, with the message: “Roger

fyi John, you and I should get together on this!” Id. PostX also points to a memo written by Sigaba’s

Chairman and CEO Robert Cook, describing a discussionwith Reid on approximately June 14, 2002:“Heard

from Jim Reid that Mike Seychols, the CEO of PostX got blown out by the board and they had big layoffs.

It is time to kick them to death, now that they are down. Need to get to DST, Metavanta, ACI, and the whole

bunch.” Bell Decl., Ex. B. According to another email, a Sigaba consultant stated that he had tried to reach

Reid, and John Ferraro of Sigaba replied, “If you get him ask him how many total customers PostX has.” Id.

at Ex. C. PostX contends that Reid began consulting with Robert Cook on a regular basis, beginning on May

5, 2002, and ultimately met with Sigaba executives and consultants. Fisher Decl. ¶ 5, Ex. E. 

Viewing this evidence in the light most favorable to PostX, as the Court must in deciding this motion,

it is clear that there is more than a scintilla of evidence thatReid provided confidentialinformationto Sigaba and

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4

 Sigaba offers evidence to refute the statement by PostX CTO Cayce Ullmanthat, before May 2002,

PostX had “rarely observed Sigaba to be actively competing for the same customers as PostX.” Ullman Decl.

¶ 6. Specifically, Sigaba cites documents and testimony from Ullman’s deposition demonstrating that PostX

executives, including Ullman, considered Sigaba a close competitor long before May 2002. It is well-settled

that a party cannot create an issue offact by submitting a declaration that conflicts with his own priortestimony.

Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 266 (9th Cir. 1991). The Court agrees that this portion of

Ullman’s declaration does not create a fact issue; however, it findsthat there are other triable issues precluding

summary judgment.

5 The Court’s grant of PostX’s motion for summary judgment of Counts I and III, based on the

intracorporate conspiracy doctrine, renders this motion partially moot. However, the Court must consider the

Noerr-Pennington issue with respect to Count II and the Lanham Act claim.

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that Sigaba used it to interfere with PostX’s customer relationships. The alleged confidential information

includes information about PostX’s operations, marketing, product and sales strategy, management strategy,

and personneldecisions. Fisher Decl., Ex. F. 7:24-25. While the customer list contained in the June 11, 2002

Chin email does not itself constitute this proprietary material, the trailofemails creates a triable issue on whether

Reid provided confidentialPostX informationthatSigaba used to its competitive advantage. In addition, PostX

raises questions about the credibility of Sigaba witnesses Reid, Chin, Cook, and Ferraro, who gave conflicting

and somewhat curious descriptions of their contacts with Reid. Considering the evidence in the appropriate

light, these credibility issues are for the jury.4

Accordingly, summary adjudication is DENIED as to this claim.

II. PostX’s motionfor summary adjudicationofNoerr-PenningtonimmunityonSigaba’s antitrust

and false advertising counterclaims

PostX seekssummaryadjudicationofSigaba’s antitrust and false advertising counterclaims on grounds

that the patentinfringementand trade secret misappropriation claims brought by PostX did not constitute “sham

litigation,” and therefore PostX is entitled to immunity under the Noerr-Pennington doctrine. This motion

applies to Count I (for restraint of trade under Sherman Act § 1 against PostX and Mayfield); Count II (for

attempted monopolization under Sherman Act § 2 against PostX); Count III (for conspiracy to attempt

monopolization under Sherman Act § 2 against PostX and Mayfield); and Count IV (for false and misleading

advertising under the Lanham Act, against PostX).5

The Noerr-Pennington doctrine protects from antitrust liability those who petition the government in

order to secure or amend their rights. See Eastern Railroad Presidents Conference v. Noerr Motor Freight,

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 The Supreme Court cautioned that, “[o]f course, even a plaintiff who defeats the defendant’s claim

to Noerr immunity by demonstrating both the objective and subjective components of a sham must still prove

a substantial antitrust violation. Proof of a shammerely deprives the defendant ofimmunity; it does not relieve

the plaintiff of the obligation to establish all other elements of his claim.” Id. at 60.

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Inc., 365 U. S. 127 (1961); United Mine Workers ofAmerica v. Pennington, 381 U.S. 657 (1965). This right

includes litigation, see California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508 (1972), but does

not include “sham” or baseless litigation. The issue before the Court is whether PostX’s patent and trade

secrets misappropriation claims were sham litigation within the meaning ofProfessionalRealEstate Investors,

Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 60 (1993) (“PREI”). 

In PREI, the Supreme Court provided a two-part definition of sham litigation:

First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could

realistically expect success on the merits. If an objective litigant could conclude that the suit

is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and

an antitrust claim premised on the sham exception must fail. Only if a challenged litigation is

objectively meritless may a court examine the litigant’s subjective motivations. Under this

second part of our definition of sham, the court should focus on whether the baseless lawsuit

conceals “an attempt to interfere directly with the business relationships of a competitor, . . .

through the use [of] the governmental process, – as opposed to the outcome of that process

– as an anticompetitive weapon. 

PREI, 508 U.S. at 60 (citations omitted, emphasis original). 

For the “objectively baseless” prong, the Supreme Court borrowed the “notion of probable cause, as

understood and applied in the common-law tort ofwrongful civil proceedings,” and held that “the existence of

probable cause to institute legalproceedings precludes a finding that an antitrust defendant has engaged in sham

litigation.” Id. at 62. Probable cause “requires no more than a reasonable belief that there is a chance that [a]

claim may be held valid upon adjudication.” Id. (citations omitted). Thus, a finding that an antitrust defendant

had probable cause to sue entitles that defendant to Noerr-Pennington immunity.6

In the patent infringement context, the probable cause inquiry is whether a reasonable litigant could

believe that therewas a chance ofprevailing on a claim that an accused product(here, Sigaba’s SendAnywhere

configuration) met the limitations of the patent. This analysis must consider objective reasonableness in light

of the infringement plaintiff’s knowledge at the time the suit was instituted, but may not consider the plaintiff’s

intent. Sheldon Appel Co. v. Albert & Oliker, 47 Cal. 3d 863, 881 (1989). The Court is mindful that, under

PREI, Sigaba must first show that there was no objective merit to the suit when it was filed before the

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 Sigaba also argues that, under the Ninth Circuit’s holding in USS-POSCO Indus. v. Contra Costa

County Bldg. & Constr. Trades Council, 31 F. 3d 800, 811 (9th Cir. 1994), the objective prong ofPREI does

not apply and instead the Court should apply Cal. Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508

(1972), where the Supreme Court held that litigationmay be deemed a shamif a party files a series of lawsuits,

in which case “the question is not whether any one ofthemhas merit . . . but whether they are brought pursuant

to a policy of starting legal proceedings without regard to the merits and for the purpose of injuring a market

rival.” USS-POSCO, 31 F.3d at 810-811. According to Sigaba, in addition to the two infringement suits

regarding the ‘688 and ‘647 patents, the Court should also consider PostX’s two amendments to the complaint

to add additionalparties and claims as well as itslater infringement contentions regarding two accused products

notmentioned in the originalcomplaint. See Def.’s Opp’n re:Antitrust Immun. at 23:18-24:7. The Court finds

that the two related lawsuits – including the amendments and additional infringement contentions – do not

constitute the “whole series of legal proceedings” anticipated by USS-POSCO, and therefore the PREI test

is the appropriate one.

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 PostX raises various objections to the Cook and Suplee reports. Specifically, it contends that Cook

and Suplee lack the skill in the area of secure messaging to offer construction of the patent claims; that Suplee

is not even a patent attorney, and that he impermissibly relied on another patent attorney, Rob McKinley, who

drafted the expert report; and that Cook and Suplee did not apply the correct “probable cause” and

“reasonable litigant” standards ofPREI. Because the Court concludes that, even taking into account the Cook

and Suplee reports, PostX is entitled to summary judgment, it does not rule on these objections.

In addition, PostX points out that, instead ofsubmitting “reply” reports to Larry Nixon’s April 8, 2005

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subjective intent of individual PostX representatives becomes an issue.7

A. Patent infringement claims

Sigaba contends that summary judgment is precluded by (1) a “battle of the experts” offered by each

party on the issue of probable cause;(2) the admission by Cayce Ullman, PostX’s CTO, that the lawsuit was

without technical merit, and (3) PostX’s failure to conduct an adequate pre-filing evaluation.

1. Expert opinions

Sigaba contends that there is a “classic ‘battle of the experts’” on the issue of whether, at the time the

lawsuits were filed, no reasonable litigant would have believed that there was a realistic chance that Sigaba’s

product infringed the ‘688 and ‘647 patents. In support ofits motion, PostX submits declarations frompatent

lawyer Larry Nixon and PostX CEO ThampyThomas, opining that a reasonable litigant would have probable

cause to believe that the ‘688 patent was infringed because there was an objective basis for believing that the

Court would adopt PostX’s claim constructions, and for believing that the Court might find infringement under

the doctrine of equivalents. In support of its opposition, Sigaba submits the expert reports of lawyers Roger

L. Cook, and Dennis R. Suplee, which were disclosed on March 4, 2005.8 According to Sigaba, its experts

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rebuttal report, Sigaba submitted new declarations by Cook and Suplee on June 20, 2005, in support of its

opposition to this summary adjudicationmotion, and attached the expert reports to those declarations. These

declarations contain opinions that the doctrine of equivalents does not apply, while the original Cook and

Suplee reports did not address this issue, and thus PostX argues that the declarations amount to untimely and

prejudicial second rebuttal reports to which it has not had an adequate opportunity to respond. The Court

agrees, and hereby EXCLUDES the Cook and Suplee declarations. It still considers the Cook and Suplee

expert reports themselves, which were properly disclosed. 

10

have concluded that a reasonable litigant in PostX’s position at the time it filed the lawsuits could not have

expected a realistic chance ofprevailing on the merits. Sigaba also argues that Larry Nixon’s declaration relies

heavily on the opinions ofThampy Thomas, a crucial fact witness of questionable credibility, and that PostX’s

experts have impermissibly proffered claim construction arguments different from those advanced during prior

phases of this litigation. PostX contends that these experts disagree primarily on claim construction, not on a

factualissue regarding what a reasonable litigant would have believed. In addition, they disagree about whether

a reasonable litigant could have believed it had a realistic chance of prevailing on a doctrine of equivalents

theory. Both issues, according to PostX, are matters of law to be decided by the Court, and do not preclude

summary judgment.

a. Claim construction

The Court agrees with PostX that the battle of the experts joined by the parties here does not create

a triable issue for a jury to decide. Under Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir.

1995) (en banc), aff’d, 517 U.S. 370 (1996), claim construction is an issue for the court, not the jury. The

expert opinions all address whether a reasonable litigant could have believed that Sigaba’s SendAnywhere

configuration met the claim limitations based on reasonable claim constructions. See Suplee Report at 5-9;

Cook Report at 6-12; Nixon Report at 6-17. For the ‘688 patent, they address the constructions of the

following terms, among others: (1) “‘a’ first computer”; (2) “opening said email message”; and (3) “initiate

automatic generation and transmission of the return receipt.” For the ‘647 patent, they address claim

constructionofthe terms:(1) “storing password data and trade details data in a database”; and (2)“encrypting

an electronic envelope and a trade confirmation document based on the trade details data and the password

data.” 

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For the ‘688 patent, Sigaba and its experts state that: (1) PostX’s construction of “a first computer”

as “one or more” computers was a futile interpretation because there was no single computer in the

SendAnywhere configuration that performed the three functions of transmitting an email message, transmitting

the executable software, and receiving a return receipt; (2) the proposed construction of “opening said email

message” as also opening an attachment to the email message was futile because the accused productrequired

double-clicking on an email attachment before the executable software would run, not just opening a

SendAnywhere email message;(3) SendAnywhere does not perform “automatic” generation and transmission

of a return receipt, as required by the claims, but rather requires the recipient to manually provide a username

and password; and (4) Sigaba’s software does not “generate” a return receipt, as required by the claims and

indicated by the file wrapper forthe ‘688 patent. For the ‘647 patent, Cook and Suplee opine that: (1) PostX

again advanced the erroneous claim construction that “a database” where two types of data could be stored

referred to “one or more” separate databases, which is how the Sigaba software stores data; and (2) PostX

frivolously argued that Sigaba’s products met the claim requirement that encryption be “based on” password

data even though Sigaba’s products did not use password data for encryption. 

While the Court did not adopt PostX’s proposed constructions of various claim terms, it nonetheless

finds that there was probable cause for PostX to believe there was infringement based on its constructions.

In PREI, the Supreme Court specifically cautioned that, “when the antitrust defendant has lost the underlying

litigation, a court must resist the understandable temptation to engage in post hoc reasoning by concluding that

an ultimately unsuccessful actionmust have beenunreasonable or without foundation.” 508 U.S. at 61 n.5. The

Court agrees with PostX thatCook and Suplee base their analyses on the claim constructions adopted by the

Court at the end of the litigation, not on what constructions might have seemed reasonable at the time the suit

was filed. For the ‘688 patent, the Court did not adopt PostX’s proposed construction of “a first computer”

as “one or more” computers, but there are Federal Circuit cases construing “a” as both singular and plural, and

the Court cannotsay that no reasonable litigant would have believed it could prevail on PostX’s construction.

Compare Crystal Semiconductor Corp. v. TriTech Microelectronics Int’l, Inc., 246 F.3d 1336, 1347 (Fed.

Cir. 2001), and KCJ Corp. v. Kinetic Concepts, Inc., 223 F.3d 1351, 1356 (Fed. Cir. 2000), with Abtox,

Inc. v. Exitron Corp., 122 F.3d 1019, 1023 (Fed. Cir. 1997). The Court also found that there was no

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infringement because the claim limitation of “opening said email message” referred only to opening an email

itself, not also opening an attachment to the email, but the Court does not accept the brief and conclusory

statements ofSigaba’s experts that the Court’s interpretationwas the only reasonable one. See Suplee Report

at 7; Cook Report at 9. PostX also proposed that generation of a return receipt could be “automatic” even

if an individual must enter a password to generate the return receipt, and while the Court did not adopt this

construction, it did not rely on this construction foritsfinding of non-infringement. PostX’s expert Nixon also

opinesthat, because claim 12 requires the executable software to “initiate automatic generationand transmission

ofsaid return receipt,” it does not clearly require the software itself to generate the return receipt. With respect

to the ‘647 patent, PostX argued that “a database” could mean “one or more databases,” and while the Court

did not adopt PostX’s proposed construction, it was reasonable for the same reasons regarding “a first

computer,” discussed above. 

The Court also observes that, in the patent infringement context, the PREI inquiry is complicated by

the fact that it would be very difficult for any reasonable litigant to predict how a district court might construe

the relevant claims and how a reviewing court might rule on the district court’s claim construction. Moreover,

if these expert opinions were presented to a jury, the jury would be deciding which claim construction

arguments were “reasonable” and which were “futile” – undoubtedly a question oflaw intended for the Court.

At oralargument, counselfor Sigaba pointed outthatthese considerations, taken to their logicalextreme, would

prevent virtually any finding of sham litigation in a patent case. This point is well-taken, and the Court agrees

that plaintiffs should not feel free to file objectively baseless claims with impunity simply because of the

complexity and unpredictability of patent litigation. Here, however, because the probable cause analysis rests

on claim construction, and the Court finds that PostX’s claims were not objectively baseless, this case is not

an appropriate example of how sham patent litigation should be treated by the courts.

PostX’s motion for summary adjudication on grounds of Noerr-Pennington immunity is GRANTED

as to the antitrust claims.

b. Doctrine of equivalents

PostX expert Larry Nixon opines that a reasonable litigant would also have had probable cause to

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 Whether prosecution history estoppel applies, and whether the doctrine of equivalents is available,

are questions of law for the Court. Festo Corp. v. Shoketsu Kinzoku Kogyo KabushikiCo., Ltd., 344 F.3d

1359, 1367-68 (Fed. Cir. 2003). Under the doctrine of prosecution history estoppel, a narrowing amendment

made for a substantialreason related to patentability resultsin the surrender of all territory between the original

claim limitation and the amended claim limitation. Id. at 1367. 

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believe that the SendAnywhere configuration infringed the ‘688 patent under the doctrine of equivalents.

Through the declarations of Cook and Suplee, Sigaba contends that the Court cannot consider a doctrine of

equivalents argument because PostX did not present it during the summary judgment phase of the case, and

because the argument is precluded by prosecution history estoppel.

The Court has excluded the Cook and Suplee declarations on grounds that they constitute untimely and

prejudicial second rebuttal expert reports. Therefore, it does not reach the merits of their doctrine of

equivalents arguments or consider whether such arguments are precluded.9 Nonetheless, the Court notes that,

under PREI, PostX may advance infringement arguments not previously presented on summary judgment.

PREI analysis requires an assessment of what a reasonable litigant would have believed on the basis of facts

known to it. Sigaba cites no authority for the proposition that this reasonable litigant is bound by the positions

it asserted when it filed the suit, and indeed such a constraint would be surprising in light ofthe objective nature

of the probable cause standard and the fact that the existence of probable cause is measured at the time of

filing, not at various later stages of the litigation. 

2. Admission of Cayce Ullman

According to Sigaba, PostX CTO Cayce Ullman made admissions to James Reid and Diana

Rubalcaba that he “knew of no technically valid basis for the suit,”; that “there is no merit to the case,” but

“we’re doing it”; and that the suit was “intended to slow the progress of Sigaba.” See Fisher Decl., Ex. V at

¶ 3, Ex. U at ¶ 11. Sigaba argues that this evidence is independently sufficient to preclude summary judgment

because no reasonable litigant who knows that his lawsuit lacks technicalmerit would expect a realistic chance

of success. PostX contends that Ullman’s alleged admissions reveal only his subjective beliefs about the

likelihood of the lawsuit’s success and do not factor into the objective analysis of what a reasonable litigant

would have believed. The Court agrees with PostX, and finds that Ullman’s statements do not preclude

summary judgment.

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3. Prefiling investigation

The parties also dispute the relevance of Rule 11's requirement of an adequate prefiling investigation

to a finding of probable cause under PREI. Sigaba contends that PostX’s haste in filing suit led it to conduct

an inadequate investigation and that this violation of Rule 11 is sufficient grounds to deny summary judgment.

According to Sigaba, the Supreme Court in PREI endorsed Rule 11 standards in assessing whether a lawsuit

is objectively baseless. PostX argues that the conduct of an actual litigant in conducting a prefiling investigation

is not relevant to the objective inquiry contemplated by the first prong of PREI. For the ‘647 patent, PostX

contends that its pre-filing investigation fell within the “safe harbor” provided by Hoffman-La Roche, Inc. v.

Invamed, Inc., 213 F.3d 1359 (Fed. Cir. 2000). 

The PREI court made reference to the 1987 version of Federal Rule of Civil Procedure 11, then in

effect, and stated that the action at issue in the case was arguably “warranted by existing law” or at the very

least was based on an objectively “good faith argument forthe extension, modification, or reversal of existing

law.” PREI, 508 U.S. at 65, citing Fed. R. Civ. P. 11. The PREI opinion neither references nor expressly

adopts the Rule 11 requirement that an attorney must represent to the court that a filing is based on a

“reasonable inquiry,” and thus it does not appear that PostX’s investigation is material to the PREI inquiry.

Moreover, the details of PostX’s prefiling investigation are not before the Court, in part because no Rule 11

motion has been made and PostX has claimed attorney-client privilege and work product protection, and

therefore it is impossible for the Court to decide whether that investigation was indeed “inadequate.” 

With respect to the ‘647 patent, PostX admits that, at the time of filing the second infringement suit,

it did not have sufficient information about Sigaba’s products to conclude that there was infringement. See

Cooper Decl., Ex. I at 7 (Response to Interrogatory No. 10:“Priorto filing, PostX reviewed Sigaba’s website

and determined that Sigaba had begun offering an application for trade confirmation. PostX then wrote to

Sigaba requesting informationregarding how Sigaba’s trade confirmation product worked. Sigaba refused to

provided any informationby which infringement, or non-infringement, could be determined.”). PostX also had

the patent reviewed by an expert, who concluded thatfurther technicalinformationwould be required for a full

infringement analysis. PostX argues that, under these circumstances, the “safe harbor” of Hoffman-La Roche

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applies. In Hoffman-La Roche, the FederalCircuit affirmed a district court’s denialofRule 11 sanctions where

the plaintiff requested technical information from the defendant, which the defendant refused to provide, and

the plaintiff then unsuccessfully attempted to reverse engineer the process for manufacturing defendant’s

product. It then filed suit for infringement. Once the defendant provided the requested information, the plaintiff

dismissed the suit. Here, PostX contends that it performed the same type of prefiling investigation as the

plaintiff in Hoffman-La Roche, because it believed the ‘647 patent to be infringed, sought information that

would confirm or deny its suspicions, and consulted experts regarding technical aspects ofthe patent. Sigaba

argues that PostX’s conduct was entirely insufficient under this standard because it did not perform adequate

infringement analysis or attempt to reverse engineer the product. 

For the reasons stated above, the Court does not consider PostX’s prefiling investigation material to

the PREI analysis. But even if it were, because the full details of PostX’s investigation have not been presented,

and because Sigaba’s refusal to provide technical details of the product is substantially the reason for any

deficiencies in the infringement analysis, PostX would likely be entitled to the Hoffman-La Roche safe harbor.

B. Trade secret misappropriation claim

PostX also argues that its trade secret misappropriation claim, which it added to the complaint by

amendment, was not objectively baseless because a reasonable litigant would have had probable cause to

believe thatReid and Sigaba had misappropriated PostX trade secrets. Specifically, PostX cites a declaration

from Reid revealing that he had been consulting for Sigaba shortly after his termination from PostX in April

2002, the factthat Sigaba had begun appearing at PostX’s prospective customers, and the June 11, 2002 Chin

email as evidence that the probable cause standard has been met.

Sigaba does notseparately addressthe trade secret misappropriation claim in its opposition and makes

no evidentiary showing specific to that claim. It states in a footnote: “PostX’s subsequently-added trade secret

misappropriation claims were also objectively baseless, for the reasons discussed in the expert report of

Messrs. Suplee and Cook. See Exhibit A to the supporting declarations of Messrs. Cook and Suplee, filed

herewith.” Def.’s Opp’n re:Antitrust Immun. at 3 n. 3. As PostX argues, this brief statement is insufficient to

raise a genuine issue of material fact about whether the trade secret misappropriation claim was objectively

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baseless. In addition, the Court’s grant ofsummary judgment on PostX’s UTSA claim was based on a purely

procedural ground: PostX’s failure to adequately disclose its trade secrets in its § 2019(d) designation. The

adverse ruling on this claim certainly does not meet the PREI standard for objective baselessness. 

Accordingly, PostX is also entitled to immunity with respect to this claim. Because this claim was

previously dismissed, PostX does not seek, and the Court does not grant, summary adjudication as to this

claim.

C. Lanham Act claim

PostX argues that Noerr-Pennington immunity also protects if against Sigaba’s Fourth Counterclaim

for violation of the Lanham Act. Sigaba disputes this contention and argues that it may still have a viable

LanhamAct claim even ifthe Court finds that the patent litigationwas not a sham. See Def.’s Opp’n re:Fourth

and Sixth Counterclaims at 2 n. 1. To establish a Lanham Act claim under Section 43(a), Sigaba must show:

(1) a false statement of fact in a commercial advertisement about PostX’s or another’s product; (2) the

statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the

deception is material, in that it is likely to influence the purchasing decision; (4) PostX caused itsfalse statement

to enter interstate commerce; and (5) there has been or is likely to be injury, either by a direct diversion ofsales

or by a lessening ofthe goodwill associated with its products. Southland Sod Farms v. Stover Seed Co., 108

F.3d 1134, 1139 (9th Cir. 1997). A party may assert a violation under section 43(a) of the Lanham Act for

false infringement allegations. In addition to the elements of a section 43(a) violation, such a claim also requires

a showing ofbad faith. Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1353 (Fed. Cir. 1999)(“[t]his

prerequisite is a function of the interaction between the Lanham Act and patent law, and is in addition to the

elements required by § 43(a) itself.”). However, a Lanham Act claim based on a false claim of infringement

does not require a showing of objective baselessness, and thus the Court’s finding that PostX’s suit was not

objectively baseless under PREI does not control the viability of Sigaba’s Lanham Act counterclaim.

Summary adjudication based on Noerr-Pennington immunity is DENIED as to this claim.

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III. PostX’s motion for summary adjudication of Sigaba’s Sherman Act counterclaims

This motion is rendered partially moot by the Court’s ruling on PostX’s prior motion for summary

judgment of Counts I and III, the antitrust conspiracy counterclaims, which has been GRANTED for the

reasons stated in the accompanying order. This motion is also rendered moot as to Count II by the Court’s

finding that PostX is entitled to Noerr-Pennington immunity, discussed in Part II, above.

Accordingly, the motion is DENIED as moot. 

IV. PostX’s motion for summary adjudication of Sigaba’s Fourth and Sixth 

counterclaims (Lanham Act and common law unfair competition)

A. Lanham Act claim

PostX contends that it is entitled to summary adjudication on Sigaba’s Lanham Act claim because

Sigaba cannot establish damages forthis claim. Sigaba seeks both damages and injunctive relief for its Lanham

Act claim. The Ninth Circuit has held that a party need not prove injury when suing forinjunctive reliefunder

the Act, see Harper House, Inc. v. Thomas Nelson, Inc., 889 F.2d 197, 210 (9th Cir. 1987), and that “an

inability to show actual damages does not alone preclude a recovery under section 1117.” Lindy Pen Co. v.

Bic Pen Corp., 982 F.2d 1400, 1411 (9th Cir. 1993). “[T]he preferred approach allows the district court

in its discretion to fashionrelief, including monetary relief, based onthe totalityofthe circumstances.” Southland

Sod, supra, 108 F.3d at 1146, citing Lindy Pen, 982 F.2d at 1411. Particularly for claims of false advertising

under section 43(a), a plaintiff may simply demonstrate falsity without a showing of consumer confusion or

reaction. Id.; Lindy Pen, 982 F.2d at 1411.

In its LanhamAct claim, Sigaba allegesthat PostX widely publicized itssuit against Sigaba to potential

customers, and that it went so far as to leave on its website a press release regarding the alleged infringement

formonths after the FederalCircuit had affirmed this Court’s findings ofnon-infringement. In addition, it points

to evidence of significant damages, including (1) testimony from Sigaba personnelabout how the infringement

suit “froze” the market and impacted customers’ decisions, (2) testimony from customers about the effect of

the litigation on their purchasing decisions, and (3) diversion ofresources and loss of personnel because of the

suit. 

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10 For example, Sigaba offers double hearsay through the testimony of Jim Reid that, in a discussion

with Kevin Glen ofPutnam, he was told about “an individual– he wouldn’t tell me who – fromPostX had come

out and described in detail the nature of the lawsuit, what had happened so far and what they believed the

outcome would be, and he said that that weighed in his decision as an element in his decision.” Fisher Decl.,

Ex. MM (J. Reid Depo.) at 553:9-16. Robert Cook testified that he spoke to two people at CitiGroup, and

“[t]hey said that the risk of going forward and having to rip everything out was an unacceptable risk.” Id. at

Ex. HH (R. Cook Depo.) at 215:16-216:8.

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PostX raises objections to some of this evidence, including hearsay objections to the statements of

Sigaba personnel regarding what various customers told them about the lawsuit’s impact on their purchasing

decisions. The Court finds that most of the statements by Sigaba personnel are inadmissible hearsay, and they

do not fall within the state of mind exception to the hearsay rule, as Sigaba contends.10

Despite this objectionable evidence, and although there is also proof that the litigation did not change

the ultimate purchasing decisions of these customers, the Court finds that a reasonable jury could find injury

based on the totality of the circumstances. In a September 17, 2002 press release, PostX claimed that the

‘688 patent “has been and continues to be infringed upon by Sigaba Secure Mail and Secure Statements

products, among others,” and left this press release up on the website until March 2005, after the Federal

Circuit’s affirmance ofthe Court’s grant ofsummary judgment of noninfringement in November 2004. Sigaba

identifies admissible evidence fromthird party customers suggesting that the lawsuit at least delayed or affected

some of their decisions. For example, Nationwide decided “to not have Sigaba participate in any evaluation

until the legal issues are addressed,” recognized that “the issue of the lawsuit was going to be a factor as it

related to a final decision of either one of these products,” and sought an indemnification clause; and Bank of

America, which had just signed a contract with Sigaba, felt that the lawsuit “had an immediate impact,” and

performed additionaldue diligence on Sigaba before ultimately awarding themthe deal. Fisher Decl., Exs. TT,

UU, VV. There is also evidence of a diversion ofresources at Sigaba – at least 5,000 hours spent by Sigaba

personnel – to the lawsuit. See Decl. of Rodger K. Kobayashi ¶¶ 4-5. 

Also weighing in the totality ofthe circumstances is the expertreport ofDr. Frederick Warren-Boulton.

PostX contends that this report is limited to antitrust damages, and thus it cannot be considered in support of

the Lanham Act and unfair competition claims. PostX has also submitted the 146-page Declaration of

Professors Portia I. Bass and Frank M. Bass, the creators of the “Bass diffusion model” used byDr. WarrenBoulton. The Basses state that there are substantial mathematical differences between their model and WarrenCase 3:02-cv-04483-SI Document 833 Filed 08/17/05 Page 18 of 21
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11 Sigaba’s initialexpert report, which relied on the Bass model, was disclosed to PostX on March 4,

2005. Rebuttal reports were due April 15, 2005. PostX did not submit the Bass declaration until it filed its

reply brief in support of this summary judgment motion on July 5, 2005. 

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Bolton’s hypothesis, rendering the Warren-Boulton hypothesis a “radically different model,” a new approach

that has not been tested for reliability, and “a contrivance that can be used to produce any desired forecast”

with “no basis in theory or in empirical testing.” Bass Decl. at 16-18. Sigaba has moved to strike the Bass

declaration on grounds that it is an untimely and undisclosed expert report under Fed. R. Civ. P. 26(a)(2)(A).11

There is nothing in the Warren-Boulton report limiting it to Sherman Act damages alone, and indeed the expert

testified that his opinion was rendered regarding “anything that would involve damages.” Fisher Decl., Ex. JJ

(Warren-Boulton Depo.) at 198:11. The Bass Declaration, while untimely as an expert report, is a highly

relevant document on the issue of damages. Because there is sufficient other evidence of Lanham Act injury,

the impact ofthe Bass Declaration on the admissibility ofthe Warren-Boultonreport would be better addressed

through a Daubert motion than on summary judgment.

Because Sigaba has demonstrated a reasonable basis for damages under the Lanham Act, the Court

DENIES summary adjudication as to this claim.

B. Common law unfair competition claim

In its Answer and Counterclaims, Sigaba stated: “Because the Court has indicated in its Order dated

June 28, 2004 that a cause of action for common law unfair competition may lie where an entity obtains and

uses information of its competitor, Sigaba now alleges such a claim against PostX out of an abundance of

caution.” Answer and Counterclaims ¶ 74. PostX argues that summary judgment is proper because Sigaba

cannot establish any injury from Posts’s alleged use of Sigaba’s competitive information. In its interrogatory

responses regarding unfair competition damages, Sigaba referenced two prior interrogatories regarding the

particulars of the unfair competition claim, and then stated:

Sigaba’s damages include lost customer opportunities, the time and effort responding to the

disclosures relating to the baseless patent infringement lawsuits and misuse of confidential

Sigaba information, the costs, time and legalexpenses associated with defending itself against

PostX’s baseless patent infringementlawsuits and the indemnificationofSigaba’s potentialand

actual customers and partners, and the effort in repairing relations with these entities. In

addition to the categories of damages identified above, Sigaba’s damages also include

competitive injury, compensatory damages and the value of the commercial advantage or

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benefit conferred upon PostX as a result of the disclosure of Sigaba’s valuable customer

informationand business-related data to PostX. Sigaba will present expert testimony regarding

the value of these damages at trial.

Townsend Decl., Ex. S at 8-9. 

According to PostX, Sigaba never disclosed an unfair competition expert or report, despite a further

representationthat, ifPostX’s unfair competitionclaim survivedsummaryjudgment,unfair competitiondamages

would “be the subject of a rebuttal expert report submitted by Sigaba at the appropriate time.” Id. at Ex. U.

PostX contends that Sigaba has failed to make any showing on an essential element ofthis claim, and therefore

summary judgment is proper.

Sigaba’s unfair competition claim rests primarily on a “competitive evaluation” ofSigaba that included

confidentialinformation– specifically, the fact that Sigaba had no institutionalinvestors, whichThampyThomas

learned fromone ofSigaba’s founders – as well as non-confidentialfalse informationabout Sigaba’stechnology

and the patent infringement suit. Sigaba alleges that PostX circulated this evaluation in the marketplace to

discourage customers from doing business with Sigaba. Sigaba also alleges that PostX representatives

attempted to learn further sensitive information from Sigaba’s European distributor, but there is no evidence

that these attempts were actually successful. 

While Sigaba’s unfair competition claim seems factually weak, PostX’s motion is largely based on its

objection to the lack of a separate expert report on unfair competition damages, and to infirmities in the

Warren-Boulton report itself. As discussed above, the admissibility of the Warren-Boulton report is not

properly before the Court at this time, and would more appropriately be treated through a pretrial Daubert

motion. That report is not limited to Sherman Act damages, but instead considers damage in the form oflost

customers and future profits, increased costs to Sigaba, diversion ofresources to defend the lawsuit, diminution

in Sigaba’s market worth, and litigation costs. Viewing the evidence in the light most favorable to Sigaba, the

Court concludes that it has made a sufficient showing of injury from the alleged unfair competition. 

Accordingly, this motion is DENIED.

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CONCLUSION

For the foregoing reasons and for good cause shown, the Court hereby DENIES Sigaba’s motion

regarding PostX’s unfair competition claim; GRANTS PostX’s motion regarding antitrust immunity as to the

antitrust claims but DENIES it as to the Lanham Act claim; DENIES AS MOOT PostX’s motion regarding

Sigaba’s ShermanActcounterclaims; and DENIES PostX’s motion regarding Sigaba’s LanhamAct and unfair

competition counterclaims. [Docket #s 596, 617, 651, 659]

IT IS SO ORDERED.

Dated: August 16, 2005 

 

SUSAN ILLSTON

United States District Judge

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