Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-03746/USCOURTS-cand-5_04-cv-03746-7/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 17:101 Copyright Infringement

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United States District Court

For the Northern District of California

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*E-FILED 2/8/06*

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

CREATIVE SCIENCE SYSTEMS, INC., 

Plaintiff,

 v.

FOREX CAPITAL MARKETS, LLC., 

ET AL., 

Defendants. /

NO. 5:04-cv-3746 JF (RS)

ORDER DENYING PLAINTIFF'S

MOTION FOR SANCTIONS

I. INTRODUCTION

Plaintiff Creative Science Systems, Inc. ("CSS") moves for monetary sanctions against

defendant Forex Capital Markets, LLC ("FXCM") due to FXCM's alleged failure to respond to

discovery propounded by CSS. The motion was fully briefed and submitted on the papers pursuant

to Civil L. R. 7-1(b). Based on all papers filed to date, the Court denies the motion for sanctions for

the reasons set forth below.

II. BACKGROUND

This action stems from a dispute between the parties regarding the scope of a license

agreement obtained from CSS by FXCM covering the use of the Net Zyme Enterprise "middleware"

software system ("Net Zyme"). CSS alleges that FXCM made unauthorized copies of Net Zyme and

Case 5:04-cv-03746-JF Document 125 Filed 02/08/06 Page 1 of 4
United States District Court

For the Northern District of California

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1 CSS withdrew its motion to compel after FXCM produced the requested documents.

2

installed the software on substantially more than the number of computers for which installation was

authorized. CSS also contends that FXCM unlawfully copied CSS's copyrighted computer programs

without authorization, failed to pay for such additional authorization, and distributed certain

components of Net Zyme by including those components in software that FXCM and its customers

downloaded in order to access FXCM's systems. FXCM counterclaims that the Net Zyme software

could not handle 50,000 simultaneous users per CPU, as promised by CSS. FXCM also claims it

devoted enormous resources in an attempt to remedy the problem with the Net Zyme product.

CSS served discovery requests on FXCM including several document production requests

and interrogatories relating to FXCM's alleged infringement, FXCM's profits and financial

information, and FXCM's counterclaims. Although the parties met and conferred for more than four

months, no requested discovery was produced. CSS thereupon filed a motion to compel discovery

with an accompanying request for sanctions. The parties have apparently resolved the motion to

compel,1

 but CSS continues to seek sanctions on the grounds of discovery delay by FXCM.

III. STANDARDS

The Federal Rules of Civil Procedure authorize the imposition of sanctions for a party's

failure to provide discovery in response to valid requests. See Fed. R. Civ. Pro. 37(b)(2)(D). The

court's decision to award sanctions, including attorneys' fees and costs, is discretionary. See

National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 2780

(1976); Telluride Management Solutions, Inc. v. Telluride Investment Group, 55 F.3d 463, 465 (9th

Cir. 1995). 

Fed. R. Civ. Pro. 37(a)(4) also provides in pertinent part that, if a motion to compel is

granted, the court shall require the party whose conduct necessitated the motion to pay the moving

party the reasonable expenses incurred in obtaining the order, including attorneys' fees, unless the

court finds that the opposition to the motion was substantially justified or that other circumstances

make an award of expenses unjust. 

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United States District Court

For the Northern District of California

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28 3

IV. DISCUSSION

 The request for sanctions filed by CSS is procedurally defective in two respects. First, Civil

L. R. 7-8 requires that any request for sanctions be filed as a separate motion and scheduled for

hearing in compliance with Rule 7-2. As noted above, CSS did not file a separate motion for

sanctions, but simply included a request for sanctions in its original motion to compel. The request

for sanctions, therefore, fails to conform with the Court's Local Rules.

Second, it is improper for a moving party to introduce new facts in its reply brief other than

those presented in its moving papers. See Glenn K. Jackson v. Roe, 273 F.3d 1192, 1201-02 (9th

Cir. 2001)(district court has discretion to consider issued raised for the first time in reply brief). In

its request for sanctions, CSS originally requested that the Court reimburse its fees and costs

incurred as a result of the filing of the motion. In its reply brief, however, CSS asked for additional

discovery sanctions, such as the re-opening of discovery to take new depositions. Since this request

was raised for the first time in the reply brief, and the motion had already been submitted on the

papers by the Court, FXCM had no opportunity to respond or object to the new requests made by

CSS. As a result, based on these procedural defects, the request for sanctions is denied.

Moreover, while the record is not entirely clear since FXCM did not have an opportunity to

respond to the latest allegations raised by CSS, it does not appear that this is a situation in which an

award of sanctions is appropriate based on the facts that the motion to compel was withdrawn before

full briefing had occurred and, more importantly, that CSS obtained the discovery it requested from

FXCM. In the event that CSS claims it needs additional discovery as a result of information it only

recently received from FXCM, CSS may seek appropriate relief from the Court if it is unable to

resolve that dispute with FXCM. 

V. CONCLUSION

For the reasons set forth above, the Court denies the motion for sanctions.

IT IS SO ORDERED.

Dated: 2/8/06 

RICHARD SEEBORG

United States Magistrate Judge

Case 5:04-cv-03746-JF Document 125 Filed 02/08/06 Page 3 of 4
United States District Court

For the Northern District of California

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THIS IS TO CERTIFY THAT NOTICE OF THIS ORDER HAS BEEN DELIVERED TO:

John P. Bovich jbovich@reedsmith.com, ehaase@reedsmith.com

Robert T. Cruzen rcruzen@howardrice.com,

Scott H. Frewing scott.h.frewing@bakernet.com, diane.e.pierson@bakernet.com;

renata.thorgersen@bakernet.com; fsay@bakernet.com

Tod L. Gamlen tod.l.gamlen@bakernet.com, frances.m.say@bakernet.com;

renata.m.thorgersen@bakernet.com

Martin R. Glick mglick@howardrice.com,

Jonah D. Mitchell jmitchell@reedsmith.com, Drothschild@reedsmith.com

William R. Overend woverend@reedsmith.com, nctuttle@reedsmith.com

Maxim H. Waldbaum mwaldbaum@schiffhardin.com, jsanchez@schiffhardin.com

Keith L. Wurster keith.l.wurster@bakernet.com, robin.m.robledo@bakernet.com

Dated: 2/8/06 Chambers of Judge Richard Seeborg

By: /s/ Richard Seeborg 

Case 5:04-cv-03746-JF Document 125 Filed 02/08/06 Page 4 of 4