# United States **Court of Appeals**  **for the Federal Circuit**

______________________

In re : REARDEN LLC, REAR DEN MOVA LLC, MO2, LLC, MOVA, LLC,
Petitioners

______________________

2016

- 125

______________________

On Petition for Writ of Mandamus to the United States District Court for the Northern District of Califo rnia in No. 3:15

- cv

- 00797

- JST, Judge Jon S. Tigar.

______________________

ON PETITION

______________________

Before M OORE
, H UGHES
, and S TOLL
, Circuit Judges

. S TOLL
, Circuit Judge

. O R D E R

The defendants in the underlying case, Rearden LLC, Rearden MOVA LLC, MO2, LLC, and MOVA, LLC, petition for a writ of mandamus to challenge the district court’s order compelling them to produce allegedly priv ileged documents. We conclude we have jurisdiction to decide their petition. We further conclude that petitio ners’ arguments fail to carry the high burden required on mandamus to overturn the district court’s discovery determination . We therefore deny the ir petition.IN RE : REARDEN LLC 2

B ACKGROUND

A.

The central

, underlying dispute in this case is one of ownership. Both sides claim ownership of vis ual effects

t echnology known as “MOVA Contour Reality Capture ” or “MOVA.” MOVA technology can capture an actor’s facial performance for use in motion picture special effects and video games. The technology is secured by trademarks, copyrights, trade secrets, and pate nts, including U.S. Patent Nos. 7,548,272 (the ’ 272 patent)

, 7,567,293 (the

’ 293 patent)

, 7,605,861 (the ’ 861 patent)

, and 8,659,668 (the ’ 668 patent) , and the technology is reflected in har dware, source code, and other physical assets, all of which we will refer to collectively as the “MOVA assets. ” Both sides assert ownership of the MOVA assets. Because the facts are so fiercely contested, we first set forth the basic versions of events of the parties.

According to respondent Virtue Global Hold ing Li mited ’s (“VGHL”) version of events, Steve Perlman, the head of Rearden LLC and the other petitioners

, declined an offer from OL2, Inc. to acquire the MOVA assets and proposed OL 2 sell the assets instead to then

- Rearden employee, Greg LaSalle

. Perlman promised to pro vide legal resources to get the business of f the ground and introduced LaSalle to Rearden’s corporate a ttorney who helped LaSalle establish his own company, MO2, LLC

, 1 and negotiate the asset transfer with OL2.

In February 2013 , respondent says Perlman demanded that LaSalle turn over the MOVA assets to R earden.

1 There are two separate entities named “MO2, LLC” involved in this case: this MO2 entity, which we will also refer to as original MO2, and the later -formed “MO2, LLC” that is a named defendant and petitioner.IN RE : REARDEN LLC 3

LaSalle’s refusal to turn over the assets resulted in his termination of employment with Rearden. MO2, acting throu gh LaSalle, then sold the MOVA a ssets to She nzhenshi Haitiecheng Science and Technology Co., Ltd. (“SHST” ) on May 8, 2013. SHST hired LaSalle , and through SHST ’s subsidiary, Digital D omain 3.0 ( “ DD3 ”), began to sell the technology to movie and videogame studios. LaSalle then filed paperwork to dissolve MO2. VGHL subsequently obtained the MOVA assets from SHST.

Petitioners agree that the MOVA assets were tran sferred to MO2 but assert that SHST n ever obtained

owner ship . They contend that Perlman and Reard en, not LaSalle, formed original MO 2 to acquire the MOVA assets and hired LaSalle to file the corporate paperwork, acquir e the MOVA assets, and manage

, all on Rearden ’s behalf

. They contend that, pursuant to his employment agre ements, LaSal le assigned a ny rights in the MOVA assets to Rearden. They say that LaSalle was termin ated before May 8, 2013

, and lacked authority to act on MO2’s behalf. And, in any even t, they assert, original MO2 transferred the MOVA assets to Rearden M OVA LLC before the purported agree ment between LaSalle and SHST

. B.

This case began in F ebruary 2015. SHST filed a co mplaint in the United States District Court for the Nort hern District of Cali fornia, alleging that petitioners had made “ false or misleading representations of fac t concer ning the owner ship of the MOVA Assets in a campaign to mislead the public and actual and prospective users and licensees of those assets,” including forming a second

“ MO2 LLC” named entity

, falsely record ing assignments of the MOVA patents from original MO2 to Rearden MOVA LLC, and making stateme nts that they owned the assets. SHST sought a declaration that it owned the MOVA assets and that petitioners’ patent assign mentsIN RE : REARDEN LLC 4

were inva lid. SHST also sought damages for alleged violations of Califor nia’s false advertising and unfair competi tion statutes.

Petitioners answered that the claims were waived because SHST “knew that authority from at least one of the Defendants was required for the proper transfer of the MOVA Assets.” Petitioners also co unterclaimed, seeking

a declaration that they owned the MOVA assets

, and seeking damages against SHST for, among other things, infringement of the ’ 272, ’ 293, ’ 861, and ’ 668 patents. SHST soon thereafter purportedly sold the assets to respondent VGHL

. With SHST stipulating that it would remain in the case as a counterclaim defendant, the district court granted a motion to substitute in March
2016

, and VGHL filed an amended complaint raising the same charges as raised in SHST’s complaint. Petitioners

re sponded to the amended complaint by filing the same answers and counterclaims against SHST while adding a claim under the California Uniform Fraudulent Transfer Act.

During discovery, respondent moved to compel pet itioners to produce documents exchanged be tween original MO2 and the corporate attorney that Perlman had intr oduced to LaSalle

. T he magistrate judge granted the request, conclud ing that petitioners had not shown they could assert attorney- client privi lege on behalf of original MO2 and that LaSalle waived the privilege when he shared the documents with DD3. Petitioners objected t o the magistrate judge’s ruling. But the objections, the district court determined, did not establish that the magistrate judge ’s findings and conclusions were clea rly

erroneous or contra ry to law. The district court therefore denied the objec tions

. In doing so, the district court declined to consider an additional declaration from Per lman because it was not before the magistrate judge

.IN RE : REARDEN LLC 5

D ISCUSSION

A.

We turn first to respondent’s threshold argument, namely, that issuing mandamus here would not be “in aid of

” our “ jurisdiction [] ” but instead that of the United States Court of Appeals for the Ninth Circuit. 28 U.S.C. § 1651(a); see In re BBC Int’l, Ltd. , 99 F.3d 811, 812

– 13 (7th Cir. 1996) (“Mandamus anticipates an appeal. . .

. But this assumes that the court from which mandamus is sought is the one that will hear the ultimate appeal

. ”).

O ur jurisdiction over cases from federal district courts is governed by 28 U.S.C. § 1295(a), which states that the Federal Circuit has appellate jurisdiction “ in any civil action arising under, or in any civil action in which a party has asserted a compulsory counterclaim arising under, any Act of Congress relating to patents .” § 1295(a)(1). “Because the concept of what constitutes a ‘compulsory counterclaim’ now directly impacts our juri sdiction, it is governed by Federal Circuit law, rather than by that of the regional circuits.” Ver mont v. MPHJ Tech

. Inv s. , LLC , 803 F.3d 635, 644 n.2 (Fed. Cir. 2015).

Congress amended our jurisdictional statute through the America Invents Act to broaden our jurisdiction to include compulsory counterclaims “arising under” patent law

. Leahy

– Smith America Invents Act, Pub. L. No. 112

– 29, 125 Stat. 284 (2011). Previously, the Supreme Court’s decision in Holmes Group, Inc. v. Vornado Air Circulation Sys tems, Inc. , 535 U.S. 826 , 834 (2002)

, had effectively limited our jurisdiction to patent law claims asserted in a well- pleaded complaint . I t wa s explained that the amend ment to our jurisdictional statute

, would counte ract the potential for Holmes Group to “lead to an erosion in the uniformity or coherence in patent law that has been steadily building since the [Federal] Circuit’s creation in 1982.” H.R. Rep. No. 109

- 407, at 5 (2006), subsequently “reaffirm[ed]” by H.R. Rep. No. 112

- 98, at 81 (2011)

. TheIN RE : REARDEN LLC 6

amendment was “inten ded to provide federal courts, and this court specifically, with a broader range of jurisdi ction; that is, with jurisdiction over claims arising under the patent laws even when asserted in counterclaims, rather than in an original complaint.” Vermont , 803 F.3d
at 644. But while Congress extended our jurisdiction to ensure uniformity in patent law

, that extension did not reach permissive counterclaims. Expressing the concern about the “possib[ility] that a defendant could raise unrelated and unnecessary p atent counterclaims simply in order to manipulate appellate jurisdiction,” it has been argued that Congress limited our appellate jurisdiction to compulsory counterclaims relating to patent law. 157 Cong. Rec. S1379 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl).

To determine whether a particular counterclaim is compulsory , we look to Federal Rule of Civil Procedure
13 (a) . It pro vides that a compulsory counterclaim “arises out of the transaction or occurrence that is the subject matter of the opposin g party’s claim.” Fed. R. Civ. P. 13(a)(1)(A). The requirement that a party must raise

“ counterclaims arising out of the same transaction or

occurrence

. . . was designed to p revent multiplicity of actions and to achieve resolution in a single lawsuit of all disputes arising out of common matters.” S. Const r . Co. v. Pickard , 371 U.S. 57, 60 (1962) (per curi a m). C ourts interpreting the scope of Rule 13(a)’s “transaction or

occ urrence” test “generally have agreed that these words should be interpreted liberally in order to further the general policies of the federal rules and carry out the philosophy of Rule 13(a) .” 6 Wright & Miller, Federal Practice & Procedure § 1410 , at 50

– 51 (3d ed. 2010)

. “[O] ur court has utilized three tests to determine whether the ‘ transaction or occurrence ’ test of Rule 13(a) is met: (1) whether the legal and factual issues raised by the claim and counterclaim are largely the same; (2) whether substant ially the same evidence supports orIN RE : REARDEN LLC 7

refutes both the claim and the counterclaim; and (3) whether there is a logical relationship between the cl aim and the counterclaim.” Nasalok Coating Corp. v. Nylok Corp. , 522 F.3d 1320, 1325 (Fed. Cir. 2008) ; see also In re EMC Corp. , 677 F. 3d 1351, 1358 (Fed. Cir. 2012)

. Here, the claims and counterclaim s involve the same patents, they share overlapping legal and factual issues, and substantially the same evidence could refute both the claims of ownership and the coun ter claims of infring ement. T he patent infringement counterclaims share a critical factual dispute with plaintiff’s 2 state law claims: whether SHST obtained ownership of the MOVA assets on May 8, 2013. To make a case for patent infringement, counterclaima nts will need to show that they, not r espondent, own the MOVA assets

. T he success of plai ntiff’s state law claims will similarly depend on how these factu al issues are resolved. Moreover, the infringement claim s rel y in part on SHST’s unauthorized use of the disputed MOVA assets, including physical assets, whose ownership is in dispute. So the claims and counterclaims share a close, logical relation : the ownership and rightful use of the technology claimed and disclosed in the MOVA patent s

. See Ve rmont , 803 F.3d at 644. And plaintiff’s claims and petitioners’ counterclaims share substantial

2 While the district court subsequently entered d efault against SHST for not participating in discovery and set aside its substitution order, now allowing VGHL to assert the claims only as intervenor, we still look to the plaintiff’s operative complaint and the co unterclaims at the time of filing to determine jurisdiction. See Jang v. Boston Sci

. Corp. , 767 F.3d 1334, 1338 (Fed. Cir. 2014) (“[T]he Federal Circuit’s exclusive appellate jurisdiction is predicated on the cause of action and the basis of the facts

as they existed at the time the complaint or any compu lsory counterclaim was filed.”).IN RE : REARDEN LLC 8

evidentiary overlap

. See Nasalok , 522 F.3d at 1325. Petitioners’ counterclaims thus a rise from the same transaction or occurrence as plaintiff’s claims

. See Fed. R. Civ. P. 13(a). Finally, we note that concern s about not allowing defendants to manipulate jurisdiction through the addition of permissive counterclaims are not implica ted here. See 157 Cong. Rec. S1379 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl). Rather, t he counter claims arise out of , and are indeed contingent upon, the very dispute and the same patent rights asserted in the co mplaint

. W e thus find petitioners’ patent infring ement counterclaim s to be compulsory

. As such, w e have juri sdiction over any appeal of these claims and, hence, juri sdiction over this petition.

We note that this case stands in contrast to one where a plain tiff brings a suit contesting patent ownership and defendants have an infringement claim that matures after the filing of the complaint. In that situation, defendants are permitted to bring that claim in a later suit or, under Rule 13(e), to seek leave to add the claim

. See Fed. R. Civ. P. 13 (e) . Th e rule provides that “[t]he court may permit a party to file a supplemental pleading asser ting a counterclaim that matured or was acquired by the party after serving an earlier pleading .” Id. That dete rmination is, however, case specific. But h ere, wher e petitioners counterclaimed that plaintiff infring ed the very patents over which both parties seek a declaration of ownership

, and where the alleged infringing activity was known by petitioners at the time of filing

, petitioners’ claim s are compulsory counterclaim s.

B.

Applying regional circuit law , w e re view a denial of a request for an evidentiary hearing and a denial to su pplement the record for an abuse of discre tion, s ee United States v. Howell , 231 F.3d 615 , 621 (9th Cir. 2000), and th e district court’s factual findings for clear error, UnitedIN RE : REARDEN LLC 9

States v. Graf , 610 F.3d 1148, 1157 (9th Cir. 2010)

. Moreov er, because petitioners seek relief by way of ma ndamus, our review is particularly deferen tial: w e will overturn the district court’s de terminations on these issues only upon a showing of a “clear and indisputable ” right to relief and no adequate alternative legal channels through which petitioners may obtain the same relief

. Kerr v. U. S. Dist. Court , 426 U.S. 394, 403 (1976)

. Pet itioner s have fallen short of meeting that standard

. Petitioner s first argue that the district court erred on review of the magistrate judge ’s order in not accepting a supplement al declaration from Perlman and not holding

an evidentiary hearing on the issue. Petitioners , however, have not shown any error in these regards that is ma ndamus -wor thy

. While a district court may accept add itional evidence and hold a n evidentiary hear ing , no case, inc luding those cited by petitioners , holds that such a hearing or sup plemen tation is a requirement

. See Howell

, 231 F.3d at 621 (“[A] district court has discretion, but is not required, to consider evidence presented for the first time in a party’s objection to a magistrate judge’ s reco mmendation ”) ; see also id. at 620 (di scussing hearings)

. Petitioners , moreover, have not shown a clear abuse of discretion on the part of the district court in refusing their requests. The mag istrate ju dge granted p etitioners ’ request to consider Perlman’s first declaration that was submitted to address the central issue in this discovery dispute

— the ownership of the MOVA assets and control of original MO2 prior to when LaSalle entered into an agreement to sell th e MOVA assets to SHST. Petitioners failed to explain to the district court why they could not have submitted any added information to the magistrate judge or explain why a hearing in addition to the one held by the magistrate judge was necessary.

Petitioners also suggest that the magistrate judge and district court erred in not deferring a ruling on the priv i-IN RE : REARDEN LLC 10

lege issue until after conclusively resolving who controlled the original MO2, and thus who had the right to assert the pri vilege. Yet petitioners cite n o case that suggests that the magistrate judge and district court had no legal authority to enter their orders and render preliminary factual determinations on the ownership issue in order to resolve the privilege issue. Rather, they cite one case, United States v. Mett , 178 F.3d 1058, 1065 (9th Cir. 1999), which is not on point and states only the basic proposition that “hard cases should be resolved in favor of the priv ilege, not in favor of disclosure.”

Petitioners’ remaining arguments largely challen ge the district court’s conclusion that they could not assert the privilege on behalf of original MO2. Those arg uments, at bottom, are attack s on the district court’s pr eliminary factual findings regarding whether Rearden
M OVA acquired the MOVA assets from original MO2 before LaSalle entered an agreement with SHST and whether Perl man and Rearden LLC (as opposed to LaSalle only) controlled and managed original MO2 such that they could assert the privilege

. We decline to ente rtain mandamus relief on these a rguments because pet itioners rely heavily on Perlman’s extra

- record declaration and petitioners have alternative avenues to obtain mea ningful review of these arguments after trial. See Mohawk Indus., Inc. v. Carpenter , 558 U.S. 100, 109 (2009)

. Ac cordingly,

I T I S O RDERED T HAT :
The petition is denied.

F OR THE C OURT

November 1 7 , 201 6 /s/ Peter R. Marksteiner
D ate Peter R. Marksteiner Clerk of Court