Court Opinion

ID: 2721698
Source: CourtListenerOpinion
Date Created: 2014-08-28 16:00:48.022226+00
Date Added: 2024-06-11T10:02:47.729272
License: Public Domain

NOTE: This disposition is nonprecedential.

  United States Court of Appeals
      for the Federal Circuit
                ______________________

                KI VENTURES, LLC,
                 Plaintiff-Appellant,

                           v.

          FRY’S ELECTRONICS, INC., AND
                CTA DIGITAL, INC.,
                Defendants-Appellees.
               ______________________

                      2014-1187
                ______________________

   Appeal from the United States District Court for the
Southern District of Texas in No. 4:13-cv-01407, Judge
Lynn N. Hughes.
                ______________________

               Decided: August 28, 2014
                ______________________

   WILLIAM P. RAMEY III, Ramey & Browning, PLLC, of
Houston, Texas, argued for plaintiff-appellant.

    PETER L. BERGER, Levisohn Berger LLP, of New York,
New York, argued for defendants-appellees. With him on
the brief was TOM ADOLPH, Adolph Locklar, of Houston,
Texas.
                ______________________
2                          KI VENTURES   v. FRY'S ELECTRONICS

    Before PROST, Chief Judge, O’MALLEY, and HUGHES,
                     Circuit Judges.
O’MALLEY, Circuit Judge.
    KI Ventures, LLC (“KI”) brought suit against Fry’s
Electronics, Inc. and CTA Digital, Inc. (collectively,
“CTA”) in the United States District Court for the South-
ern District of Texas, alleging infringement of the claims
in U.S. Patent No. 5,569,019 (“the ’019 patent”). The
district court dismissed the case with prejudice “[u]nder
rule 11 of the Federal Rules of Civil Procedure and the
inherent power of this court.” Final Dismissal at 1, KI
Ventures, LLC v. Fry’s Elecs., Inc. (“Dismissal Order”), No.
4:13-cv-1407 (S.D. Tex. Nov. 18, 2013), ECF No. 43.
Because we conclude that the district court abused its
discretion in dismissing this case with prejudice, we
vacate the district court’s dismissal and remand for fur-
ther proceedings consistent with this opinion.
                      I. BACKGROUND
     On May 5, 2013, KI sued CTA, alleging infringement
of certain claims in the ’019 patent. The ’019 patent,
titled “Weapon Shaped Virtual Reality Character Control-
ler,” discloses a video game controller that is shaped like a
gun. At the initial conference on August 12, 2013, the
district court discussed the patentability and scope of the
claims in the ’019 patent, but carefully avoided the actual
language of the claims.
    MR. RAMEY: He moves the controller to change
    the aspect, yes, Your Honor.
    THE COURT: He aims it.
    MR. RAMEY: Yes, Your Honor.
    THE COURT: Speak English.
    MR. RAMEY: Yes, Your Honor, he aims the gun.
                           * * *
KI VENTURES   v. FRY'S ELECTRONICS                        3

   THE COURT: My Ruger range rifle has a thumb
   control and a forefinger control. Take the pistol
   grip, you actually push the safety through with
   your thumb, pull the trigger. Actually a shotgun
   has that. The Ruger, you pull the safety. So that
   would violate this patent?
Transcript of Initial Conference at 9, 14, KI Ventures,
LLC v. Fry’s Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Aug.
12, 2013). The district court might have wanted to avoid
the language of the patent because it had not yet had a
chance to review the patent. Id. at 2 (“Okay. Just want
to make sure. What is it that KI has made that is patent-
able? I mean, I know you have a patent, but what is it? I
didn’t read the whole thing.”). Despite not reviewing the
whole patent, however, the district court still expressed
doubts about the patentability of the ’019 patent, focusing
on the figures instead of the language of the patent.
   THE COURT: Okay. But apparently CTA makes a
   sniper rifle, a submachine gun, an assault rifle
   and an assault rifle and sniper rifle. Well, so does
   the government. So does Remington and Ruger
   and Winchester and Colt. What’s patentable
   about a toy gun that actually changes computer
   games?
                            * * *
   MR. RAMEY: I’m not sure that the design on the
   front page of that patent is an accurate represen-
   tation of the claims as they issued.
   THE COURT: Why is it here then?
   MR. RAMEY: We’re not the ones that drafted the
   patent.
   THE COURT: I’m sorry, you’re stuck with what-
   ever this thing is. That’s what you own.
                            * * *
4                          KI VENTURES   v. FRY'S ELECTRONICS

    THE COURT: All right. Well, tell me where in
    here is a picture of what’s patentable. Because
    they all look pretty similar to that. Is there no
    drawing of what’s patentable?
Id. at 3–5.
    At the end of the initial conference, the district court
ordered KI to “do one of those infamous charts,” explain-
ing that “[w]hat I need is something that is clear, brief,
and precise that means what KI thinks the claims it
thinks are infringed mean.” Id. at 17, 19. The district
court issued a formal “Order on Claim Construction,”
ordering KI to “clearly and precisely construe its claims
against [CTA].” Order on Claim Construction at 1, KI
Ventures, LLC v. Fry’s Elecs., Inc. (“Order on Claim
Construction”), No. 4:13-cv-1407 (S.D. Tex. Aug. 18, 2013),
ECF No. 17.
    KI complied with the court’s order by serving its pro-
posed claim constructions on CTA. CTA objected, com-
plaining to the district court that “[t]here is no portion
construing the claims against the five accused products.”
Status Report at 1, KI Ventures, LLC v. Fry’s Elecs., Inc.,
No. 4:13-cv-1407 (S.D. Tex. Aug. 28, 2013), ECF No. 18.
On August 30, 2013, the district court sided with CTA by
issuing an “Order on Confusion.” The new order stated
that “[KI] must give [CTA] an amended claim construc-
tion that explains how their products infringe its patents.”
Order on Confusion at 1, KI Ventures, LLC v. Fry’s Elecs.,
Inc. (“Order on Confusion”), No. 4:13-cv-1407 (S.D. Tex.
Aug. 30, 2013), ECF No. 21 (emphasis added).
    KI complied with the court’s order by serving its pre-
liminary infringement contentions on September 9, 2013.
In its preliminary infringement contentions, KI provided
annotated pictures of each accused device with numbered
KI VENTURES   v. FRY'S ELECTRONICS                            5

arrows pointing to different parts. 1 For each claim limita-
tion of the asserted claims, KI referenced a specific num-
bered arrow, thus indicating which part of the accused
device it alleged met that limitation. CTA responded by
arguing that KI’s preliminary infringement contentions
fail to adequately identify how CTA’s products infringe
the ’019 patent.
    The district court again sided with CTA, finding KI’s
preliminary infringement contentions deficient.        On
September 12, 2013, the district court issued an “Order on
Infringement,” which stated:
   I. By noon on September 16, 2013, [KI] must give
   [CTA] amended infringement contentions with:
   A.    Exhibits that are           complete   and   self-
   explanatorily marked.
   B. A chart with text that precisely explains how
   each part of the product infringes the patent, not
   naked assertions like “Reference numeral # 1.”

   1    While there is some debate over whether KI’s Sep-
tember 9 infringement charts and drawings included
arrows corresponding to the designation numbers, on this
record, we must resolve that dispute in favor of KI. When
CTA first sought sanctions in connection with those
infringement contentions, it claimed KI had failed to tie
its claims to the graphic depictions attached. It did so
without a sworn statement attesting to that fact, however.
In response, KI submitted an affidavit swearing to the
authenticity of contentions, which did contain arrows and
numbers corresponding to aspects of the allegedly infring-
ing devices, and attached those contentions “to remove
any doubt of what Plaintiff served on Defendants.” Sup-
plement to Preliminary Infringement Contentions at 2, KI
Ventures, LLC v. Fry’s Elecs., Inc., No. 4:13-cv-1407 (S.D.
Tex. Sep. 16, 2013), ECF No. 27.
6                         KI VENTURES   v. FRY'S ELECTRONICS

Order on Infringement at 1, KI Ventures, LLC v. Fry’s
Elecs., Inc. (“Order on Infringement”), No. 4:13-cv-1407
(S.D. Tex. Sep. 12, 2013), ECF No. 26.
    Although KI supplemented its preliminary infringe-
ment contentions on September 16, 2013, it did not pro-
vide a description beyond “Reference Numeral #[X]” for
some claim limitations. KI also added “Plaintiff relies on
the doctrine of equivalents for this element” to some claim
limitations. E.g., Joint Appendix (“J.A.”) 221. CTA again
insisted that KI’s contentions were insufficient. The
district court ordered a show cause hearing where “KI
Ventures must appear and explain why its case should
not be dismissed for refusing to obey the court’s order—
despite a second opportunity—and for generally not
complying with the rudiments of presenting claims.”
Order to Show Cause at 1, KI Ventures, LLC v. Fry’s
Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Oct. 10, 2013),
ECF No. 32.
    At the November 15, 2013 show cause hearing, the
district court focused, not on the sufficiency of KI’s in-
fringement contentions, but on the validity of the ’019
patent.
    THE COURT: Once somebody puts one control el-
    ement on a firearm-looking thing, why isn’t the
    rest of it obvious?
    MR. RAMEY: It is not how the patent law works,
    Your Honor.
    THE COURT: It is when what you do is obvious.
    MR. RAMEY: Well –
    THE COURT: Let me point out that there are –
    MR. RAMEY: We are having an invalidity argu-
    ment at this point –
KI VENTURES   v. FRY'S ELECTRONICS                         7

    THE COURT: I can’t because you and your client
    won’t do what they are supposed to do. I’m just
    asking you some questions. If you don’t want to
    answer them, just say, I prefer not to discuss this
    with Your Honor and I will not discuss it with
    you.
                            * * *
    THE COURT: My question is: What makes that
    an invention?
    MR. RAMEY: Because it is useful –
    THE COURT: The parts are useful. You can’t – in
    patent use a light switch.
                            * * *
    THE COURT: My question was: Will yours move
    it with the buttons as well as with the joy stick?
    MR. RAMEY: 100 percent.
    THE COURT: That’s not patentable.
    MR. RAMEY: Your Honor, is that a statement or
    question?
    THE COURT: It’s a question.
    MR. RAMEY: The combination of that in combi-
    nation—
    THE COURT: No. Answer my question.
    MR. RAMEY: That is patentable. We have a pa-
    tent. We know it is patentable.
    THE COURT: Counsel, having two forms of con-
    trolling the aspect is not patentable.
Transcript of Show Cause Hearing at 30, 33, 43, KI Ven-
tures, LLC v. Fry’s Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex.
Aug. 12, 2013). As it did in the initial conference, the
8                          KI VENTURES   v. FRY'S ELECTRONICS

district court refused to discuss the actual language of the
’019 patent.
    THE COURT: KI’s patent is only on the location of
    the buttons on a gun-like piece of plastic.
    MR. RAMEY: No, Your Honor. If you read the
    first –
    THE COURT: Don’t start quoting your patent.
                           * * *
    MR. RAMEY: We agree, Your Honor. There are
    two different methods of infringement of this gun.
    THE COURT: Quit talking about infringement
    and tell me about how it works. I’m still trying to
    figure out how it works.
                           * * *
    THE COURT: Wait. Don’t tell me what they did.
    Just tell me why it is novel. A trigger has one
    function, right?
    MR. RAMEY: Not according to this patent –
    THE COURT: The patent cannot make real life.
    MR. RAMEY: But we have a CTA device that
    tracks the claims of the patent.
    THE COURT: Counsel, talk about the real world
    for a minute.
                           * * *
    MR. RAMEY: When you put the first trigger and
    second trigger switch in tandem, one firing the
    weapon and one changing an aspect of the game,
    then you put a first multi-axis controller, this joy-
    stick, and a second multi-axis controller here.
KI VENTURES   v. FRY'S ELECTRONICS                            9

    THE COURT: Don’t say multi-axis controller.
    What does it do? It slides. Or is it a 360-degree
    switch?
    MR. RAMEY: This is a 360-degree switch, Your
    Honor.
    THE COURT: So it slides at 360 degrees.
    MR. RAMEY: This uses a joystick-type controller
    that moves at 360 degrees. These first –
    THE COURT: Slow down.
    MR. RAMEY: Adapted to change the position.
    THE COURT: Don’t read the patent to me.
                            * * *
    THE COURT: What is the novel of usefulness?
    [sic]
    MR. RAMEY: The combination of elements –
    THE COURT: Don’t say that. Speak English. I
    am going to go home.
Id. at 13–14, 17, 39–40, 46.
    For the show cause hearing, KI also submitted video
exhibits to further clarify its infringement contentions. In
each video, someone would read an asserted claim limita-
tion, and another person would manipulate the part of the
accused device that corresponded to that limitation. The
district court, however, did not find the video helpful. Id.
at 7 (“I did watch it. I did not find it particularly useful.”).
    At the end of the show cause hearing, the district
court stated that it still had “no idea how [it] would rule
on the merits.” The court, however, dismissed the case
“for recalcitrant non-compliance with Court orders.” Id.
at 52. The court expounded: “The case is dismissed for—I
can’t quote the rule—but both under Rule 11, second as
10                         KI VENTURES   v. FRY'S ELECTRONICS

an inherent power of mine to—I know there’s no Rule 11
motion but it will justify under Rule 11 my inherent
power to manage a case and have its orders complied
with.” Id. at 53.
    After the hearing, the district court dismissed the
case with prejudice “[u]nder rule 11 of the Federal Rules
of Civil Procedure and the inherent power of this court.”
Dismissal Order at 1. KI timely appealed this dismissal.
We have jurisdiction under 28 U.S.C. 1295(a)(1) (2012).
                      II. DISCUSSION
    The district court stated that it was dismissing the
case under Rule 11 and its inherent powers based on KI’s
“recalcitrant non-compliance with Court orders.” Tran-
script of Show Cause Hearing at 52. Although Rule 11
sanctions may be appropriate if KI had submitted a
document to the court for an improper purpose, Rule 11 is
not used to sanction non-compliance with court orders.
See Fed. R. Civ. P. 11(b). Because a court cannot impose
Rule 11 sanctions for non-compliance with court orders,
we find that it was an abuse of discretion for the district
court to dismiss the case under Rule 11. While CTA
contends dismissal under Rule 11 was appropriate be-
cause KI’s failure to flesh out its infringement contentions
in a manner that CTA found adequate is indicative of
inadequate pre-suit investigation or that KI’s allegations
were not warranted by existing law or the relevant facts,
the district court never made any such findings. Indeed,
the district court neither ordered a show cause hearing on
those grounds, discussed them at the hearing that was
held, nor made a finding that Rule 11 was violated in
those ways. CTA cannot justify Rule 11 sanctions now on
grounds not supported by the trial record.
    Turning to the court’s inherent powers, we recognize
that district courts have the inherent power to manage
their own docket, including the power to dismiss a case.
See, e.g., Roadway Exp., Inc. v. Piper, 447 U.S. 752, 765
KI VENTURES   v. FRY'S ELECTRONICS                       11

(1980) (acknowledging a court’s inherent power to dismiss
a case for failure to prosecute). Dismissing a case with
prejudice is a harsh sanction, however, and the Fifth
Circuit has held that such sanctions should be confined to
“bad faith or willful abuse of the judicial process.” Wood-
son v. Surgitek, Inc., 57 F.3d 1406, 1417 (5th Cir. 1995).
In this case, we conclude that the district court abused its
discretion in dismissing KI’s claims with prejudice at this
stage in the litigation. See Chambers v. NASCO, Inc., 501
U.S. 32, 55 (1991) (reviewing a district court’s use of its
inherent powers for abuse of discretion).
    First, KI did not violate multiple court orders as the
district court and CTA contend. See Transcript of Show
Cause Hearing at 52 (“And I told it wasn’t and you made
another one and I told you it wasn’t and you made anoth-
er one and – four orders, counsel, to do a fundamental
patent litigation problem. That is inexcusable.” (empha-
sis added)). The court’s first order, titled “Order on Claim
Construction,” can only reasonably be interpreted as an
order to serve claim construction positions, not infringe-
ment contentions. See Order on Claim Construction at 1
(“By August 26, 2013, [KI] may clearly and precisely
construe its claims against [CTA].”). 2

   2     The district court’s statements during the initial
conference do not imply otherwise. The district court
explained that “[w]hat I need is something that is clear,
brief, and precise that means what KI thinks the claims it
thinks are infringed mean.” Transcript of Initial Confer-
ence at 19 (emphasis added). Furthermore, KI could not
turn to the local patent rules for guidance because the
district court made clear that this case would not follow
those rules. Id. at 21 (“Separate rules for separate kind of
cases suggest that all patent cases are alike. All patent
cases are not alike. All contract cases are not alike.
We’re following my rules. I manage my cases.”).
12                         KI VENTURES   v. FRY'S ELECTRONICS

    When the district court changed its order to require
infringement contentions, KI timely served its prelimi-
nary contentions. KI’s infringement contentions identi-
fied the parts of each accused device that KI alleged for
each limitation by using pictures of the accused devices.
Furthermore, at the show cause hearing, the supposed
fourth order that addressed infringement contentions, KI
did not have a fair chance to explain its infringement
contentions because the district court refused to let KI
refer to the language of the claims. See Show Cause
Hearing, at 13–14, 17, 39–40, 46. Instead, the district
court focused on the validity of the patent, which was not
yet even at issue. See id. at 30, 33, 43.
    The only order with which KI did not comply was the
court’s order to produce “[a] chart with text that precisely
explains how each part of the product infringes the pa-
tent, not naked assertions like ‘Reference numeral # 1.’”
Order on Infringement at 1. And, KI’s failure to follow the
precise strictures of the court’s order was only partial.
Indeed, CTA does not even contend it did not understand
KI’s infringement contentions as of that point in time; it
only contends that KI’s chart was technically non-
compliant with what the court ordered. 3 Although KI’s
failure to comply with the precise dictates of this order
was improper—and unwise—it does not warrant the
harsh penalty of dismissal with prejudice at this early

     3   See Oral Argument at 19:45, KI Ventures, LLC v.
Fry’s     Elecs.,   Inc.,   2014-1184,     available    at
http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20
14-1184.mp3 (“[Court:] Are you telling me that you can’t
read this chart and look at their narrative description of
what they think their claim says and refer it to the num-
bers on the infringing items and make the leap between
this is their claim this is where they think your device
infringes? [CTA’s Counsel:] Certainly we can.”).
KI VENTURES   v. FRY'S ELECTRONICS                        13

stage in the case. See Woodson, 57 F.3d at 1417 (explain-
ing that dismissal is only proper in instances of “bad faith
or willful abuse of the judicial process”)
    We also think that KI’s conduct was not so “recalci-
trant” as to warrant dismissal in this case. Although KI
admittedly failed to comply with part of one court order,
they continually tried to clarify their infringement conten-
tions, through pictures, words, and even videos. For
example, in preparation for the show cause hearing, KI
produced videos that clearly mapped parts and uses of
each accused device to specific claim limitations. The
purpose of the preliminary infringement contentions is to
inform CTA of KI’s infringement positions. KI accom-
plished this purposed. Although KI did not use words to
describe the part of the product it accuses for every limi-
tation, it did provide annotated pictures with arrows that
clearly point to the accused parts for every claim limita-
tion. The videos produced for the show cause hearing
even more clearly indicate the part and use of the accused
device KI alleges for each limitation.
    We realize that CTA thinks that KI’s claim construc-
tion positions are incorrect and unsupported by the writ-
ten description, making KI’s infringement contentions
baseless. But disagreement with KI’s interpretation of its
claims does not make KI’s infringement contentions
insufficient. Rather than challenging CTA’s claim con-
structions on the merits or filing a motion for summary
judgment, CTA implied that it did not understand KI’s
contentions. After KI served its contentions, which CTA
admits now it understood, CTA filed with the court a
“Response to Plaintiff’s Infringement Contentions” in
which it disingenuously stated that “Plaintiff is still
hiding its infringement contentions.” KI Ventures, LLC v.
Fry’s Elecs., Inc., No. 4:13-cv-1407, at 1 (S.D. Tex. Oct. 7,
2013), ECF No. 29. And CTA repeatedly told the court
that KI had failed to comply with “three” court orders,
even though the court titled its first order “Order on
14                         KI VENTURES   v. FRY'S ELECTRONICS

Claim Construction” and CTA was, itself, unsure of
whether that order required infringement contentions.
Id.; Notice of Status Report Regarding an Order on Claim
Construction, KI Ventures, LLC v. Fry’s Elecs., Inc., No.
4:13-cv-1407 (S.D. Tex. Aug. 28, 2013), ECF No. 18.
CTA’s disingenuous statements to the court regarding the
sufficiency of KI’s contentions and the number of orders
likely confused the court, stimulating the premature
dismissal of this case.
    Because KI only disobeyed one court order, in part,
and because KI’s preliminary infringement contentions
are sufficient to convey its position at this early stage in
the litigation, the district court abused its discretion in
using its inherent powers to dismiss this case. On re-
mand, because CTA understands KI’s literal infringement
contentions, the district court should not require KI to
further amend its contentions to continue with this case.
The district court should proceed with claim construction,
discovery, and normal motions practice. Although the
district court need not follow the exact procedure laid out
in the Rules of Practice for Patent Cases in the Southern
District of Texas, using the well-known terminology would
probably help avoid future “Order[s] on Confusion.”
Order on Confusion at 1. Furthermore, KI must be al-
lowed to refer to the language of the patent—especially
the claim language—in future filings and hearings on
claim construction, infringement, and invalidity. For
better or worse, these issues are entirely dependent on
the language used in the patent, the claims, and the
prosecution history, not pictures or “simple English.”
Show Cause Hearing, at 5.
     We do agree with CTA and the district court, however,
that KI’s doctrine of equivalents (“DOE”) contentions are
currently insufficient. Although KI should be allowed to
amend its DOE contentions during discovery, if the dis-
trict court thinks it is proper, it may allow CTA to file an
early motion for summary judgment on KI’s DOE claims.
KI VENTURES   v. FRY'S ELECTRONICS                 15

                      III. CONCLUSION
    For the foregoing reasons, we vacate the district
court’s order dismissing this case with prejudice, and
remand the case for proceedings consistent with this
opinion.
              VACATED AND REMANDED