Orders that Require Production of All Technical Information Out of Line with Local Patent Rules: Federal Circuit | Practical Law

Orders that Require Production of All Technical Information Out of Line with Local Patent Rules: Federal Circuit | Practical Law

In Drone Technologies, Inc. v. Parrot S.A., the US Court of Appeals for the Federal Circuit ruled that the district court abused its discretion in a patent infringement case by requiring the production of source code under the local patent rules without analyzing whether the source code was necessary to understanding the accused products' operation.

Orders that Require Production of All Technical Information Out of Line with Local Patent Rules: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 30 Sep 2016 • USA (National/Federal)
In Drone Technologies, Inc. v. Parrot S.A., the US Court of Appeals for the Federal Circuit ruled that the district court abused its discretion in a patent infringement case by requiring the production of source code under the local patent rules without analyzing whether the source code was necessary to understanding the accused products' operation.
On September 29, 2016, in Drone Technologies, Inc. v. Parrot S.A., the US Court of Appeals for the Federal Circuit ruled that the US District Court for the Western District of Pennsylvania abused its discretion in a patent infringement case by requiring the production of excessive information and information unrelated to the claims at issue ( (Fed. Cir. Sept. 29, 2016)). The Federal Circuit found that the discovery orders and subsequent sanctions were issued in contravention of local patent rules. The court also addressed whether the patent holder, Drone Technologies, Inc. had standing in view of the accused infringer, Parrot S.A.'s, inventorship challenge.
Drone owned US Patent Nos. 7,584,071 and 8,106,748, which relate to a method for synchronizing the movement of a drone with the movement of a remote controller. Drone sued Parrot for infringement of the two patents in the Western District of Pennsylvania. Drone filed a motion to compel Parrot to produce the source code for its drones, which the district court granted.
Drone was unsatisfied with Parrot's subsequent production, and filed another motion to compel production of certain portions of the source code that Parrot withheld. In response, Parrot claimed its production was sufficient to show the operation of the accused devices, which was all the local patent rules required. The district court sided with Drone and ordered production of the withheld source code. Parrot then requested that it be allowed to make the withheld source code available for inspection only, a request which the district court denied.
Drone then filed a motion to show cause why Parrot should not be held in contempt. By the time of the motion, Parrot had produced over 14 million pages, but still had not produced the withheld code. The district court subsequently:
  • Sanctioned Parrot for failure to comply with the two prior orders.
  • Struck Parrot's counterclaims and defenses.
  • Entered a default judgment against Parrot as to liability.
Across its various orders, the district court:
  • Failed to analyze whether the withheld source code was actually relevant or necessary to understanding the accused devices' operation.
  • Ordered the production of information about devices that were not part of Drone's infringement claims against Parrot.
Parrot appealed, arguing that the district court abused its discretion by issuing the discovery orders and sanctions. The Federal Circuit agreed with Parrot and vacated the orders.
The Federal Circuit said the district court erred by failing to follow the local patent rules, which contain similar provisions to those in place in many jurisdictions. Specifically, the Federal Circuit held that the district court erred when it:
  • Granted the first motion to compel without finding that Parrot failed to meet its obligations under the local patent rules to produce information “sufficient to show” the operation of the accused products.
  • Granted the second motion requiring Parrot to turn over "all" technical information relating to the operation of the accused products without analyzing whether the source code was relevant or necessary to understanding the relevant operation of the products.
  • Required Parrot to produce the technical information with no supporting reasoning, when the local patent rules only require making it available for inspection and copying.
  • Forced Parrot to produce documents related to drones that were not accused of infringement in the pled claims.
The Federal Circuit's decision means that as a practical matter, in jurisdictions where the local patent rules require production of information "sufficient to show" the operation of accused products (but not more), patent holders must:
  • Show the relevance of withheld information to understanding the operation of the accused products if moving to compel the information.
  • Make a charge of infringement against any additional devices before including them in the set of "accused products" on which the patent holder requests production.
The Federal Circuit also analyzed the district court's grant of a default judgment as sanction. Under the law of the US Court of Appeals for the Third Circuit, the Federal Circuit analyzed:
  • The extent of the party's personal responsibility.
  • Whether the party had a history of dilatoriness.
  • Whether the conduct of the party was willful or in bad faith.
  • The meritoriousness of claims or defenses.
  • The prejudice to the adversary caused by the party's conduct.
  • The effectiveness of sanctions other than dismissal or default.
In its review of these factors, the Federal Circuit considered that:
  • Parrot properly resisted production of the information.
  • Parrot did not necessarily prejudice Drone, given that Drone never proved the relevance of the withheld information.
  • The district court did not seriously consider alternative sanctions, particularly given that Parrot did not withhold the information to conceal a lack of merit in its defenses.
The Federal Circuit vacated the sanctions based on these considerations, but allowed that the district court could consider lesser sanctions based on:
  • Parrot's non-compliance.
  • Parrot's failure to subject itself to a contempt proceeding immediately after the initial discovery order.
Based on the Federal Circuit's decision, accused infringers who do not intend to produce information even if ordered should:
  • Make the position that they will not produce the information clear at the outset.
  • Subject themselves to a contempt proceeding immediately, rather than vacillating on whether they will comply with an order.
Finally, the Federal Circuit addressed Parrot's claim that Drone lacked standing to sue for infringement. Parrot had alleged that Drone did not have complete ownership of the patents because the named inventor (who assigned the patents to Drone) did not actually invent the subject matter claimed. Parrot argued that to determine if Drone had standing, the district court should have independently confirmed that the named inventor was in fact the sole inventor. The Federal Circuit rejected this approach, holding that the presumption that the named inventor was the sole inventor was sufficient to confirm standing at this stage of the litigation.