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Sprint Communications Company L.P. v. Time Warner Cable Inc.

United States District Court, D. Kansas

March 14, 2017

SPRINT COMMUNICATIONS COMPANY L.P., Plaintiff,
v.
TIME WARNER CABLE, INC., et al., Defendants.

          MEMORANDUM AND ORDER

          John W. Lungstrum United States District Judge.

         This patent infringement case was tried to a jury in this Court from February 13, 2017, through March 3, 2017. In its verdict, the jury found the following: that Time Warner Cable[1] infringed each of the asserted claims of the five Sprint patents at issue; that none of those claims is invalid; that Sprint proved reasonable royalty damages in the amount of $139, 800, 000; and that Time Warner Cable's infringement was willful.

         The Court now considers Time Warner Cable's equitable defenses, which were tried to the Court. In deciding those issues, the Court has considered the evidence presented in the jury trial as well as additional evidence submitted by the parties to the Court. In addition, the parties submitted proposed findings and conclusions, and the Court heard oral argument on the equitable defenses on March 2, 2017. This Memorandum and Order constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a). Based on the evidence and arguments presented, and as more fully set forth below, the Court finds that Time Warner Cable has failed to sustain its burden of proof on any of its equitable defenses. The Court therefore awards Sprint judgment on these defenses and on its claims of patent infringement.[2]

         The Court also addresses Sprint's claim for enhanced damages pursuant to 35 U.S.C. § 284. For the reasons set forth below, the Court denies the claim for enhanced damages, on which claim Time Warner Cable is awarded judgment.

         I. Time Warner Cable's Motions to Strike

         By multiple motions (Doc. ## 381, 438, 443), Time Warner Cable requests that the Court strike certain evidence and related argument concerning Time Warner Cable's equitable defenses, on the basis that those exhibits and deposition excerpts were not designated for trial by Sprint or were already excluded by the Court. The Court grants the motions in part. First, the Court rejects Sprint's argument that it may rely on evidence that was submitted to the Court at the summary judgment stage. Although such material may be part of the record of the case for purposes of any appeal, the Court's procedures required Sprint to list any witnesses and exhibits to be used at trial (including the trial to the Court of the equitable defenses) and to designate any deposition testimony that would be used. Thus, the Court will not consider any cited evidence that was not properly designated for trial. Similarly, any exhibits for which Sprint has not designated sufficient foundational testimony will not be considered; just as at the summary judgment stage, a party may not simply rely on a document without the proper foundation and authentication.

         Time Warner Cable also argues that some cited testimony was already excluded by the Court in its rulings on deposition designations. The Court agrees with Sprint, however, that such exclusions may have been intended to apply only with respect to issues tried to the jury. Thus, the Court will consider each such objection separately. If the Court does not refer in this order to a particular item of evidence to which Time Warner Cable has objected, it may be assumed that the Court did not consider it.

         II. Equitable Estoppel

         Time Warner Cable asserts the affirmative defense of equitable estoppel. A patent infringement suit may be barred if the following three elements are established by the defendant:

(1) the patentee, through misleading conduct (or silence), leads the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer; (2) the alleged infringer relies on that conduct; and (3) the alleged infringer will be materially prejudiced if the patentee is allowed to proceed with its claim.

See High Point SARL v. Sprint Nextel Corp., 817 F.3d 1325, 1330 (Fed. Cir. 2016) (quoting Radio Sys. Corp. v. Lalor, 709 F.3d 1124, 1130 (Fed. Cir. 2013)). The alleged infringer bears the burden of proof on this defense. See SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 767 F.3d 1339, 1343 (Fed. Cir. 2014) (alleged infringer must prove elements by a preponderance of the evidence), aff'd after reh'g en banc, 807 F.3d 1311 (Fed. Cir. 2015) (adopting reasoning of panel concerning equitable estoppel), cert. granted, 136 S.Ct. 1824 (2016) (on issue relating to defense of laches). “[E]quitable estoppel is not limited to a particular factual situation nor subject to resolution by simple or hard and fast rules.” See A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1041 (Fed. Cir. 1992) (en banc).

         The elements of equitable estoppel present questions of fact. See SCA Hygiene, 767 F.3d at 1344. The Court finds as matters of fact that Time Warner Cable failed to prove satisfaction of any of the elements of equitable estoppel.

         A. Misleading Conduct

         With respect to the first element, Time Warner Cable was required to show that Sprint engaged in misleading conduct from which it reasonably inferred that Sprint did not intend to enforce its patents against them. The Federal Circuit discussed this element as follows in Aukerman:

The first element of equitable estoppel concerns the statements or conduct of the patentee which must communicate something in a misleading way. The “something” with which this case, as well as the vast majority of equitable estoppel cases in the patent field[, ] is concerned[] is that the accused infringer will not be disturbed by the plaintiff patentee in the activities in which the former is currently engaged. The patentee's conduct must have supported an inference that the patentee did not intend to press an infringement claim against the alleged infringer. It is clear, thus, that for equitable estoppel the alleged infringer cannot be unaware-as is possible under laches-of the patentee and/or its patent. The alleged infringer also must know or reasonably be able to infer that the patentee has known of the former's activities for some time. In the most common situation, the patentee specifically objects to the activities currently asserted as infringement in the suit and then does not follow up for years. . . . Judge Learned Hand noted that estoppel was regularly based on no further assurance that a known competitor would not be sued than the patentee's long inaction. There is ample subsequent precedent that equitable estoppel may arise where, coupled with other factors, a patentee's “misleading conduct” is essentially misleading inaction. However, plaintiff's inaction must be combined with other facts respecting the relationship or contacts between the parties to give rise to the necessary inference that the claim against the defendants is abandoned.

See Aukerman, 960 F.2d at 1042 (footnote, citations, and internal quotations omitted). “[S]ilence alone will not create an estoppel unless there was a clear duty to speak, or somehow the patentee's continued silence reenforces the defendant's inference from the plaintiff's known acquiescence that the defendant will be unmolested.” See Id. at 1043-44 (citation omitted). “If the record indicates silence alone, mere silence must be accompanied by some other factor which indicates that the silence was sufficiently misleading as to amount to bad faith.” See High Point, 817 F.3d at 1330 (internal quotations omitted) (quoting Hemstreet v. Computer Entry Sys. Corp., 972 F.2d 1290, 1295 (Fed. Cir. 1992)).

         In SCA Hygiene, in which the Federal Circuit reversed a summary judgment of equitable estoppel in favor of the defendant, the court discussed and distinguished two of its prior patent cases in which equitable estoppel had been found. See Id. at 1349-50 (citing Scholle Corp. v. Blackhawk Molding Co., 133 F.3d 1469 (Fed. Cir. 1998), and Aspex Eyewear Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305 (Fed. Cir. 2010)). The court noted that in Scholle, the patentee did not respond to direct requests for an opinion on the product, and the parties had discussed the particular patents; and that in Aspex, the parties had been involved in a related patent litigation, the patentee threatened to enforce its patent rights under four patents after the accused infringer began marketing a redesigned product, the accused sought specific infringement contentions, and the patentee responded only concerning two of the four patents. See Id. The Federal Circuit then distinguished the prior cases by noting that the interactions between the parties in its case were “meager” compared to those in the prior cases, being limited to six terse letters; that the accused infringer had not solicited comment from the patentee (which made it less likely that a reasonable factfinder would infer that the subsequent silence misled the accused infringer); that the parties had not engaged in serious discussions involving the products or the patent at issue or any related patent; and that the parties had not been adversaries in prior related litigation or had any other close relationship. See Id. at 1350.

         In this case, Time Warner Cable essentially relies on Sprint's silence-Sprint's failure to state that it planned to enforce its patents against Time Warner Cable-in arguing for equitable estoppel. As noted above, silence may create estoppel if there was a “clear duty to speak.” See Aukerman, 960 F.2d at 1043-44. Time Warner Cable argues that a duty to speak arose because a confidential relationship existed between the parties and because Sprint had superior knowledge about its patents.[3] The Court rejects these arguments, as it finds that both parties were knowledgeable and experienced enterprises engaged in arm's-length transactions. The fact and pertinence of Sprint's patents were well known to Time Warner Cable as far back as the Vonage trial in 2007. Had it been inclined to do so, Time Warner Cable could easily have understood Sprint's posture.

         The Court also rejects Time Warner Cable's argument that Sprint had a duty to correct “half-truths” about its likely enforcement of the patent. Time Warner Cable contends that Sprint misled Time Warner Cable by its performance of the 2003 and 2006 contracts, which made clear that Sprint was not Time Warner Cable's exclusive provider and which required Sprint to provide services to aid Time Warner Cable's transition in the event that it chose to Go-It-Alone without Sprint. Time Warner Cable argues that those contractual provisions and Sprint's understanding that Time Warner Cable did intend eventually to Go-It-Alone provide the additional circumstances required to make Sprint's silence misleading. As the Court noted at the summary judgment stage in rejecting Time Warner Cable's express and implied license defenses as a matter of law, however, the contractual provisions do not authorize Time Warner Cable to Go-It-Alone without any objection from Sprint, or otherwise indicate that Time Warner Cable may practice Sprint's patents. See Sprint Communications Co. L.P. v. Comcast Cable Communications LLC, 2016 WL 7052055, at *20-22 (D. Kan. Dec. 5, 2016) (Lungstrum, J.). Moreover, as Sprint notes, the contracts expressly provided that no intellectual property rights were being given to Time Warner Cable, a provision specifically addressed by the parties in negotiating the 2003 contract. Thus, the Court finds that although Time Warner Cable may have believed that those contracts protected it, any belief based on the contracts that Sprint would not enforce its patents against it was not reasonable, and Sprint's silence was not misleading.

         In addition, Time Warner Cable has not shown that Sprint ever indicated to it, by any reference to the patents, that Sprint would never enforce those patents against Time Warner Cable. After the Vonage verdict in Sprint's favor in 2007, Sprint employee Jim Patterson contacted Time Warner Cable employee Gerry Campbell to inform him of the verdict. Mr. Patterson testified that in that conversation, he told Mr. Campbell that the Vonage verdict would not affect Time Warner Cable because that company was Sprint's customer. Time Warner Cable argues that because it remained a customer of Sprint's throughout the transition of services away from Sprint in the Go-It-Alone rollout, it reasonably believed that Sprint would not enforce its patents throughout that rollout, until March 2014 at least. The Court does not agree and finds to the contrary. In 2009, Time Warner Cable informed Sprint that it would begin its Go-It-Alone program the following year without Sprint as a partner. Sprint was contractually obligated to provide transition services, and Time Warner Cable transitioned away from Sprint on a gradual basis, but for all intents and purposes, the parties' relationship was severed on a going-forward basis in 2010. Mr. Patterson's statements to Mr. Campbell did not give rise to a reasonable belief by Time Warner Cable that Sprint would still forego enforcement of its patents even after that decision to proceed without Sprint, especially after the e-mail exchanges between patent counsel for the parties in 2010.

         In addition, Sprint's patents were discussed during the parties' relationship. Sprint's employee Andrew Greig testified credibly that Sprint's patents were discussed at the time of the negotiation of the 2003 agreement, and the parties then agreed in the contract that no patent rights would be transferred and no license would be granted. After the Vonage verdict, Sprint sent Time Warner Cable its notice to various companies that Sprint intended to enforce its patent rights. Dan Hesse, Sprint's CEO, testified that he discussed the existence of open patent issues with his counterpart at Time Warner Cable before Go-It-Alone was launched. Finally, the Court finds that beginning in Spring 2010, Sprint raised patent issues with Time Warner Cable, including identifying two patents at issue in this suit, and that Time Warner Cable understood that there were “open” intellectual property issues to be resolved with Sprint, including possible patent infringement. Time Warner Cable's in-house patent counsel also monitored the Vonage trial and investigated Sprint's patents after that trial, and the Court finds that he did so in anticipation of a possible patent dispute with Sprint. Thus, the Court finds that Time Warner Cable has not shown that it actually believed that Sprint would not attempt to enforce its patents. Such discussions also undermine any argument that Sprint was indicating that it would not enforce its patents.

         The Federal Circuit has noted that the most common example of equitable estoppel involves a threat or objection to the allegedly infringing activities followed by a period of inaction. See SCA Hygiene, 767 F.3d at 1349 (citing Aukerman, 960 F.2d at 1042). Time Warner Cable does not contend that there was any such threat or objection raised in this case prior to suit. In SCA Hygiene, the Federal Circuit distinguished cases in which estoppel had been based on specific patent infringement discussions between the parties, see Id. at 1349-50, but no such discussions took place here before 2010.[4]Accordingly, the Court finds that Sprint did not engage in any conduct that would give rise to a reasonable belief at Time Warner Cable that Sprint would not enforce its patents if Time Warner Cable chose to Go-It-Alone without Sprint. Time Warner Cable thus can point only to Sprint's silence, and its has not shown that that silence amounted to bad faith by Sprint under the circumstances. See High Point, 817 F.3d at 1330.

         Accordingly, the Court finds that Time Warner Cable has not met is burden to show misleading conduct by Sprint that led Time Warner Cable reasonably to infer that Sprint would not enforce its patents against Time Warner Cable. Thus, Time Warner Cable has failed to prove the requirements for equitable estoppel, and Sprint is entitled to judgment on that defense.

         B. Reliance

         Time Warner Cable has also failed to prove the necessary reliance on the allegedly misleading conduct. “The accused infringer must show that, in fact, it substantially relied on the misleading conduct of the patentee in connection with taking some action.” See Aukerman, 960 F.2d at 1042-43. The accused infringer's reliance must be reasonable. See SCA Hygiene, 767 F.3d at 1351. In High Point, the defendant's testimony that it would have acted differently if litigation had been possible was sufficient to establish reliance, but only because of the absence of any evidence that the defendant's proposed solutions to avoid infringement would have been unrealistic or infeasible. See High Point, 817 F.3d at 1331-32. In SCA Hygiene, the court concluded that the defendant's testimony that it would not have made certain investments if suit had been filed earlier did not necessarily establish that it acted after considering the implications of the patentee's silence; and that a fact question remained as to whether the defendant relied on that silence or instead ignored the patent or relied on its own opinion that the patent was invalid. See SCA Hygiene, 767 F.3d at 1351; see also Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 879 (Fed. Cir. 1991) (accused infringer did not rely on patentee's silence, but instead relied on the existence of its own patents).

         As a preliminary matter, because Time Warner Cable did not actually believe that Sprint would forego enforcement of its patents (as found by the Court above), the Court further finds that Time Warner Cable did not rely on anything Sprint did in deciding whether and how to Go-It-Alone. See Sprint v. Comcast, 2016 WL 7052055, at *16 (summary judgment order).

         Time Warner Cable argues that it relied on Sprint's silence and acquiescence in preparing to launch its Go-It-Alone national program and in launching that program in October 2010. As noted above, however, Time Warner Cable knew by Spring 2010 about possible patent issues with Sprint, and it nevertheless proceeded with the program. Moreover, various Time Warner Cable employees testified that they relied on the provisions of the parties' contracts in choosing to Go-It-Alone. Although such employees may have been mistaken in their belief that the contracts gave Time Warner Cable the right to Go-It-Alone without fear of an infringement suit, the Court is persuaded that they nevertheless relied on those provisions and not on Sprint's conduct in making the decision to launch. The Court is also persuaded that Time Warner Cable relied on its counsel's investigation of Sprint's patents during and after the Vonage trial. Moreover, the fact that Time Warner Cable anticipated possible patent issues with Sprint indicates that Time Warner Cable did not rely on a belief that Sprint would not enforce the patents. Rather, it is far more likely that Time Warner Cable believed it could successfully defend against any such litigation.

         Finally, although Time Warner Cable argues that it might have acted differently if it had known earlier that Sprint intended to enforce the patents, Time Warner Cable did not offer persuasive evidence that in fact it would not have chosen to proceed with its Go-It-Alone program. For instance, Time Warner Cable suggests that it might have chosen to continue its contractual relationship with Sprint instead. The evidence showed, however, that Time Warner Cable anticipated over two billion dollars in savings if it proceeded without Sprint (and that Time Warner Cable did in fact realize huge savings from Go-It-Alone). Thus, the Court is persuaded that Time Warner Cable would still have chosen to terminate its relationship with Sprint even if Sprint had asserted its patents prior to the accused infringement beginning in 2010.

         Accordingly, the Court finds that Time Warner Cable failed to establish this element of reliance, which failure provides another basis for awarding Sprint judgment on this defense of equitable estoppel.

         C. Material Prejudice

         Nor has Time Warner Cable shown the necessary material prejudice. “Equitable estoppel requires that material prejudice to the accused infringer be caused by his reliance on the patentee's misleading communication.” See SCA Hygiene, 767 F.3d at 1350 (citing Aukerman, 960 F.2d at 1028, 1041-42). This prejudice “may be a change of economic position or loss of evidence.” See Aukerman, 960 F.2d at 1043.

         The Federal Circuit has explained economic prejudice as follows:

Economic prejudice may arise where a defendant and possibly others will suffer the loss of monetary investments or incur damages which likely would have been prevented by earlier suit. Such damages or monetary losses are not merely those attributable to a finding of liability for infringement. Economic prejudice would then arise in every suit. The courts must look for a change in the economic position of the alleged infringer during the period of delay. On the other hand, this does not mean that a patentee may intentionally lie silently in wait watching damages escalate, particularly where an infringer, if he had had notice ...

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