[00:00:00] Speaker 01:
cap export vs. zenith

[00:00:35] Speaker 01:
Mr. Wallace, please proceed.

[00:00:37] Speaker 03:
Thank you, Judge Moore.

[00:00:49] Speaker 03:
Good afternoon, Your Honors.

[00:00:50] Speaker 03:
$87 million.

[00:00:56] Speaker 03:
That is the amount of commercial success that Zenith has achieved selling its patented bed this year.

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And Zena sold $20 million of the patented bed last year.

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Moreover, the cap parties admitted in their pleadings that their copied bed... Just to be clear, none of this is in the record below.

[00:01:18] Speaker 01:
This is what you would have liked to have introduced if you had had the opportunity to take discovery and put in evidence, correct?

[00:01:26] Speaker 03:
Correct, Your Honor.

[00:01:27] Speaker 03:
We hadn't been surprised by a Suiz Bonte summary judgment.

[00:01:32] Speaker 01:
of invalidity when there was only a motion for validity, we would have introduced... And so you would have liked to have been able to introduce evidence of commercial success among others, like copying possibly or something along those lines.

[00:01:45] Speaker 01:
Correct.

[00:01:46] Speaker 01:
But you didn't have a chance to develop that discovery, is that right?

[00:01:50] Speaker 03:
We had no opportunity whatsoever for discovery.

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Discovery was always closed to us.

[00:01:57] Speaker 01:
As to everything except for the standing question.

[00:02:00] Speaker 01:
Correct.

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But for us, we didn't need the standing issue.

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That was just a question of whether there was a typo on an assignment, and they tried to use that as a way to get out of the case.

[00:02:11] Speaker 03:
But that was found that it was a typo.

[00:02:14] Speaker 01:
Well, it wasn't a typo.

[00:02:15] Speaker 01:
There was the wrong name.

[00:02:16] Speaker 01:
It was a scrivener's error.

[00:02:17] Speaker 01:
I mean, a typo would suggest an individual letter or something, right?

[00:02:22] Speaker 03:
Well, it was a secretary who forgot to correct that paragraph and just corrected the

[00:02:28] Speaker 03:
signature.

[00:02:29] Speaker 03:
It was a secretary in China who probably just didn't read the whole document.

[00:02:36] Speaker 01:
But you, in terms of your commercial success, if it's your product and it falls within the claims, you wouldn't even have to establish Nexus because you get a presumption of it, right?

[00:02:44] Speaker 01:
Correct.

[00:02:46] Speaker 01:
Yeah.

[00:02:46] Speaker 01:
Okay, and so the lack of discovery is one of your main arguments.

[00:02:54] Speaker 01:
One of the others, I understand, is the

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due process, really violation of the Suez-Fonte summary judgment that was levied against you?

[00:03:05] Speaker 03:
Correct.

[00:03:05] Speaker 03:
Those are facts fall very similar to the Massey versus Dell case.

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And there's progeny.

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And then there's also Rule 56F, which I believe codifies the holding there that you have to be given notice.

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And it's not notice of the issue, but notice that you could lose in this case because there

[00:03:27] Speaker 03:
a motion for validity.

[00:03:29] Speaker 01:
Without even infringement, without even invalidity contentions on the books yet, correct?

[00:03:33] Speaker 03:
In the central district of California, there are no patent local rules, like in the northern district.

[00:03:38] Speaker 03:
So there are no invalidity contentions.

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And in jurisdictions where there are no patent local rules... How did you know what prior art to even argue against on validity?

[00:03:48] Speaker 01:
You chose what they gave you in that letter, I guess?

[00:03:50] Speaker 03:
That's the only thing I had.

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I was trying to communicate with Judge Wilson.

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and saying that we can't do this by the way, Judge Wilson.

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We're the patentee just because we're the defendant.

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We're the patentee.

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And I don't know.

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There's been no prior art listed anywhere.

[00:04:07] Speaker 01:
The complaint didn't allege the prior art?

[00:04:10] Speaker 03:
No.

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In no pleadings.

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So I took the best thing I had, which was a letter from their counsel in which he said that he was going to file a re-exam if we didn't cave.

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And so I used that.

[00:04:23] Speaker 01:
What happened to claim two?

[00:04:24] Speaker 01:
Where the heck did that thing go?

[00:04:26] Speaker 03:
All the claims were simply dismissed, even though at this point, because there's no... You only move for validity regarding claim one.

[00:04:32] Speaker 03:
Yeah, preliminary infringement contentions.

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We weren't required to say which claims we are asserting, and in jurisdictions where there are no patent local rules, that's usually in response to an interrogatory.

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The interrogatory is saying which claims are you going to assert, and in the other direction,

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Which prior art do you believe invalidates the claims?

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You had, I think, some supplemental state law claims in the complaint.

[00:04:56] Speaker 02:
Yes, the California section.

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What was the cause of action asserted in that end of those?

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Unfair business practices.

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Well, first of all, we couldn't figure out who was infringing.

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These are knockoffs coming from China and various manufacturers.

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The system is you find a good product,

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Then you go to Hong Kong and you have somebody there, say, find a factory in China that can knock this off.

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So the product comes in, and there's no labeling on the box.

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But California law requires there be a law label.

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And it states the manufacturer.

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And it states other things, too, fire, retardant rules.

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And therefore, that helps you find who the infringer is.

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But we couldn't find that.

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And so the claim with respect to the state law claims was what exactly?

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failure to label.

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The infringer didn't have to comply with the labeling laws and therefore it was unfair competition because Xenis does and at added cost they could just break the law and sell it cheaper.

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And those claims were dismissed along with the patent.

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All claims were dismissed even though we never discussed it.

[00:06:07] Speaker 01:
Okay, do you have anything further?

[00:06:09] Speaker 03:
Well, there are eight independent reasons for remanding.

[00:06:14] Speaker 01:
I think we covered probably all of them.

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Some are easier than others.

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The easiest one is to find that a claim is invalid based on a combination of items and when one of the items isn't even prior art.

[00:06:27] Speaker 04:
If we agree with you that the district court abused its discretion in granting summary judgment without allowing discovery and further proceedings, do we need to go any further?

[00:06:39] Speaker 03:
Yes, we gave eight independent reasons.

[00:06:42] Speaker 04:
Wait, why are you arguing against that?

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I mean, isn't that the easiest way for you to win?

[00:06:47] Speaker 04:
We vacate and remand the grant to summary judgment and send it back so you can do the discovery you asked for and present a different case.

[00:06:54] Speaker 04:
Why would we go any further than that?

[00:06:56] Speaker 03:
Correct, but within that we need discovery.

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If it's just

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vacating, then the future court judge could go on like he did and not allow any discovery.

[00:07:06] Speaker 04:
Also, we would ask that the court... I think I just said we're going to vacate in remand to give you the discovery you need.

[00:07:13] Speaker 04:
Discuss it.

[00:07:14] Speaker 04:
It's really important you listen to the judge's questions.

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I'm not trying to trick you here.

[00:07:20] Speaker 04:
I'm trying to decide what's the simplest way to decide this case, which seems to be to vacate in remand to give you the discovery you wanted and weren't given.

[00:07:29] Speaker 04:
Isn't that the easiest way to decide this case?

[00:07:33] Speaker 03:
Yes, with the addition of striking the or granting our motion to strike in which the new prior art was brought in a surreply and a expert affidavit was brought where we never had an opportunity to

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a cross-examine and we don't want to come in at that point.

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We would like that stricken so that forcing the infringer to bring a summary judgment motion of invalidity so that we have the whole process.

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We can file an opposition.

[00:08:06] Speaker 03:
We can take discovery.

[00:08:07] Speaker 02:
So let me see if I understand the state of play with respect to two items of prior, the Tiffany bed.

[00:08:15] Speaker 02:
That was

[00:08:16] Speaker 02:
And the bed in the box were the two items I was interested in.

[00:08:19] Speaker 02:
The Tiffany bed, I take it, was the item that came in in the sur-reply.

[00:08:25] Speaker 03:
That's correct.

[00:08:26] Speaker 02:
To which you responded in the sur-sur-reply.

[00:08:28] Speaker 03:
Correct.

[00:08:29] Speaker 02:
Right.

[00:08:29] Speaker 02:
OK.

[00:08:31] Speaker 02:
But there's no doubt that I take it that that is prior art.

[00:08:34] Speaker 02:
It's just that you don't think it's invalidating prior art.

[00:08:37] Speaker 02:
Correct.

[00:08:37] Speaker 02:
Right.

[00:08:37] Speaker 02:
OK.

[00:08:38] Speaker 02:
Now the bed in the box, it was left unclear to me when that came in.

[00:08:45] Speaker 02:
an argument that that was not, in fact, prior art because it didn't predate the... That's correct.

[00:08:54] Speaker 03:
That could mean because it was in the letter from... That was part of the letter?

[00:08:59] Speaker 02:
Exactly.

[00:09:00] Speaker 02:
Okay.

[00:09:00] Speaker 02:
And what is your position with respect to whether the bed in the box is prior art or not?

[00:09:08] Speaker 02:
It's not prior art because it's not prior.

[00:09:11] Speaker 02:
Not prior.

[00:09:11] Speaker 02:
But what is...

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What evidence would you use to show that it wasn't, or did you use to show that it was not prior to that?

[00:09:22] Speaker 03:
Well, the burden is on the party alleging invalidity to show that some, in this case a blog, appeared before the filing date.

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And I couldn't.

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There's no date anywhere.

[00:09:34] Speaker 02:
I see.

[00:09:34] Speaker 02:
So it's a question of lack of proof.

[00:09:37] Speaker 03:
Yes.

[00:09:37] Speaker 01:
OK, thanks.

[00:09:42] Speaker 01:
OK.

[00:09:42] Speaker 01:
Why don't we hear from the other side?

[00:09:44] Speaker 01:
You have plenty of time left for rebuttal.

[00:09:47] Speaker 01:
Is it Mr. Beechman?

[00:09:51] Speaker 00:
Good afternoon.

[00:09:52] Speaker 00:
Thank you, Your Honors.

[00:09:52] Speaker 00:
May it please the Court.

[00:09:55] Speaker 00:
From what I've heard, we need to take a step back and understand that, in fact, the district court, what it had attempted to do, and I would argue successfully, was to tailor the issue

[00:10:08] Speaker 00:
It didn't cut off discovery.

[00:10:10] Speaker 00:
It didn't say you can't get to any of these issues.

[00:10:12] Speaker 00:
It said first and fundamentally, there's a threshold issue.

[00:10:16] Speaker 04:
How is it even close to being possible to ordering the patentee to file a motion for validity when the

[00:10:26] Speaker 04:
patent bears a presumption of validity.

[00:10:29] Speaker 04:
I mean, even if he was going to do this without discovery, shouldn't it have been ordering you to file the motion of invalidity so that you were forced to list the prior art?

[00:10:40] Speaker 00:
I believe the way that the court had phrased it and district court counsel, I wasn't district court counsel, but in reviewing the appendix, particularly 81 to 92, I think the question was each

[00:10:52] Speaker 00:
others pleading with the inverse of that in fact so I understand that the burden then shifts but the way the court had addressed it was to let the patent holder

[00:11:02] Speaker 00:
demonstrate that the patent is valid.

[00:11:04] Speaker 04:
But the patent holder doesn't have to demonstrate that it's valid because it's presumed valid unless you demonstrate by clear and convincing evidence that it's not.

[00:11:13] Speaker 04:
And I think that's exactly... So he's requiring them to shoot in the dark at a target that they don't even know about until you present your motion.

[00:11:20] Speaker 00:
And I think what the district court did very fairly and correctly was in trying to sort out this issue, in trying to resolve the issue of validity before opening the path to discovery, the court

[00:11:31] Speaker 00:
gave a very fair determination by saying... How is this fair?

[00:11:35] Speaker 04:
Because then you filed a motion, they filed a response, and then you filed a cert reply coming in with even more new prior art that they weren't allowed to talk about, and that's what the district court relied on.

[00:11:46] Speaker 00:
That's not entirely accurate, Your Honor.

[00:11:47] Speaker 00:
What happened after the cert reply was filed, the court suggested that the patent holder, the appellant be entitled to file a cert reply.

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patent holder did not.

[00:12:00] Speaker 00:
Zena's did not do that.

[00:12:01] Speaker 00:
In fact, the court said on the record, are you satisfied with the briefings?

[00:12:05] Speaker 00:
And Zena said, yes, we're satisfied.

[00:12:09] Speaker 02:
Wasn't that before the... That was in the initial stages.

[00:12:14] Speaker 00:
Yes, Your Honor.

[00:12:14] Speaker 00:
I mean, at the stage of the Sir Reply, the argument that's advanced now, which wasn't advanced at the time, was, well, we didn't have enough time to file the Sir Sir Reply.

[00:12:25] Speaker 00:
In other words, when the idea of the Tiffany bed and the discovery of the Tiffany bed was presented to the district court, the district court afforded Zenas an opportunity to file a Sir-Sir reply.

[00:12:37] Speaker 01:
Where were they afforded the opportunity to get discovery?

[00:12:40] Speaker 00:
Well, the issue that the court said, and then again, that would be at appendix 81 through 92, there was a discussion about the discovery.

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And Zenas' counsel was arguing that we want to know if there's a nefarious connection between

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the entities of the individual.

[00:12:55] Speaker 00:
We want to know if they won't.

[00:12:58] Speaker 01:
We'll look on page supplemental appendix page 11.

[00:13:03] Speaker 01:
Supplemental appendix page 11.

[00:13:17] Speaker 01:
Supplemental appendix page 11 is a reporter

[00:13:21] Speaker 01:
a portion of the reporter transcript, is this correct?

[00:13:24] Speaker 00:
That's correct, Your Honor.

[00:13:25] Speaker 01:
And at the bottom, it's made clear by the court.

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The question was asked, is all discovery stayed?

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And it is, but not on the standing question.

[00:13:33] Speaker 01:
So when did they have an opportunity for discovery on these obviousness things?

[00:13:37] Speaker 01:
When could they depose the expert that you put in on your cert reply or question anyone in your employee about the references that you attached there?

[00:13:47] Speaker 00:
The district court took the view that there was no, none of these secondary considerations were presented as argument.

[00:13:53] Speaker 00:
And what ZENUS was free to do was to argue, as counsel did this morning, that it had $87 million in commercial success.

[00:14:00] Speaker 01:
That's not what I asked you.

[00:14:01] Speaker 01:
I just had a question.

[00:14:02] Speaker 01:
What I asked you is, when did they have the opportunity to depose you attached an expert report to your surreply, correct?

[00:14:10] Speaker 00:
There was a dec... not a report, Your Honor, a declaration was attached to the surreply, correct?

[00:14:15] Speaker 01:
Distinction without a difference.

[00:14:16] Speaker 01:
Thank you.

[00:14:17] Speaker 01:
You attached a declaration to your surreply of an expert.

[00:14:23] Speaker 01:
When did they have an opportunity to cross-examine or depose that expert?

[00:14:26] Speaker 00:
They did not.

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They had an opportunity to present their own evidence in contravention of our evidence in their surreply.

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that the court had instructed be filed.

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And at that point, what I've seen now in the appellate documents is that there were concerns that there wasn't enough time.

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It was a Thanksgiving holiday.

[00:14:43] Speaker 00:
But Zemes took no effort at the district court level to express that to the court under Rule 56.

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They could have said, we need more time for this, or we want to get an opportunity to, in fact, depose these folks.

[00:14:54] Speaker 00:
They didn't do that.

[00:14:56] Speaker 00:
They sat on what they had and they now take issue subsequent.

[00:15:00] Speaker 01:
And we would argue that those issues- When you say they sat on what they had, perhaps it was because it was their summary judgment motion.

[00:15:05] Speaker 01:
And the only thing they had to lose was their summary judgment, which meant if they lost, it then went to trial.

[00:15:13] Speaker 01:
And hey, they might actually get some discovery before the trial happened.

[00:15:17] Speaker 01:
Maybe that's why they didn't do all those things you're suggesting, because you never actually filed a summary judgment motion of invalidity and the court never put a more notice

[00:15:26] Speaker 01:
that that was something that might actually occur.

[00:15:29] Speaker 01:
So that all they had to lose was their own summary judgment not being granted on the issue of validity.

[00:15:36] Speaker 01:
So why would they necessarily have to do all those things?

[00:15:38] Speaker 00:
Well, I think unlike the Massey case, this doesn't fall within Massey.

[00:15:41] Speaker 00:
This wasn't a suesponte ruling on a summary judgment that was a surprise to the litigants.

[00:15:48] Speaker 02:
That's the critical question for me, too, as with the presiding judge.

[00:15:53] Speaker 00:
Yes, Your Honor.

[00:15:53] Speaker 02:
What was the point at which the district judge effectively communicated to your opposing counsel that he was at risk of having summary judgment of invalidity granted against him?

[00:16:08] Speaker 02:
Was there any point at which that happened?

[00:16:10] Speaker 00:
I believe that was in the May 2, 2016 hearing where the discussion turned on

[00:16:19] Speaker 00:
It would be Appendix 80, beginning at 82.

[00:16:34] Speaker 01:
I must admit, I don't really know the exact procedural progress.

[00:16:38] Speaker 01:
This May 2nd hearing, is this after the conclusion of all the briefing, including the certify, or is this prior to?

[00:16:46] Speaker 01:
Prior to.

[00:16:46] Speaker 01:
So prior to the certify, okay.

[00:16:51] Speaker 00:
So at this point, and I'm looking at appendix 92, the court states, sir, listen to what I'm saying.

[00:16:58] Speaker 00:
You're ordered to make a motion in three weeks on the validity, on the question of the validity of your patent.

[00:17:05] Speaker 02:
Now, that's directed at Mr. Wallace, correct?

[00:17:07] Speaker 02:
That's correct.

[00:17:08] Speaker 02:
So the court is directing Mr. Wallace to file a motion of validity, a summary judgment motion of validity.

[00:17:15] Speaker 02:
My question to you is, where does the district court indicate

[00:17:21] Speaker 02:
that Mr. Wallace and his client are at risk of having summary judgment of invalidity granted against them.

[00:17:30] Speaker 00:
Well, I think that in the event that they were to not prevail on a motion for summary judgment, the inverse of one necessarily is the other.

[00:17:38] Speaker 02:
No, no, no.

[00:17:39] Speaker 02:
You know better than that.

[00:17:40] Speaker 02:
I do, but I. You do know better than that.

[00:17:43] Speaker 02:
You can't argue that.

[00:17:45] Speaker 02:
If you don't get summary judgment of validity, the necessary legal consequence of that is the entry of summary judgment of invalidity.

[00:17:54] Speaker 02:
You're not arguing that, right?

[00:17:55] Speaker 00:
No, Your Honor.

[00:17:58] Speaker 02:
Then the question is, when does the judge tell Mr. Wallace and his client that he is at risk of having summary judgment of invalidity granted against him?

[00:18:09] Speaker 00:
I don't think there's an explicit statement of that, but I think the parties... Isn't that what Rule 56F requires?

[00:18:15] Speaker 00:
Well, I think the parties impliedly, not impliedly, when they filed their 26F reports and both sides agreed that this case would go by dispositive motion, then each party was aware of the risks... But you never moved for summary judgment of impolidity.

[00:18:29] Speaker 04:
So, on the procedural posture of this case, it's a sues-fonte grant, a summary judgment to you without notice to

[00:18:38] Speaker 04:
your opponent.

[00:18:40] Speaker 04:
Isn't that the way it works?

[00:18:41] Speaker 04:
And if so, doesn't that violate rule 56?

[00:18:44] Speaker 00:
I understand that in interpreting what happened in the record that that's this court's or your honor's view, I think that there was a series of discussions leading up to how this matter would be resolved.

[00:18:58] Speaker 00:
And over the course of, I believe, four separate hearings, there were discussions wherein the

[00:19:04] Speaker 00:
the idea that the issue of validity would be first tested by the district court before it went on to consider infringement.

[00:19:14] Speaker 01:
Is there any evidence in this record that the bed in the box prior art is in fact prior art?

[00:19:19] Speaker 00:
The bed in the box is an interesting issue because it seems that the only reference to that was off a blog that somebody detected on the internet.

[00:19:27] Speaker 00:
And so I don't believe there is any hard evidence that indicates whether or not that's prior art.

[00:19:34] Speaker 00:
I don't necessarily think that the district judge hung his hat on that particular bed in the box.

[00:19:39] Speaker 00:
I think what happened was when the Tiffany bed came along, the district court recognized that oftentimes litigation in the patent context is far beyond the dispute of the parties.

[00:19:51] Speaker 00:
The rulings are broad sweeping and they affect commerce in general down the road.

[00:19:55] Speaker 00:
And I think that when the Tiffany bed was in fact discovered,

[00:19:59] Speaker 00:
It was demonstrative of prior art that's fairly on point using the wings that are inside the storage.

[00:20:05] Speaker 00:
And the court recognized the importance of that and afforded Zenith the opportunity to address it.

[00:20:11] Speaker 00:
And that was with what we've discussed already about the Sir Sir reply.

[00:20:19] Speaker 00:
Any further questions from the court?

[00:20:22] Speaker 01:
Nothing further.

[00:20:22] Speaker 00:
Thank you.

[00:20:23] Speaker 01:
Thank you.

[00:20:28] Speaker 01:
Mr. Wallace, you have some time.

[00:20:44] Speaker 03:
Thank you.

[00:20:44] Speaker 03:
Just two quick points.

[00:20:49] Speaker 03:
The CAP parties have said that my client received notice that

[00:20:56] Speaker 03:
there would be a summary judgment motion of invalidity.

[00:21:00] Speaker 03:
As I believe you all know or surmise, there was no notice whatsoever.

[00:21:06] Speaker 03:
And the discussion about bringing a summary judgment motion on from May 2nd, that was way, way before the whole motion was brought, the sir reply, the motion to strike, the sir sir reply.

[00:21:20] Speaker 03:
So it has nothing to do with notice for a motion for invalidity.

[00:21:27] Speaker 03:
Opposing counsel said somehow that the 26-F filings showed that Zenas was aware that there could be a summary judgment motion for invalidity.

[00:21:39] Speaker 03:
That's incorrect.

[00:21:40] Speaker 03:
There is no mention in the 26-F report about any summary judgment motion for invalidity.

[00:21:46] Speaker 03:
The statement in the 26-F report is that the case could be disposed of early with a summary judgment motion for infringement, and that is what

[00:21:56] Speaker 03:
was at first contemplated by Judge Wilson, who then changed his mind during the hearing.

[00:22:04] Speaker 03:
About the bed in the box, the Kemp parties just stated that the district court, quote, did not hang his hat on this reference.

[00:22:15] Speaker 03:
That is false.

[00:22:16] Speaker 03:
That's referred to explicitly in the order invalidating claims one and three.

[00:22:22] Speaker 03:
That's at appendix page nine.

[00:22:24] Speaker 03:
It's referred to twice, but in both paragraphs.

[00:22:30] Speaker 03:
And he says, someone with ordinary skill in the art would view the Tiffany bed, the Asplen bed, and the bed in the box where all the pieces fit in the compartment, and combine these references.

[00:22:43] Speaker 03:
So that's one of the items of prior art that's being combined in a combination.

[00:22:49] Speaker 03:
And if it's not prior art, that

[00:22:53] Speaker 03:
invalidity argument fails.

[00:22:56] Speaker 01:
Okay, I thank counsel for their arguments.

[00:23:00] Speaker 01:
The case is taken under submission.

[00:23:04] Speaker ?:
All rise.

[00:23:08] Speaker ?:
The honorable court is adjourned until tomorrow morning at 10 a.m.