Patent Watch: Allflex U.S.A., Inc. v. Avid Identification Sys., Inc.

by BakerHostetler
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[Where] the appellant has identified no relationship between the valuation placed on the appeal and the issues the appellant wishes to challenge, the parties have simply placed a "side bet" on the outcome of the appeal, which is not enough to avoid a ruling of mootness.

On January 17, 2013, in Allflex U.S.A., Inc. v. Avid Identification Sys., Inc., the U.S. Court of Appeals for the Federal Circuit (Lourie, Clevenger, Bryson*) dismissed as moot Avid's appeal from the district court's summary judgment that Avid did not infringe U.S. Patents No. 5,214,409 and No. 5,499,017, which related to radio frequency identification (RFID) technology used in tags attached to animals or objects to locate them if they are lost. The Federal Circuit stated:

The main procedural problem created by the posture of this case is mootness. Avid asserts that it has a continuing interest in the issues it wishes to present on appeal, but there is a real question whether Allflex has a legally cognizable interest in any of those issues in the context of this case, and thus whether there is a live case or controversy for this court to resolve.

First, with respect to the sanctions issue, there has been no sanction entered against Avid, and thus an appeal on that issue would have no effect on either party's legal rights even if this court had jurisdiction to review the district court's findings and agreed with Avid. Second, with respect to the materiality issue in the inequitable conduct claim, Avid has not suffered an adverse judgment on Allflex's inequitable conduct claim because the district court dismissed this case without finding Avid's patents unenforceable. Regardless of whether this court reverses the materiality ruling, Avid's patents will remain in force because neither the district court nor the parties contemplate further proceedings on the issue of intent, which would be necessary before the court could enter a judgment on inequitable conduct. Under those circumstances, Avid's disagreement with the court's ruling on the materiality issue does not give it a right to appeal. "A party may not appeal from a judgment or decree in his favor, for the purpose of obtaining a review of findings he deems erroneous which are not necessary to support the decree."

In contending that the issues it has put before this court are not moot, Avid relies entirely on the $50,000 contingent payment that will be payable to Avid if it prevails in this court on any one or all of the three identified issues-sanctions, materiality, or non-infringement. In the context of this case, we hold that the $50,000 contingency payment is not sufficient to avoid a conclusion that the issues Avid seeks to raise on appeal are moot. Under the settlement agreement, Allflex has obtained a payment of $6.5 million that is not at risk in the appeal, and Avid's infringement counterclaims have been dismissed with an agreement not to bring a similar action against Allflex for seven years. Although Allflex is entitled under the terms of the settlement agreement to litigate the merits of this appeal, the $50,000 remaining at issue is apparently insufficient to induce it to file a brief or otherwise participate.

If there were no money at stake, the appeal would undoubtedly be moot. The fact that Avid is unhappy with the district court's decision in this case is not enough to breathe life into the case in the absence of a continuing controversy between the parties. [I]f Avid had chosen to appeal the inequitable conduct issue, the amount in dispute would have been exactly the amount that the parties actually agreed upon in their settlement agreement. That amount was therefore not a form of liquidated damages, but was the actual amount of damages at stake. It was not a contrivance invented for the purpose of avoiding a mootness determination, but rather was the jury's legally binding assessment of the damages caused by the trespass against Avid's rights-a trespass that, in Avid's mind, was worth remedying in court. . . . Under the settlement agreement in this case, the $50,000 rebate from the $6.55 million settlement sum will be paid if Avid prevails on any or all of the three issues that it undertook to appeal. Counsel for Avid has made no effort to suggest that $50,000 is a reasonable estimate of the value of any of the issues on appeal, rather than simply a number that Avid hopes will be large enough to persuade this court that it is not a "token or arbitrary sum introduced for the purpose of manufacturing a controversy." . . .

Even with respect to the non-infringement issue, we are not satisfied that the $50,000 contingent payment is a reasonable proxy for a damages award on that issue. And, given the way the contingent payment is structured, how could it be? If $50,000 is a reasonable estimate of the value of a reversal on the inequitable conduct issue, for example, then the other issues on appeal presumably have no value. Yet under the settlement agreement, each of those issues has been valued at $50,000, with the proviso that success on more than one of those issues will not increase the amount of Avid's rebate above $50,000. The $50,000 is thus completely untethered to the value of any of the issues on appeal. [T]he absolute amount at stake is insufficient by itself to establish a relation to the value of the issues on appeal in this case, especially where the $50,000 represents less than one percent of the payment included as consideration for the partial settlement. We hold that where, as here, the appellant has identified no relationship between the valuation placed on the appeal and the issues the appellant wishes to challenge, the parties have simply placed a "side bet" on the outcome of the appeal, which is not enough to avoid a ruling of mootness.

If you have questions about the material presented above, please contact Dr. Lawrence M. Sung ( lsung@bakerlaw.com or 202.861.1537) or any member of our Intellectual Property Team.

See information regarding BakerHostetler's Patent Litigation and IP Prosecution and Portfolio Management practices.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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