by Dennis Crouch
Static Media LLC v. Leader Accessories LLC and Jen-Feng (Jeff) Lee (Fed. Cir. 2022)
Back in 2018, Static Media sued Leader Accessories in W.D. Wisconsin for infringing its U.S. Design Patent D771,400, covering an ornamental design for a stadium seat. The case ended with a summary judgment of non-infringement. The district court found a large number of similar prior art designs and thus narrowly construed the potential infringement window. The district court then walked-through a number of differences that would preclude a finding of substantial similarity, including the quilted vertical columns,; difference in the lower portion of the back (straight vs sloping at the edges); narrower seat cushion; distinctive storage panel with two pockets; etc.
Parallel Cases and a JDA: While the Leader case was ongoing, Static Media also threatened and then sued OJ Commerce for infringing the same patent. The two defendants – Leader and OJ – entered into a Joint Defense Agreement (JDA) for the purpose of creating a common defense in both cases with Jeff Lee representing Leader and Sam Hecht representing OJ.
The Wisconsin case was subject to a confidentiality agreement/order. Lee wanted to send some confidential case documents to Hecht. But, before doing so, first had Hecht sign the confidentiality agreement. At that point, Lee sent over some deposition transcripts as well as prior licensing/sales information from the patentee. According to the court “[o]nly a few of the pages in those documents were marked confidential, the rest were not.”
Hecht (OJ’s attorney) later used the confidential documents from the Leader case in license negotiations. Static Media’s attorneys were upset at this information sharing and petitioned for sanctions. The Wisconsin magistrate and district court agreed and concluded Lee’s disclosures to Hecht were in violation of the protective order. In particular, the protective order limited the use of confidential information: “solely for the purposes of this action.” I.e., confidential disclosures in Static v. Leader could only be used for Static v. Leader. The court ordered a sanction under R. 37 of $1,000 plus $10,500 in attorney fees.
On appeal, a divided Federal Circuit panel has reversed–finding a “fair ground of doubt as to the wrongfulness” of the conduct. Quoting Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618 (1885).
Two theories of contempt:
- Theory 1: When Lee disclosed the material to Hecht, Lee knew (or should have known) that Hecht would use it in the OJ case. On appeal, the Federal Circuit found this theory lacked evidentiary support. The court particularly pointed to Lee’s requests that Hecht sign and then comply with the confidentiality agreement. “Mr. Lee had Mr. Hecht sign the Written Assurance, and with each disclosure, Mr. Lee reminded Mr. Hecht of the obligations the protective order imposed on his use of the confidential information.” Slip Op.
- Theory 2: Even though Hecht signed the agreement, disclosure to Hecht for the purposes of a JDA was improper. On appeal though, the Federal Circuit found focused on the purpose of the agreement — to prevent public disclosure or disclosures that would place the parties at a competitive disadvantage. The appellate panel then found that a Joint Defense Agreement does not frustrate that goal.
The majority opinion was authored by Judge Dyk and joined by Judge Taranto. Judge Reyna wrote in dissent — concluding that the majority failed to give the district court’s sanctions order sufficient deference.