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Xpertuniverse, Inc. v. Cisco Systems, Inc.

United States District Court, Third Circuit

November 20, 2013

XPERTUNIVERSE, INC., Plaintiff,
v.
CISCO SYSTEMS, INC., Defendant.

Philip A. Rovner, Esq., Potter Anderson & Corroon LLP, Wilmington, DE; Charles E. Cantine, Esq., Jason M. Sobel, Esq., Stroock & Stroock & Lavan LLP, New York, NY, Attorneys for Plaintiff.

Jack B. Blumenfeld, Esq., Jennifer Ying, Esq., Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE; Kathleen M. Sullivan, Esq., Cleland B. Welton II, Esq., New York, NY, Daniel H. Bromberg, Esq., Quinn Emanuel Urquhart & Sullivan, LLP; Redwood Shores, CA, Kell M. Damsgaard, Esq., Philadelphia, PA, Brett M. Schuman, Esq., Ryan Scher, Esq., San Francisco, CA, Morgan, Lewis & Bockius LLP, Attorneys for Defendant.

MEMORANDUM OPINION

RICHARD G. ANDREWS, District Judge.

Pending before the Court are the parties' post-trial motions. Plaintiff Xpert Universe, Inc. ("XU") filed a Motion to Alter or Amend the Judgment Pursuant to Federal Rule of Civil Procedure 59(e) and Motion for Attorneys' Fees Pursuant to 35 U.S.C. § 285 (D.I. 702). Defendant and Counterclaimant Cisco Systems, Inc. ("Cisco") filed a Motion for Judgment as a Matter of Law under Rule 50(b) and, in the Alternative, for Remittitur or New Trial Under Rule 59(a)(1) (D.I. 699); a Motion for Enforcement of the Parties' Agreement to Limit Liability (D.I. 697); and for an order holding the patents in suit unenforceable due to inequitable conduct (D.I. 706).

XU brings this action against Cisco alleging that Cisco infringed its patents and fraudulently concealed information from XU during the course of a relationship between the parties, as set forth most recently in XU's Fourth Amended Complaint. (D.I. 82). Cisco responded with numerous counterclaims and affirmative defenses, alleging that XU obtained its patents via fraud on the United States Patent and Trademark Office. (D.I. 127). After a nine-day jury trial, the jury returned the following verdict: Cisco committed fraud by concealment and caused damages of $70 million; Cisco's Expert Advisor product infringed XU's U.S. Patent No. 7, 366, 709; Cisco's Expert Advisor and Remote Expert products infringed XU's U.S. Patent No. 7, 499, 903; XU should recover $15, 463 for Cisco's infringement through Expert Advisor; and XU should recover $18, 920 for Cisco's infringement through Remote Expert.

The parties completed their post-trial briefing on June 27, 2013.

DISCUSSION

I. Cisco's Motion for Judgment as a Matter of Law

Judgment as a matter of law is appropriate if "the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for [a] party" on an issue. FED.R.Civ.P. 50(a)(1). "Entry of judgment as a matter of law is a sparingly invoked remedy, " one "granted only if, viewing the evidence in the light most favorable to the nonmovant and giving it the advantage of every fair and reasonable inference, there is insufficient evidence from which a jury reasonably could find liability." Marra v. Phila. Housing Auth., 497 F.3d 286, 300 (3d Cir. 2007) (internal quotation marks omitted).

"To prevail on a renewed motion for [judgment as a matter of law] following a jury trial, the [moving] party must show that the jury's findings, presumed or express, are not supported by substantial evidence or, if they were, that the legal conclusion(s implied [by] the jury's verdict cannot in law be supported by those findings.'" Pannu v. Iolab Co)rp., 155 F.3d 1344, 1348 (Fed. Cir. 1998) (citation omitted). "Substantial' evidence is such relevant evidence from the record taken as a whole as might be acceptable by a reasonable mind as adequate to support the finding under review." Perkin-Elmer Corp. v. Computervision Corp., 732 F.2d 888, 893 (Fed. Cir. 1984).

In assessing the sufficiency of the evidence, the court must give the non-moving party, "as [the] verdict winner, the benefit of all logical inferences that could be drawn from the evidence presented, resolve all conflicts in the evidence in his favor, and in general, view the record in the light most favorable to him." Williamson v. Consol. Rail Corp., 926 F.2d 1344, 1348 (3d Cir. 1991). The court may not determine the credibility of the witnesses nor "substitute its choice for that of the jury between conflicting elements of the evidence." Perkin-Elmer Corp., 732 F.2d at 893. Rather, the court must determine whether the evidence reasonably supports the jury's verdict. See Dawn Equip. Co. v. Ky. Farms Inc., 140 F.3d 1009, 1014 (Fed. Cir. 1998); Gomez v. Allegheny Health Servs. Inc., 71 F.3d 1079, 1083 (3d Cir. 1995) (describing standard as "whether there is evidence upon which a reasonable jury could properly have found its verdict"); 9B WRIGHT & MILLER, Federal Practice & Procedure § 2524 (3d ed. 2008) ("The question is not whether there is literally no evidence supporting the party against whom the motion is directed but whether there is evidence upon which the jury properly could find a verdict for that party.").

Federal Rule of Civil Procedure 59(a) provides, in pertinent part: "The court may... grant a new trial on all or some of the issues... after a jury trial, for any reason for which a new trial has heretofore been granted in an action at law in federal court...." While new trials are infrequently granted, the "most common reasons" for granting such motions are: "(1) when the jury's verdict is against the clear weight of the evidence, and a new trial must be granted to prevent a miscarriage of justice; (2) when newly-discovered evidence would be likely to alter the outcome of the trial; (3) when improper conduct by an attorney or the court unfairly influenced the verdict; or (4) when the jury verdict was facially inconsistent." Zarow-Smith v. N.J. Transit Rail Operations, 953 F.Supp. 581, 584 (D.N.J. 1997) (citations omitted).

The decision to grant or deny a new trial is committed to the sound discretion of the district court. See Allied Chern. Corp. v. Daiflon, Inc., 449 U.S. 33, 36 (1980); Olefins Trading, Inc. v. Han Yang Chern. Corp., 9 F.3d 282, 289 (3d Cir. 1993) (reviewing district court's grant or denial of new trial motion under deferential "abuse of discretion" standard). However, where the ground for a new trial is that the jury's verdict was against the great weight of the evidence, the court should proceed cautiously, because such a ruling would necessarily substitute the court's judgment for that of the jury. See Klein v. Hollings, 992 F.2d 1285, 1290 (3d Cir.1993). Although the standard for grant of a new trial is less rigorous than the standard for grant of judgment as a matter of law-in that the court need not view the evidence in the light most favorable to the verdict winner-a new trial should only be granted where "a miscarriage of justice would result if the verdict were to stand, " the verdict "cries out to be overturned, " or where the verdict "shocks [the] conscience." Williamson, 926 F.2d at 1352-53.

A. Fraudulent Concealment

XU claims that Cisco concealed that Cisco denied XU entry into a partnership program called Solutions Plus in April 2006, and did not disclose that denial until January 2007. XU claims, and the jury found, that this concealment of XU's denial from April 2006 to January 2007 was fraudulent concealment that led to XU's demise and $70 million in damages.

The parties agree that California law governs XU's fraudulent concealment claim. (D.I. 580 at 4). The elements of a cause of action for fraud based on concealment are:

(1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.

Bank of Am. Corp. v. Superior Court, 130 Cal.Rptr.3d 504, 509-10 (Cal.Ct.App. 2011) (citations and internal quotation marks omitted). Cisco asserts that the fact concealed - XU's denial from Solutions Plus - was not material. A fact is material if "a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question." Engalla v. Permanente Medical Group, Inc., 938 P.2d 903, 919 (Cal. 1997); ( see D.I. 679 at 142). As such, materiality is generally a question of fact unless the fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it.[1] Id.

The evidence at trial shows that after XU's application for Solutions Plus was presented to Cisco's Governance Council, the Council described the application as "denied" on April 25, 2006. (PTX 37 at CISC038318). XU's former President and Chief Operating Officer at the time, Elizabeth Eiss, was the point person at XU for the Cisco relationship. (D.I. 675, Trial Tr. vol. 3, 474, 505-07, 564-65). By June 2006, Eiss knew XU's application had been submitted to the Council, that Council members had concerns regarding "getting clients on board and getting market traction" and "training and education issues, " and that XU "didn't have an approval." (D.I. 675, Trial Tr. vol. 3, 629, 632, 633-37). XU witnesses testified that Cisco never told them that their application had been "denied, " and Cisco emails show this to be the case. (D.I. 674, Trial Tr. vol. 2, 338-39; D.I. 675, Trial Tr. vol. 3, 561-62, 564, 567-68; PTX 38, PTX 47, PTX 46). The Cisco flowchart depicting the formal Solutions Plus approval process does not indicate any opportunity for lobbying or additional review after a rejection by the Governance Council, but Cisco employee John Hernandez testified that in practice, many Solutions Plus applications are accepted after being initially rejected. (DX 826 at XU68616; D.I. 676, Trial Tr. vol. 4, 975; D.l. 678, Trial Tr. vol. 6, 1712-15). In XU's case, after the April 2006 "denial, " Eiss worked with Hernandez, her "champion" at Cisco, to address the Council members' concerns and get XU admitted to the program. (D.I. 675, Trial Tr. vol. 3, 636; D.I. 678, Trial Tr. vol. 6, 1767-91; DX 433, 435, 456.) Hernandez went on to convince Council member Carl Weise to support XU's application. (D.I. 678, Trial Tr. vol. 6, 1783-91; DX 455, DX 457 at 1, DX 579). But when a potential XU account canceled an XU pilot, Hernandez concluded that the Council's objections could not be overcome, and informed XU that Solutions Plus would not be available. (D.I. 678, Trial Tr. vol. 6, 1797-1800; PTX 41).

The evidence shows Cisco informed XU about the status of its application in every respect except for Cisco's use of the term "denied." The issue here is whether there is sufficient evidence from which a jury reasonably could find that there is a material difference between not being approved, and being denied. Generally, XU asserts materiality based on the testimony of Cisco employees that if Cisco's employees had been in XU's position, they would have wanted to know that the application had been denied. (D.I. 676, Trial Tr. vol. 4, 958-59; id. at 982). XU also asserts that the concealment of the denial itself speaks to the materiality of the information concealed.

More specifically, XU argues that knowing about the denial would have influenced XU's conduct. Eiss testified, "to characterize that we knew it hadn't been approved as equal to you knew it was denied, those are two totally different things." (D.I. 675, Trial Tr. vol. 3, 637-38). Cisco's expert characterized short periods of time, which would include the nine months from April 2006 to January 2007, as a lifetime and testified that XU had other opportunities in April 2006. (D.I. 679, Trial Tr. vol. 7, 2055-56, 2076-77). Eiss and Friedman testified that had XU known about the denial, XU could have abandoned its relationship and instead sought a partnership with a competitor, such as Genesys or IBM. (D.I. 675, Trial Tr. vol. 3, 569-70; D.I. 674, Trial Tr. vol. 2, 339-40). XU points to evidence that Cisco wanted to keep Genesys and XU from partnering. ( E.g., PTX 428, PTX 44). A former Citigroup Senior Vice President testified that Citigroup was considering an XU pilot and that Citigroup was not concerned whether XU was partnered with Cisco or IBM for that pilot. (D.I. 676, Trial Tr. vol. 4, 1003-04). XU argues that "the jury was entitled to infer that since the process went no further, had XU known of the denial[, it] would have pursued other opportunities." (D.I. 725 at 7).

The evidence does not support the conclusion that the process "went no further" after the April 2006 Governance Council meeting. Eiss and Hernandez continued to work towards approval through December 2006, and obtained Carl Weise's support. The evidence also does not support that XU would have pursued other opportunities if it had known of the "denial." Eiss and Friedman testified only that XU "could have" ( e.g., D.I. 675, Trial Tr. vol. 3, 532, 569-70) pursued relationships with other companies if they had learned about the denial - not that the information would have changed their own conduct, much less that of a reasonable person. For XU to prove the materiality of the concealment of the "denial" for nine months, the fact-finder must infer that, had XU been told it was denied in April 2006, XU would have withdrawn from the active relationship with Cisco, and would have sought to resuscitate defunct relationships with IDM and Genesys. There is no evidence that XU would have done so.

More generally, there is no evidence that there is any material difference between "denied" and "not approved." While Eiss testified that to her there was a vague difference, she did not provide any evidence as to why her conduct would have been influenced by any such difference, or to allow the jury to infer what a reasonable person's conduct would have been. While the evidence shows that XU was "denied, " it was also undisputed that Hernandez continued to work, both internally and with Eiss, towards approval. XU's supposed status as terminally denied (as opposed to not approved with a chance of overcoming that lack of approval) is not supported by Cisco's internal emails after the "denial." ( See PTX 38 (showing Hernandez continuing to "move this forward"); PTX 46 (leaving open the possibility of "pushing solution[] if there is a large customer opportunity requiring it"); PTX 48 (noting Carl Weise's approval)). There is no evidence that the Governance Council's use of the word "denied" introduced any material difference from "not approved."

There is insufficient evidence for a jury to find that a reasonable person would attach importance to the knowledge that XU was "denied, " as opposed to not approved, in determining his choice of action in the transaction in question. See Engalla, 938 P.2d at 919. Cisco's motion for judgment as a matter of law on the fraudulent concealment claim is granted. The Court need not reach Cisco's request for a new trial.

B. Damages for Fraudulent Concealment

Because the Court has already found there was insufficient evidence for a jury to find Cisco concealed or suppressed a material fact, the Court need not reach Cisco's requests for judgment as a matter of law, new trial, and/or remittitur on the damages awarded for fraudulent concealment. However, as there are additional related deficiencies in the evidence underlying the fraudulent concealment verdict, the Court will briefly set forth its reasons why it would grant Cisco's request for a judgment as a matter of law on the $70 million concealment damages the jury awarded.

The inquiry is whether, as a result of the concealment or suppression of the fact, the plaintiff sustained damage. Bank of America, 130 Cal.Rptr.3d at 511. An expert's opinion on the measure of damages requires sufficient proof that the plaintiffs injury was caused by the defendant's conduct. See Alphamed ...


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