Federal Circuit on Mootness: “We do not play dice.”

Like any gambling, betting on an appeal can be risky.

Allflex USA v. Avid Identification is an appeal from an declaratory-judgment action for unenforceability and non-infringement for six different patents related to RFID tags for pets. The district court made three rulings that Avid appealed: (1) that Avid “should be sanctioned” for not disclosing pending reexamination proceedings; (2) granting summary judgment of non-infringement, and (3) granting partial summary judgment after concluding that Avid’s failure to fully disclose prior public use and offers to sell one of its products was material to the inequitable conduct. Dice

Then the parties settled—sort of. The Federal Circuit explains:

By its terms, the agreement resolved all claims and issues between the parties other than those raised in this appeal. As part of the settlement agreement, Avid agreed to pay $6.55 million to Allflex. The parties further agreed that Avid would be free to appeal the three issues referred to above—[non-infringement, materiality of prior public use and offers, and the “should be sanctioned” ruling.] Avid also reserved the right to appeal the district court’s claim constructions and any other “underlying orders, objections, opinions, and rulings.” For its part, Allflex retained the right to contest any appeal on the merits, but the settlement explicitly barred Allflex from disputing the existence of a live case or controversy. The agreement further provided that, “[i]n the event AVID is successful in overturning any of such findings,” Allflex would pay Avid $50,000, i.e., the settlement amount to be paid to Avid would be reduced from $6.55 million to $6.5 million.

After the settlement, the district court entered a stipulated order, which dismissed the action with prejudice “with the exception of the following findings, which are final and ripe for appellate review.” The district court listed non-infringement, materiality, and sanctions as the issues ready for review.

Avid appealed and filed its opening brief. Allflex did not file a brief.

First, the Court explained that ordinarily, an appeal with this posture should be dismissed, as the district court’s ruling doesn’t seem to be a “final decision” creating appellate jurisdiction under 28 U.S.C. § 1295(a)(1). No sanction actually issued, so that issue was undecided, and the district court decided only one of the two prongs of inequitable conduct—it found materiality (effectively), but made no finding on intent. Nonetheless, the decision was a final one, because the stipulated order made clear that no further steps would be taken regarding any issues in the case. The order was final because it disposed of the case (at the district court, at least).

After concluding jurisdiction was present, the Federal Circuit turned to mootness. Avid’s single argument to avoid mootness was the presence of the $50,000 contingent payment that will be payable to Avid if it prevails on appeal on any of the three issues—sanctions, materiality, or non-infringement. It was a losing wager for Avid.

The Federal Circuit distinguished three cases that involved  appellate contingent payments: Avid Identification Systems, Inc. [same Avid as in this case] v. Crystal Import Corp., 603 F.3d 967 (Fed. Cir. 2010), Nixon v. Fitzgerald, 457 U.S. 731 (1982), and Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982). The two Supreme Court cases differed from Avid’s current appeal, because in those cases the parties to the appeal had merely agreed on liquidated damages reflecting “a reasonable attempt to quantify the damages that would flow from the outcome” of each decision. The prior Avid appeal—Crystal Import—differed because the amount contingent on that appeal was the entire dollar value of the infringement damages—$26,981.

Here, Avid argued that because the $50,000 contingent payment in this case exceeded the $26,981 in Crystal Import, that this appeal was not moot. The Federal Circuit rejected that line of reasoning, and articulated a new “side bet” test for mootness:

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 parties wish to gamble on an appeal, they should be prepared to show that the amount of their wager is rationally related to the issues on appeal and the value in controversy. Otherwise, all bets are off.

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Posted on January 21, 2013, in Infringement, Patent, Procedure and tagged , , , , , , , , , . Bookmark the permalink. Comments Off on Federal Circuit on Mootness: “We do not play dice.”.

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