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Giles Sutherland Rich Memorial Moot Court Competition 2012-2013

This case involves a decision from the United States District Court for the District of Summerset (“District Court”), within the jurisdiction of the Court of Appeals for the Twelfth Circuit. On September 17, 2011, Plaintiff Edward “Ed” Clark (“Clark”) and Clark Innovations, Inc. (“Clark Innovations”) filed suit against The Copper Throne (“Copper Throne”), Bannister, Inc. (“Bannister”) and Taggary LLC (“Taggary”), alleging infringement of Claim 1 of U.S. Patent No. 9,998,604 (“the ’604 patent”). Bannister and Taggary have created software applications that run on smartphones. These applications are available to the public through the online service offered by Copper Throne known as the “Program Store”. Copper Throne timely filed its Answer denying infringement. In addition to filing their Answers, Bannister and Taggary filed a motion to sever and transfer the cases. Clark filed a motion for preliminary injunction, seeking an injunction that prevents Bannister and Taggary from selling infringing software applications, and to have Copper Throne remove Bannister’s and Taggary’s applications from Copper Throne’s Program Store. The District Court heard arguments on the motions to sever and transfer and the motion for a preliminary injunction. The District Court denied Bannister’s and Taggary’s motion to sever and transfer and granted Clark’s motion for a preliminary injunction. Pursuant to 28 U.S.C. § 1292, Bannister and Taggary timely filed a Notice of Appeal in the United States Court of Appeals for the Federal Circuit, seeking to appeal the district court’s denial of their motion to sever and the district court’s grant of Clark’s motion for a preliminary injunction. The District Court certified the appeal, and the Federal Circuit has proper jurisdiction over both issues. The Appeal was docketed as Appeal No. 12-1974. All of the facts recited herein are supported by substantial evidence of record. Any facts not recited herein are without support in the record.

Record Facts:

Clarkister

1. Edward “Ed” Clark and Thomas Bannister were co-founders of a company,

Clarkister, Inc. Clarkister Inc.’s product was primarily a web-based social networking

site, also called Clarkister. Mr. Clark and Mr. Bannister jointly wrote the Clarkister

software, but Mr. Clark was responsible for marketing and sales for Clarkister.

2. Mr. Clark and Mr. Bannister assigned the Clarkister software copyrights to Clarkister,

Inc. Through their work together, Mr. Clark and Mr. Bannister were granted

numerous patents, which were also assigned to Clarkister, Inc. One such patent

granted to Mr. Clark and Mr. Bannister was the ‘604 patent with claims directed to a

highly efficient method for calculating routes with multiple stops. The ‘604 patent

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represented a significant improvement over past methods, and relied upon map data

maintained on the Clarkister servers. Clarkister used the claimed method in web

pages that allowed users to calculate the fastest way to visit each of several

“Buddies” registered with Clarkister’s social networking site.

Clarkister Smartphone App

3. In 2009, Mr. Clark and Mr. Bannister developed a smartphone application based on

the Clarkister mapping technology. The application, the “Clarkister App”, included a

mapping feature that used the method claimed in the ‘604 patent. As with the web-

based version of the software, this mapping feature rapidly calculated routes with

multiple way-points and allowed users to map the fastest way to visit multiple

Clarkister “Buddies.”

4. A notice in the Clarkister App’s “About” file, written by Mr. Bannister, stated that the

Clarkister App was covered by certain Clarkister patents, including the ‘604 patent.

The “About” file also contained a contact address, email address, and phone number

for Mr. Clark.

5. Mr. Clark and Mr. Bannister developed the Clarkister App based on software code

from an online software code library, Open Source USA. Open Source USA allows

use of its code under a permissive free software license with the following terms:

Copyright (c) 2007, Open Source USA All rights reserved. Redistribution and use of this software in source and binary forms, with or without modification, are permitted free of charge to any person, provided that the following conditions are met: 1. All copies of the source code of this software must include the above copyright notice, along with this list of conditions and the following disclaimer. 2. All copies of this software in binary form must reproduce the above copyright notice, this list of conditions and the following disclaimer in the documentation and/or other materials provided with the the copies. THIS SOFTWARE IS PROVIDED ”AS IS'' AND WITHOUT ANY EXPRESS OR IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, THE

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IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

6. Mr. Clark and Mr. Bannister relied on the Open Source USA code as the framework

for integrating the Clarkister routing functions with specific smartphone platforms.

Mr. Clark and Mr. Bannister spent months writing the Clarkister App and altering the

code for the specific needs of each particular platform. The open source software

code contained basic functions for interacting with the GPS capabilities of a variety of

smartphones.

7. During the prosecution of the Clarkister patents, the Open Source USA software was

disclosed to the Patent Office and considered by the patent examiner.

8. During the hearing on Clark’s motion for preliminary injunction, Mr. Bannister

admitted that he had not fully complied with the terms of Open Source USA’s license

by removing the copyright and warranty notices from Open Source USA’s software

prior to incorporating it in the Clarkister App.

9. The Open Source USA developers had also included coding in the software to cause

the copyright notice and license to display if “show c” were typed in, and the warranty

notice to display if “show w” were typed in a search window. Mr. Bannister did not

remove the coding related to these commands.

Clarkister, Inc. v. X-Map LLC

10. Shortly after releasing the Clarkister App, Mr. Bannister and Mr. Clark became aware

of a competitor, X-Map LLC, which also used a highly efficient routing method in its

mapping application, also called X-Map.

11. After further investigation, Mr. Bannister satisfied himself that X-Map practiced the

methods claimed in the ‘604 patent. Clarkister filed a lawsuit against X-Map, alleging

infringement of the ‘604 patent, and moved for a preliminary injunction against X-

Map to halt its sales and distribution of the X-Map application.

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12. In support of the preliminary injunction, Mr. Bannister filed an affidavit stating that the

‘604 patent was valid and enforceable, and that the ‘604 patent was critical to the

efficient running of the X-Map routing function, an advantage that Clarkister had

developed and which X-Map was taking advantage of. Mr. Bannister stated that the

public interest would be served by a preliminary injunction because it was in the

public interest to protect the rights of inventors.

13. Further, Clarkister learned that its customers were abandoning their use of the

Clarkister App in favor of X-Map, partly because X-Map offered its product for 50%

less than the Clarkister App. Over X-Map’s objections, the district court granted

Clarkister’s motion, stating that there was a likelihood of irreparable injury because of

X-Map’s status as a competitor and because X-Map was eroding Clarkister’s market

share. After the preliminary injunction issued, the parties settled for a small sum,

and X-Map developed a workaround, which was inferior to the methods claimed in

the ‘604 patent.

Clarkister bankruptcy and IP transfers

14. Clarkister, Inc. was never a financial success, and the company declared bankruptcy

and dissolved shortly after the settlement with X-Map.

15. The dissolution of Clarkister, Inc. was less than amicable. Mr. Clark lost his home,

having sunk large portions of his personal wealth into the company. Mr. Clark

blamed Mr. Bannister for spending too much of Clarkister’s money on the X-Map

litigation and for not providing enough funding to the marketing efforts of the

company. Mr. Bannister blamed the failure on Mr. Clark’s inadequate sales and

marketing efforts.

16. Mr. Bannister and Mr. Clark had numerous loud arguments at the Clarkister offices.

In the midst of one such argument, Mr. Clark swore he would ruin Mr. Bannister in

the same way that he had been ruined. Mr. Clark demanded a copy of the code for

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the Clarkister App from Mr. Bannister, which Mr. Bannister refused. Mr. Clark and

Mr. Bannister had previously exchanged copies of the source code via e-mail. To

prevent Mr. Clark from getting the source code, Mr. Bannister changed the

passwords to Mr. Clark’s Clarkister email account.

17. The patents assigned to Clarkister were sold off to TRU Patents, Inc. during

Clarkister’s bankruptcy proceeding, which Mr. Bannister primarily handled. In

conducting due diligence regarding the sale, TRU Patents’ representatives

interviewed Mr. Bannister about any potential invalidity or inequitable conduct

committed during prosecution of the patents. Mr. Bannister assured them in a

signed statement that he had conducted searches before Clarkister filed its patent

applications and had disclosed all material references. The file wrappers confirmed

that Mr. Bannister had zealously filed over 400 references with the USPTO, and that

the examiner had considered every one.

18. Mr. Bannister originally did not list the copyrights as a part of the bankruptcy estate.

Six months after the bankruptcy was discharged, and without telling Mr. Clark, Mr.

Bannister re-opened the bankruptcy and added the copyrights to the Clarkister app

to the bankruptcy estate.

19. Mr. Clark never received notices of the re-opening of the bankruptcy because he had

moved from his home where the court notices were sent and he no longer had

access to his email account. Mr. Bannister bought the copyrights to the Clarkister

application for $1000. The sole complete copy of the Clarkister map data, software

code and smartphone application code was on Mr. Bannister’s personal computer,

which was also not included in the bankruptcy.

Clark Innovations, Inc.

20. Following the dissolution of Clarkister, Mr. Clark rebuilt his life. Mr. Clark founded

Clark Innovations, Inc. in 2010. Clark Innovations, a family-owned company that is

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based in the District of Summerset, develops web-based programs such as search

engines, flash video players and smartphone applications for a variety of industries

such as retail, restaurants and music providers. In his spare time, Mr. Clark worked

to create a smartphone mapping application - Crow’s Flight®. Using the knowledge

of the software code that he retained from his time at Clarkister, Mr. Clark’s new

mapping application included new improvements on the mapping capabilities of the

Clarkister App. Like the Clarkister App, Crow’s Flight relies on map data stored on

servers. Mr. Clark developed a completely new set of map data for use with Crow’s

Flight®, and placed that data on servers at Clark Innovations.

21. Crow’s Flight® requires the user to enter a starting location and an ending location.

The application calculates the shortest distance from the starting location to the

ending location via intermediate way-points. Crow’s Flight® is used by business and

personal users, to calculate the fastest route through a series of destinations.

22. Mr. Clark was worried that Crow’s Flight® infringed the ‘604 patent, so Clark

Innovations licensed the ‘604 patent from TRU Patents, Inc., as the exclusive

licensee.

23. Clark Innovations offered Crow’s Flight® for sale for $5, but sales were slow, with

approximately 500 sales occurring by the end of September 2011.

Bannister, Inc. and Taggary LLC

24. Following the dissolution of Clarkister, Mr. Bannister started a family-owned

smartphone application development company called Bannister, Inc., which sells an

application called BannisterMap. BannisterMap plots the quickest route and

sequence of locations for people who need to visit several locations in a row - e.g.

time-strapped shoppers who want to run their errands in the most efficient way

possible. BannisterMap relies upon map data maintained on Bannister’s servers.

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25. Bannister, Inc. also occasionally does some consulting work with Taggary LLC,

owned by Mr. Bannister’s brother-in-law, Mr. Mark Taggary.

26. Taggary LLC sells a software service called Tagg-U that allows small businesses to

map the fastest way to deliver their products to local distributors. The Tagg-U

software eliminates the need for centralized dispatchers. Businesses that purchase

the software have come to critically rely on it for their daily operations and would

suffer significant injury to their ability to operate if they were not able to use the

software.

27. Bannister, Inc. assisted Taggary LLC in developing Tagg-U by demonstrating how

the Clarkister application worked and providing portions of the Clarkister application

code to help solve certain difficult coding issues. Although Taggary LLC had to

rewrite many portions of code in order for Tagg-U to function, it admittedly copied

portions of the Open Source USA code.

28. Tagg-U also incorporated several portions of the Clarkister application’s routing

code, including the use of map data maintained on Taggary LLC’s servers. Taggary

had developed its own independent collection of map data prior to receiving any

information from Bannister, Inc.

29. The re-worked Clarkister code used in Tagg-U was only used as a check against

Tagg-U’s primary routing code developed by Tagg-U programmers. In operation, the

Tagg-U software used its own code to create a “Suggested Route” and then, as a

check, used the Clarkister code to calculate the same route. If the two routes

differed, the Tagg-U software would display the route calculated by the Clarkister

code as an “Alternative Route” for customers to select. The evidence presented by

Tagg-U showed, however, that customers predominately selected the “Suggested

Route” when asked and only selected the “Alternative Route” two percent of the time.

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30. Although Tagg-U has several non-infringing uses, the methods claimed in the ‘604

patent are used to implement the “Alternative Route” features quickly. Indeed, 95

percent of Tagg-U’s customers pay a higher price and monthly subscription to

receive these speed-routing and re-routing features along with several features

unrelated to the ‘604 patent, such as detail maps and traffic information. Although

Tagg-U could have been designed to avoid using the ‘604 patent’s methods, the re-

design would have caused Tagg-U to run noticeably slower and provide alternative

routes that were less efficient 30% of the time.

31. Both Bannister Inc. and Taggary LLC contacted Copper Throne to make their

applications available for download from Copper Throne’s online Program Store.

32. Offered at $2, BannisterMap proved to be popular. BannisterMap received favorable

reviews in the electronic press, and won an award in early 2011 as best new

application of 2010. Sales stand at 100,000 apps as of the end of September 2011,

with monthly sales at 15,000. Sales are increasing on a monthly basis.

33. Tagg-U was offered at $5, with $2 extra per month for the subscription-based

features. Tagg-U proved to be wildly popular among business users. Sales stand at

80,000 apps as of the end of September 2011, with monthly sales at 10,000. Small

businesses have found that they can save substantial amounts of money by using

the Tagg-U software.

34. BannisterMap and Tagg-U’s appearance in search engines directed web traffic to

Copper Throne’s online Program Store. Copper Throne found that purchasers of

BannisterMap were more likely to recommend Tagg-U to their business associates.

35. Copper Throne studied the effect of Tagg-U’s popularity and found that business

users that bought Tagg-U also bought, on average, two additional unrelated

applications when they bought the Tagg-U application.

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Copper Throne

36. Copper Throne requires parties who submit applications for public sale to the

Program Store to comply with a terms of use (TOU) agreement. Included in the TOU

agreement is the following term: “To the best of your knowledge, your application

infringes no patents, trademarks, copyrights, or other intellectual property rights.”

The TOU agreement also states that: “Copper Throne, in its sole discretion, may

remove your application from its Program Store if your app infringes, or is accused of

infringing, the intellectual property rights of a third party.” Copper Throne’s copyright

policy and procedures permit third parties to send takedown notices to Copper

Throne, and permits developers such as Bannister to respond with counter-takedown

notices, per 17 U.S.C. Section 512 (c), (g), and (i).

37. Copper Throne’s copyright policy further states that if a developer has been a subject

of a takedown notice more than once in a month’s period, Copper Throne will review

the developer’s activities to determine if the user engaged in infringement. Copper

Throne’s policy states that it will deactivate a developer’s account if Copper Throne

determines that the user is engaging in infringement and will shut down a

developer’s account if Copper Throne determines that the user engages in willful

infringement.

38. In addition to its copyright policy, Copper Throne has filed the appropriate

paperwork, Interim Designation of Agent to Receive Notification of Claimed

Infringement, with the Copyright Office so that Copper Throne may avoid liability for

third party copyright infringement.

Tagg-U: Allegations of infringement

39. While preparing to offer Crow’s Flight® on the Copper Throne Program Store, Mr.

Clark received a call from Open Source USA. Open Source USA had located Tagg-

U on Copper Throne, and had identified its software code in Tagg-U. Open Source

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USA found the Clarkister App’s “About” notice in Tagg-U, and had tracked down Mr.

Clark from the contact information. Open Source USA’s representative asked Mr.

Clark why he was not following its license terms. Mr. Clark responded that he did not

release Tagg-U. Open Source USA directed Mr. Clark’s attention to the Copper

Throne website, where Mr. Clark bought the Tagg-U application.

40. Mr. Clark analyzed the Tagg-U and BannisterMap applications. He found that they

both contained some of the same errors and misspellings that the Clarkister App had

contained. He ran the software and typed “show c” and “show w” to see if the Open

Source USA copyright notice and warranty would appear, and they did. The version

was the same version used in the Clarkister app. Mr. Clark looked at the “About” file,

and found the Clarkister “About” statement, including the statement that the app was

covered by the ‘604 patent.

41. Mr. Clark investigated Taggary LLC and discovered that it was owned by Mr.

Taggary, who he remembered meeting during the time Mr. Clark and Mr. Bannister

worked together on the Clarkister application. Mr. Clark contacted the Open Source

USA representative and explained that he believed his former business partner, Mr.

Bannister, had released the Tagg-U app.

42. Mr. Clark reviewed the source code for Crow’s Flight® and determined that it did not

contain any Open Source USA code.

43. On April 2, 2011, Open Source USA filed a takedown notice with Copper Throne

regarding the Tagg-U and BannisterMap apps. Copper Throne did not take down

either app immediately. Instead, Copper Throne sent the takedown notice to

Bannister and Taggary. Mr. Bannister filed a counter takedown notice, and both

apps remained available for purchase on Copper Throne.

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44. Mr. Clark contacted TRU Patents to determine if TRU Patents had granted a license

to Bannister or Taggary. TRU Patents confirmed that it had not sold any license to

the ‘604 patent to anyone except Clark Innovations.

45. On April 16, 2011, Mr. Clark sent a letter to Copper Throne’s general contact email

address, stating that Tagg-U app infringed the ‘604 patent and that the “About” file,

written by Mr. Bannister, acknowledged that the Clarkister App practiced the ‘604

patent. Mr. Clark demanded that Tagg-U and BannisterMap be taken down from the

Program Store. Mr. Clark also mentioned Open Source USA’s calls regarding

copyright infringement.

46. Copper Throne sent Mr. Clark’s letter to Bannister and Taggary. Mr. Bannister

denied infringement and sent Copper Throne a letter titled “Counter-takedown

Notice”. Copper Throne notified both parties about Mr. Bannister’s letter and said it

would continue to offer Tagg-U while the parties resolved their dispute.

47. As word spread in the open source community of Tagg-U and BannisterMap’s failure

to follow Open Source USA’s license terms, Mr. Clark felt the brunt of the blame,

because his contact information was in the Clarkister App’s “About” file that

appeared in Tagg-U and BannisterMap. Mr. Clark’s Clark Innovations website was

frequently hacked and taken offline.

48. Clark Innovations (as exclusive licensee of the ‘604 patent) and TRU patents (as the

‘604 patent owner) brought suit against Copper Throne, Bannister, and Taggary for

infringement of the ‘604 patent by BannisterMap and Tagg-U.

49. Shortly after filing the lawsuit, Clark Innovations filed a motion for preliminary

injunction seeking to stop sales of BannisterMap and Tagg-U, and seeking to halt all

subscription-based features of Tagg-U. Defendants filed a motion to sever and

transfer the suits against Bannister, Inc and Tagg-U.

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50. Clark Innovations agreed to pay all legal expenses for bringing the lawsuit and the

same counsel represent both Clark Innovations and TRU patents. Similarly,

Bannister, Inc. agreed to pay the costs of Copper Throne, Bannister, and Taggary in

defending the suit through the hearings on preliminary injunction and joinder.

Counsel for Bannister, Inc. has taken the lead on all filings to date for the

Defendants.

51. In opposing the motion for preliminary injunction, Mr. Bannister filed an affidavit

stating that there were questions as to the validity of the ‘604 patent, and that the

‘604 patent did not provide a competitive advantage over other existing mapping

methods. The District Court held that Mr. Bannister was estopped from providing

testimony that contradicted his earlier testimony in the Clarkister v. X-Map litigation,

and therefore struck Mr. Bannister’s affidavit.1

52. Defendants’ counsel conceded that Mr. Clark would be harmed but argued that such

harm could be recovered in damages if Bannister and Taggary continued to sell the

Tagg-U app. Defendants’ challenge to the validity of the ‘604 patent during the

preliminary injunction hearing fell apart without Mr. Bannister’s testimony, but

Defendants reserved the right to challenge the ‘604 patent during litigation. The

Defendants admitted at the preliminary injunction hearing that their primary defenses

against the ‘604 patent are based on non-infringement, and that these defenses

would rely on narrow claim constructions and would likely lead to a battle between

experts.

53. The Defendants’ primary arguments against the injunction were based on a balance

of the equities. Defendants asserted that a preliminary injunction ruling was not in

the public interest due to the harm it would cause to downstream customers that 1 The District Court’s holding on estoppel is not a subject of the present appeal, and the

Defendants have preserved their rights to review this or any other estoppel issues that might arise after this appeal.

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would be prevented from using the Tagg-U and BannisterMap software. Defendants

also argued that their actions were not willful because Bannister owned the

copyrights to the Clarkister code and because any alleged use of the Clarkister code

served a minimal function within the Tagg-U and BannisterMap apps.

54. In response, Clark Innovations argued that the Defendants’ infringement was likely to

be found willful and that the equities therefore favored the injunction. Clark

Innovations argued that the Tagg-U app used blatantly copied software, including

copyright notices and references to the Open Source USA licenses and that users of

the subscription-based features in the Tagg-U software had paid extra to reap the

benefits of the patented mapping tools.

55. In support of the Bannister and Taggary motion to sever and transfer, Defendants

argued that the code supporting the Tagg-U and BannisterMap applications did not

arise from the same operative facts as they were developed separately and

ultimately used very different code. Bannister and Taggary also argued that their

respective products use wholly separate mapping data and that they were

competitors in the market because they could be used for similar purposes.

56. Furthermore, Defendants argued that the theories of infringement against the parties

were dissimilar, because Tagg-U had non-infringing uses. Defendants also argued

that Copper Throne planned to challenge the validity of the ‘604 patent, which put it

in conflict with Mr. Bannister’s previous statements.

Conclusions of Law:

1.The District Court considered arguments from both parties and granted the motion for

preliminary injunction, but denied the motion to sever and transfer.

2.The District Court held that the joinder provisions, 35 U.S.C. § 299, under the America

Invents Act governed the joinder issues.

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3.The District Court reasoned that joinder remained appropriate because the allegations of

infringement arise from common facts – Mr. Bannister copied the Clarkister software and

re-used at least part of that software in BannisterMap and Taggary’s Tagg-U software.

Further, according to the District Court, any infringement by Copper Throne resulted

from this same copying.

4.As to the preliminary injunction, the District Court noted the extraordinary nature of this

remedy. The Court explained that in order to prevail on a motion for a preliminary

injunction, Mr. Clark and Clark Innovations would have to show a likelihood of success

on the merits, a likelihood of irreparable injury, the balance of the hardships weighed in

its favor, and that the public interest favored the grant of the preliminary injunction. The

District Court found that the likelihood of success and injury to Clarkister and the public

favored a grant of the preliminary injunction, but noted that “the issue was a close one

and ultimately came down to whether the hardships favor Clarkister.” The District Court

therefore granted the motion for preliminary injunction because it found that Defendants

should not be allowed to profit from its infringing software.

5.The District Court found that Mr. Bannister had copied the Clarkister source code, and had

therefore likely infringed the claims of the ‘604 patent - given that he had argued

previously that the Clarkister software incorporated the inventions claimed in the ‘604

patent. The district court further found that the infringement of the ‘604 patent was likely

to be willful, given Mr. Bannister’s prior knowledge of the ‘604 patent.

6.The District Court noted that the Federal Circuit had been reluctant to apply similar

reasoning in the preliminary injunction context (see Illinois Tool Works, Inc. v. Grip-Pak,

Inc., 906 F.2d 679, 683-84 (Fed. Cir. 1990)), but reasoned that its finding of willfulness

created a unique situation with parallels to copyright law. See Concrete Mach. Co. v.

Classic Lawn Ornaments, Inc., 843 F.2d 600, 612 (1st Cir. 1988); Triad Sys. Corp. v.

Southeastern Express Co., 64 F.3d 1330, 1338 (9th Cir. 1995). The District Court

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therefore cited Concrete Machinery and Triad Systems as persuasive precedent. The

District Court noted that Clarkister had not raised any copyright claims, and emphasized

that it intended merely to draw from copyright law to address the equities of Clarkister’s

patent-based preliminary injunction. Based on this reasoning, the District Court held that

the willful patent infringement by Copper Throne, Bannister, and Taggary prevented

them from relying upon the balancing of the equities to defeat the motion for preliminary

injunction. The District Court refused to consider the effect of the injunction on third-

party users of the Tagg-U software service.

7.The District Court held alternatively that even if Copper Throne’s infringement was not

willful, the balance of the equities favored Mr. Clark and Clark Innovations because of: a)

the damage done to Mr. Clark and Clark Innovations due to the denial of service attacks

and the web site hacking; b) Defendants’ status as competitors of Mr. Clark and Clark

Innovations; and c) due to the contractual relationship between Copper Throne,

Bannister, and Taggary.