Webasto Thermo & Comfort North America, Inc. v. Bestop, Inc.

          R. Steven Whalen United States Magistrate Judge.

         OPINION AND ORDER (1) OVERRULING BESTOP'S OBJECTIONS TO THE SPECIAL MASTER'S REPORT AND RECOMMENDATION (ECF NO. 197), (2) ADOPTING THE REPORT AND RECOMMENDATION (ECF NO. 186), (3) GRANTING PLAINTIFFS' MOTION TO STRIKE DEFENDANT'S SECOND AMENDED NON-INFRINGEMENT AND INVALIDITY CONTENTIONS (ECF NO. 154); and (4) DENYING AS MOOT BESTOP'S MOTION TO EXCLUDE THE EXPERT TESTIMONY OF JEFFREY L. STEIN (ECF NO. 167)

          Paul D. Borman United States District Judge.

         On January 15, 2019, Plaintiffs Webasto Thermo & Comfort North America, Inc. and Webasto-Edscha Cabrio USA, Inc. (“Webasto”) filed a Motion to Strike Defendant's Second Amended Non-Infringement and Invalidity Contentions. (ECF No. 154.) Defendant BesTop, Inc. (“BesTop”) filed a Response (ECF No. 155) and Webasto filed a Reply (ECF No. 156). On January 31, 2019, this Court referred the Motion to Strike to Special Master Gaynell Methvin for a Report and Recommendation.^[1] (ECF No. 157.) On March 8, 2019, Special Master Methvin issued his Report and Recommendation to GRANT Webasto's Motion to Strike. (ECF No. 186, Report.) BesTop has now filed Objections to the Special Master's Report (ECF No. 197, Objections.) Webasto has filed a Response in Opposition to BesTop's Objections. (ECF No, 201.) For the reasons that follow, the Court ADOPTS the Report and Recommendation, OVERRULES BesTop's Objections, and GRANTS Webasto's Motion to Strike.

         II. STANDARD OF REVIEW

         Fed. R. Civ. P. 53 sets forth the appropriate standard of review for a district court in reviewing findings of fact and conclusions of law made or recommended by a Special Master. Rule 53(f)(3) provides as follows:

Reviewing Factual Findings. The court must decide de novo all objections to findings of fact made or recommended by a master, unless the parties, with the court's approval, stipulate that:

(A) the findings will be reviewed for clear error; or

(B) the findings of a master appointed under Rule 53(a)(1)(A) or (C) will be final.

         Fed. R. Civ. P. 53(f)(4) provides as follows:

Reviewing Legal Conclusions. The court must decide de novo all objections to conclusions of law made or recommended by a master.

Fed. R. Civ. P. 53(f)(5) provides as follows:

Reviewing Procedural Matters. Unless the appointing order establishes a different standard of review, the court may set aside a master's ruling on a procedural matter only for an abuse of discretion.

See also Hochstein v. Microsoft Corp., 730 F.Supp.2d 714, 717 (E.D. Mich. 2010), aff'd 430 Fed.Appx. 898 (Fed. Cir. 2011) (“The Court reviews de novo factual findings and legal conclusions of the Special Master to which a specific objection has been made. See Fed.R.Civ.P. 53(f).”) The Court may “adopt or affirm, modify, wholly or partly reject or reverse, or resubmit to the master with instructions.” Fed.R.Civ.P. 53(f)(1).

         III. ANALYSIS

         On December 28, 2018, thirty days after Special Master Methvin issued his Report and Recommendation on claim construction but before this Court adopted the recommendations of the Special Master's Report, BesTop served amended non-infringement and invalidity contentions (“Second Amended Contentions”) on Webasto that differed markedly from BesTop's First Amended Non-Infringement and Invalidity Contentions that were served on Webasto on October 6, 2017 (“First Amended Contentions”).^[2] Webasto has moved to strike BesTop's Second Amended Contentions, and the Special Master has recommended that the Court grant Webasto's motion. BesTop files four objections to the Special Master's Report, which are addressed in turn.

         A. Objection Number One: “The Special Master Applied the Wrong Legal Standard.”

         The parties dispute whether the Court should construe Webasto's request to strike under Fed.R.Civ.P. 12, 16, or 37. BesTop is correct that Fed.R.Civ.P. 12(f) applies to striking matters only from “pleadings.” As BesTop points out, Fed.R.Civ.P. 7(a) defines “pleadings” very specifically and non-infringement and invalidity contentions are not “pleadings” as that term is defined in Rule 7. Yet in the patent context, courts have observed that “‘[i]nfringement contentions serve as substitutes for interrogatories, [and] they also act as forms of pleading that disclose the parties' theories of their case and thereby shape discovery and the issues to be determined at trial.'” Finjan, Inc. v. Blue Coat Systems, Inc., No. 13-cv-03999, 2015 WL 3640694, at *2 (N.D. Cal. June 11, 2015) (quoting Apple Inc. v. Samsung Electronics Co., No. 12-cv-0630, at *3 (N.D. Cal. June 26, 2013)). So invoking Rule 12(f) is not illogical, even if literally the rule is inapplicable. More commonly, however, motions to strike invalidity or infringement contentions are analyzed by courts either (1) under local patent rules or, where no such rules have been adopted, as is the case here, under Fed.R.Civ.P. 16(b)'s good cause standard for amending the court's case management order, see, e.g., In re Papst Licensing GmbH & Co. KG Litig., 767 F.Supp.2d 1, at *8 (D.D.C. 2011) (observing that the “good cause standard under Federal Rule of Civil Procedure 16(b) applies to a request to amend asserted claims and infringement contentions “), or (2) under “Fed. R. Civ. P. 37 which governs sanctions for failure to make disclosures or to otherwise comply with discovery rules and orders, ” see, e.g., Bestop v. Tuffy Security Products, Inc., No. 13-cv-10759, 2015 WL 5025892, at *3 (E.D. Mich. 2015).

         Regardless of the rule invoked, the heart of the inquiry is whether a party should be barred from relying on certain theories first proffered late in the litigation, of which the opposing party has not fairly been apprised. The analysis invariably has both a good cause/diligence and a prejudice component. Interpreting the Northern District of California Local Patent Rules, the Federal Circuit summarized the following workable standard, which incorporates the mandates of both Rule 16 and Rule 37:

This case primarily presents questions concerning the interpretation and application of the Northern District of California's local rules for patent cases. As noted, a party claiming patent infringement in the Northern District must serve preliminary infringement contentions within ten days of the initial case management conference. See U.S. Dist. Ct. N.D. Cal. Patent L.R. 3-1. Among other things, these contentions must specify each claim of each patent that is allegedly infringed, each product that allegedly infringes, and the location in the product where each element of each asserted claim is found. See Id. The preliminary contentions generally become the final contentions thirty days after the claim construction ruling unless a party serves final infringement contentions. A party may submit final infringement contentions that differ from the preliminary contentions without leave of the court within the thirty day period after the claim construction ruling only if the amending party believes in good faith that the claim construction ruling or the documents submitted with the other party's invalidity contentions require a change. See U.S. Dist. Ct. N.D. Cal. Patent L.R. 3-6. Outside of this thirty day period, amendments or modification to the contentions can only be made “by order of the Court . . . upon a showing of good cause.” See U.S. Dist. Ct. N.D. Cal. Patent L.R. 3-7. The district judges in the Northern District of California, including the district judge in this case, have understood the good cause requirement in the local patent rules to require a showing that the party seeking leave to amend acted with diligence in promptly moving to amend when new evidence is revealed in discovery. See J.A at 46 (noting that the plaintiff unreasonably delayed in moving to amend); see also, e.g., ZiLOG, Inc. v. Quicklogic Corp., No. C03-03725 JW, 2006 WL 563057, at *1 (N.D.Cal. March 6, 2006) (“This constitutes sufficient diligence to meet the ‘good cause' standard.”).

The local patent rules do not specify the actions that the district court may or must take if there is non-compliance with the requirements for disclosure of contentions. However, the rules are essentially a series of case management orders, and the deadlines for submission of contentions in this case were explicitly included in a supplemental case management order. The court may impose any “just” sanction for the failure to obey a scheduling order, including “refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence.” Fed.R.Civ.P. 16(f); Fed.R.Civ.P. 37(b)(2)(B). District judges in the Northern District of California have taken various positions depending on the facts of the particular case as to whether non-compliance with the rules for disclosure of contentions should bar reliance on theories omitted from the preliminary or final contentions.

O2 Micro Intern. Ltd. v. Monolithic Power Systems, Inc., 467 F.3d 1355, 1362-63 (Fed. Cir. 2006) (emphasis added) (footnote omitted).

         In the absence of local patent rules, as is the case in this District, the Court may look to case law in other districts that have adopted such rules that contain language similar to that adopted by the parties and the Court to govern the litigation:

The Eastern District of Michigan has not adopted patent local rules. However, other districts, such as the Northern District of California and the Eastern District of Texas, have. Because the infringement and invalidity contention language in the Proposed Scheduling Order is similar to the language used in those districts' patent local rules, this Court looks to case law interpreting those rules for guidance.

Magna Donnelly Corp. v. 3M Company, No. 07-cv-10688, 2012 WL 12930956, at *3 (E.D. Mich. Feb. 1, 2012) (Michelson, MJ) (footnote omitted).

         BesTop argues that because the Eastern District of Michigan has not adopted local patent rules, and because this Court did not enter an order specifying detailed time and content directives for serving and amending of infringement and invalidity contentions, there are no content or timing restrictions governing what the parties to this patent litigation must disclose or provide to the opposing party or when. BesTop is wrong. The parties submitted a detailed Joint Rule 26(f) Statement on July 17, 2017 (ECF No. 30), which this Court implicitly adopted by reference when (having received the parties' Joint Statement) it cancelled the Scheduling Conference set for July 24, 2017, and entered its Civil Case Management and Scheduling Order on July 26, 2017. (ECF No. 32, 7/26/17 Scheduling Order) (“This civil matter having come before the Court pursuant to Fed.R.Civ.P. 16, and the parties having submitted a proposed discovery plan, the Court enters the following schedule to manage the progress of the case.”). See Magna Donnelly, 2012 WL 12930956, at *3 (observing that the court's scheduling order, which set forth dates and general case management rules but no patent-specific directives, “implicitly adopted the requirements” of the parties' proposed joint scheduling order which did set forth deadlines and requirements governing the content and timing of patent-related submissions). There was no need for this Court to reiterate in its Scheduling Order the detailed content of the parties' Joint Statement, which was implicitly incorporated into the Court's 7/26/17 Scheduling Order by reference and contains, inter alia, detailed content and timing directives for the filing of infringement, non-infringement, and invalidity contentions and for amendments to contentions. (Joint Statement 6-9, PgID 358-361.)

         The Joint Statement expressly addresses the amendment of contentions post-claim construction, and allows for a one-time amendment to contentions that are made within a prescribed period (30 days) following the claim construction decision by the Court. (Id. at 8, PgID 360.) Belying its assertion that the Joint Statement is not an Order of this Court and has no force and effect, BesTop invokes this provision of the Joint Statement as the basis for filing the Second Amended Contentions that are under challenge here, which BesTop not coincidentally filed within 30 days of the entry of the Special Master's Report on claim construction. It is disingenuous (to say the least) for BesTop ...