Patent Lawsuit Dismissed With Prejudice As Sanction For Counsel’s Misrepresentations

Michael E. McCabe, Jr.IP Litigation Sanctions, Misrepresentations, Patent Litigation EthicsLeave a Comment

Truth and Lie sign“I’m not upset that you lied to me, I’m upset that from now on I can’t believe you.”
Friedrich Nietzsche

U.S. District Judge Keith Ellison may share the German philosopher Nietzsche’s view on lying in the wake of his recent decision in  Tesco Corporation v. Weatherford International Inc., 4:08-cv-02531 (S.D. Tex.), in which he dismissed a patent infringement action with prejudice as a sanction for counsel’s misrepresentations to the court.

The procedural history of this action is lengthy. Tesco filed suit in 2008 alleging defendants Whetherford International, Inc. (Whetherford), National Oilwell Varco, L.P. (NOV), Offshore Energy Services, Inc. (OES) and Frank’s Casing Crew and Rental Tools, Inc. (Frank’s), infringed U.S. Patent No. 7,140,443 (the ’443 patent) and 7,377,324 (the ’324 patent), relating to a tool used for drilling on an oil rig.  Defendants denied infringement and filed counterclaims for declaratory judgment of non-infringement, invalidity, and inequitable conduct.

After a three-week trial on validity, the jury returned a verdict finding the claims of the patents-in-suit valid.  Considerable post-trial motions and discovery practice ensued on defendants’ allegations of inequitable conduct and litigation misconduct by Tesco’s counsel.

The litigation misconduct arose from testimony at trial regarding a marketing brochure.  One of the co-inventors testified that the brochure developed by Tesco well before the on-sale bar displayed his invention. See 35 U.S.C. § 102(a)(1). The district court recognized, “This testimony could easily have been the fulcrum in the trial, leading to a prompt dismissal of all of Tesco’s claims.”

The next day at the trial, Tesco asked Judge Ellison for time, through the weekend, to “find out what this rendering is, where it came from . . . .” When trial resumed the following Monday, attorney Glen A. Ballard, Jr., Tesco’s counsel, reported to the court that counsel had spoken to the animator of the document and the animator had stated “unequivocally that this is not the invention in the brochure. . . . He says – he says the date is in August of 2002 but the rendering is not of the invention; that, in fact, the rendering is of link arms just above the grabber box on the top drive.” Tesco’s trial counsel further represented:

 I think the issue has been put to bed. It’s not the image. I can call Don Carr [sic, Karr] to tell you that. We also talked to a guy last night, Jim Orcherton, who was also an individual who worked on the rendering. . . . He also confirms that it’s not the tool. And so we could call both of them. . . . These guys can come in – I think Mr. Orcherton may be able to be here as early as Wednesday but surely Thursday, and Mr. Carr [sic, Karr] can be here by Friday. I think this trial will still be going by then, unfortunately; and so as a consequence, I think we can get them on if this is still an issue.

Mr. Ballard also represented:

The animators that actually did the brochure and that actually did the rendering are prepared to swear and testify that this is not Mr. Nikiforuk’s invention; and in fact, there is no doubt it’s not Mr. Nikiforuk’s invention.

Contrary to Mr. Ballard’s representations to the district court during trial, in a post-trial deposition, Mr. Karr testified as follows:

Q: One question: Have you ever – have you ever told anybody associated with

Tesco or Tesco themselves that you were the creator of the brochure graphics or

animation?

A: Which one are we talking about?

Q. The one for the [August 2002] brochure.

A. No, because I was not involved in the brochure.

Q: If someone claimed in court claimed that you were the one who created the

image, that would not be truthful –

A. That’s —

Q. — correct?

A. — right.

Q. Is that correct?

A. Correct.

Q. All right. Did you inform Tesco at that time you were not the one who created

the image? Did you tell them one way or another whether you –

A. No, I did — I — my only input to this brochure was the photographs. Someone

in Houston created this — this image.

Q. Did you tell Tesco that in November of 2010?

A. Yes.

Q. Who did you tell that to?

A. It would have been John.

Q. Luman? [one of plaintiff’s counsel]

A. Yes.

Q. Would it surprise you that they told the Court that they’ve gotten to the bottom

of it, and that you and Mr. Orcherton did the brochure, and they never mentioned

PriMarc?

A. There is no way I did that brochure.

Q. So that would be a false statement; correct?

A. Totally.

Q: I’m reading from the transcript of proceedings in court November 1st, 2010.

Mr. Ballard, quote: “As I’ve told the Court, I would get to the bottom of this

August brochure, 4008, over the weekend. We did so. We found the animator

who actually did the rendering in question. The animator is Don Karr.” Unquote.

That’s not a truthful statement is it, sir?

A. I don’t have the ability – it’s – no, it’s not true in any way, shape, or form.

Q: Did you have a discussion with Mr. Luman about who prepared this graphic,

the one in the centerfold?

A: He had asked me if I had, and I said no. I had nothing to do with it.

*          *          *          *

SD Texas sealIn light of the representations by counsel during trial, and the conflicting deposition testimony after trial, the district court imposed the harshest sanction available and dismissed the action with prejudice.

In its August 25, 2014 Order, the district court noted it possesses implied powers to “‘manage [its] own affairs so as to achieve the orderly and expeditious disposition of cases.’” Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991) (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)). One of these implied powers is the “ability to fashion an appropriate sanction”—such as involuntary dismissal of a lawsuit or the imposition of attorney’s fees—“for conduct which abuses the judicial process.” Id.at 44-45. Pursuant to such inherent authority, the Court, in its discretion, may dismiss an action, though such a dismissal is “a particularly severe sanction.” Id.at 45 (citing Roadway Exp., Inc. v. Piper, 447 U.S. 752, 765 (1980)).

In exercising its inherent authority, the district court rejected Tesco’s post-trial rationalizations for what it found to be irrefutable testimony directly rebutting the representations made by trial counsel to the district court. “That Tesco may have backpedaled from these statements over time, after trial had finished, does not relieve it of its responsibility for its misrepresentations to the Court at what all present recognized was an absolutely critical point in the trial. Although Tesco testified in nearly directly opposite terms, Mr. Karr could not, in fact, unequivocally state that the CDS with link tilt was not in the rendering. Nor did he ever tell counsel that he was the “animator” who “actually did” the rendering. The testimony reveals that this is not a simple case of innocent mischaracterization. Mr. Karr said one thing, and counsel told the Court that he said something else. Such willfulness compels a finding of bad faith.”

The district court stated, “Counsel owes the Court a duty of complete candor at all times, regardless of whether the jury is in the courtroom, or opposing counsel rejects other sanctions. Moreover, any sanctions opposing counsel rejected have nothing to do with Tesco’s misrepresentations to the Court.” The district court concluded that counsel’s “misrepresentations irrevocably poisoned these proceedings, and could not have been calculated to assist the Court in the administration of justice, but only to win an advantage.”

Based on these findings, the district court dismissed the action with prejudice. In addition, the district court allowed defendants to pursue motions for attorneys’ fees.

The troubles arising from the Tesco fiasco, if true, will likely have additional negative ramifications for any counsel involved in the misrepresentations to the court.  An attorney’s duty of candor “pervades every aspect of practicing law, in and outside of the courtroom.” See Wendy L. Patrick, Don’t Lie to Me (Cal. Bar Journal Apr. 2011). Lying to a judicial officer is a matter that bar counsel takes very seriously, and it is but one of many ways that Intellectual Property practitioners can be professionally disciplined.

The attorneys’ conduct in the Tesco matter, for example, implicates multiple Texas Rules of Professional Conduct. Pursuant to the Texas state rules of ethics, an attorney found to have made a misrepresentation to a court could face disciplinary charges for, inter alia, incompetence (Rule 1.01); making a false claim to a court (Rule 3.01); causing unreasonable delay in the proceedings (Rule 3.02); breaching the duty of candor to a tribunal (Rule 3.03); engaging in conduct involving deceit (Rule 8.04(a)(3)); and/or engaging in conduct prejudicial to the administration of justice (Rule 8.04(a)(4)). And if any of the attorneys involved in the misrepresentations to the district court also are members of bars of any other courts, or are registered to practice before the USPTO, then those attorneys also are subject to professional discipline in those other state and federal jurisdictions.

The problems for Tesco’s counsel may not end with bar counsel.  Whether the client will file a claim for legal malpractice is not public information; such an action, however, would not at all be surprising considering the stakes involved, the end result, and the damages incurred by plaintiff.  Moreover, in many jurisdictions, a violation of a rule of ethics may be relevant to proving a violation of the professional standard of care element of a malpractice claim.  Thus, it appears likely the issues arising from the Tesco matter are far from over.

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