[00:00:00] Speaker 00: Appeal number 21-1484, real-time adaptive streaming against Netflix Incorporated. [00:00:10] Speaker 00: Mr. Wang. [00:00:13] Speaker 02: Thank you, Judge Newman. [00:00:14] Speaker 02: May it please the court Philip Wang for plaintiff appellant real-time adaptive streaming, or real-time for short. [00:00:22] Speaker 02: Your Honours, Realtime voluntarily dismissed its case by filing a notice of dismissal under Rule 41A1A in the first few months of the case before Netflix answered and before a single hearing had taken place. [00:00:38] Speaker 02: Under the law, that dismissal left the parties as though no action had been brought. [00:00:44] Speaker 02: In fact, the district court here had no involvement in the case until Netflix filed its attorney's fee motion after the case ended. [00:00:53] Speaker 02: Nevertheless, the court found that Real Time's notice of dismissal rendered Netflix the prevailing party and that the filing of the complaint was improper form shopping and alone made Real Time liable for all of Netflix's attorney's fees in the California cases. [00:01:13] Speaker 02: Both findings were legal error and abusive discretion. [00:01:19] Speaker 02: I want to begin with the prevailing party issue. [00:01:24] Speaker 02: And on prevailing party, two issues are dispositive. [00:01:28] Speaker 02: First, because the notice of dismissal under Rule 41A1A is self-executing, there was no court order here or anything resembling one. [00:01:40] Speaker 02: As this court recently held in O.F. [00:01:43] Speaker 02: Mossberg, a dispositive issue in the prevailing party inquiry is whether there was a final decision by the court. [00:01:51] Speaker 02: And it noted that none of this court's precedents, including recent precedents, went so far to hold that a party could become a prevailing party without a court decision. [00:02:04] Speaker 03: So I understand the district court's rationale. [00:02:07] Speaker 03: It's that [00:02:09] Speaker 03: there's something called the two dismissal rule. [00:02:12] Speaker 03: And under rule 41A1B, the effect of your second dismissal, voluntary dismissal, when you dismiss the case from CDCAL was that it operates, quote, as an adjudication on the merits. [00:02:35] Speaker 03: And so therefore, [00:02:37] Speaker 03: Because the judiciary is responsible for creating, drafting, endorsing the federal rules of civil procedure, there's a sufficient judicial imprimatur through the rule itself in deeming your case as essentially having been resolved on the merits. [00:03:03] Speaker 02: So could you speak to that? [00:03:06] Speaker 02: Thank you, Judge Chen. [00:03:07] Speaker 02: I appreciate that question, and I want to explain that at some length because it's very important. [00:03:13] Speaker 02: So Rule 41A1C does include the language operates as an adjudication on the merits, but it does not say when and how that operation occurs. [00:03:31] Speaker 02: And the Ninth Circuit [00:03:33] Speaker 02: decision in Boeing is, in my view, perhaps the most important decision for this case, for this issue. [00:03:43] Speaker 02: It tells us exactly the answer, right? [00:03:46] Speaker 02: It tells us that that language comes into effect [00:03:50] Speaker 02: only in a third suit when a third judge goes back and looks at the claims of the first two suits and determines whether or not that rule applies. [00:04:07] Speaker 02: And it goes further than that. [00:04:08] Speaker 02: Boeing explains that in the posture of... Is Boeing a Ninth Circuit case? [00:04:14] Speaker 01: Yes, yes. [00:04:16] Speaker 01: Which law do you think applies to the Ninth Circuit or the Federal Circuit? [00:04:21] Speaker 02: Regional circuit law and Judge Raina, we have several cases in our briefing that say that when we're looking at the interpretation of a federal rule of civil procedure that we apply with regional law, it's not clear to us that the law would be different in any other circuit. [00:04:41] Speaker 02: We've seen the Bowen case repeated in various treatises in different [00:04:47] Speaker 02: circuits, and so we don't think that affects the analysis, but we do think it's pretty clear that Ninth Circuit Law applies to the effect of the, to dismiss a rule, or... Did we say something in RFR that, you know, construing Rule 41 for purposes of a 285 motion is something that's within the purview of Federal Circuit Law? [00:05:17] Speaker 03: I believe so. [00:05:21] Speaker 02: Excuse me, Your Honor. [00:05:23] Speaker 02: In RFR, I believe that applied Fifth Circuit law to look at the effect of a voluntary dismissal of 31. [00:05:33] Speaker 01: What about Menagerie Milley? [00:05:38] Speaker 01: And there we held that if the Federal Circuit rather than the Regional Circuit law applies in determining the prevailing status, [00:05:47] Speaker 01: in cases involving patent litigation. [00:05:51] Speaker 01: I'm sorry, go ahead. [00:05:54] Speaker 02: No, no, I'm sorry, Your Honor. [00:05:58] Speaker 01: This case contradicts your proposition that Ninth Circuit law applies and therefore that Bowen case is dispositive. [00:06:06] Speaker 01: It doesn't seem to be the case. [00:06:10] Speaker 02: I don't believe there's an inconsistency, Judge Raina, in the following sense. [00:06:17] Speaker 02: The ultimate question of the prevailing party under Section 285 is a matter of federal circuit law. [00:06:26] Speaker 02: But as part of that determination, you can look at the effect [00:06:32] Speaker 02: or to interpret Rule 41A1B, which is a matter of circuit law. [00:06:38] Speaker 02: And then that goes into the prevailing party determination. [00:06:46] Speaker 02: And I think that's what's been done in several other cases, including the RSVAR case that Judge Chen just mentioned. [00:07:00] Speaker 02: And if I may continue returning to Boeing, when we're looking, when we're even looking at the two dismissal rule, like we're already within a plaintiff's voluntary dismissal under Rule 41A1A. [00:07:15] Speaker 02: And so the case has already ended, right? [00:07:21] Speaker 02: And Boeing contains extensive reasoning on that, that it is not proper when the case is ended and the parties are elected, though no action has ever been brought, for the district court in a collateral proceeding. [00:07:36] Speaker 01: But why is it that we just cannot... What happens if we want to bundle together all of these attorney fee issues and decide them under Section 285? [00:07:46] Speaker 01: Can we do that? [00:07:52] Speaker 02: I think that can be done, Your Honor, but our point is that [00:08:00] Speaker 02: The judge does not have jurisdiction, and Boeing says this clearly, and we have not seen any case to the contrary, that the case cannot go back and make a merits determination and deem the plaintiff's 41A1A dismissal a dismissal with prejudice. [00:08:21] Speaker 02: And that is important because that finding made for the first time in a collateral [00:08:28] Speaker 02: the plaintiff's fee litigation affects the plaintiff's claims in his complaint, right? [00:08:35] Speaker 02: It is a determination that they may or may not be able to refile that action. [00:08:43] Speaker 02: And Boeing explains why you can't do that. [00:08:46] Speaker 02: And the Supreme Court's cooter and bail decision. [00:08:50] Speaker 01: Again, Counselor, it seems to me that Boeing Law, the Boeing case is not dispositive and doesn't govern. [00:08:58] Speaker 01: federal circuit law in these type of issues? [00:09:06] Speaker 02: Your Honor, we do think that regional circuit law applies, but we don't think that federal circuit law is to the contrary. [00:09:15] Speaker 02: And Boeing simply states, and it's well supported, that issues of claim preclusion, like Rule 41A, [00:09:27] Speaker 02: 1B must be adjudicated when that issue becomes ripe. [00:09:35] Speaker 02: And this court's Apple versus Boyd power case is very consistent with that, right? [00:09:43] Speaker 02: And if I could point to something from that case, it looked at the preclusive effects of a prior judgment. [00:09:53] Speaker 02: And it held that any preclusive effects that Twitter could have against the same or other parties must be decided in any subsequent action brought by VoIPAL. [00:10:04] Speaker 02: Until then, any determination we make as to whether VoIPAL is claim precluded from filing an infringement action is advisory in nature and falls outside our Article 3 jurisdiction. [00:10:17] Speaker 02: And that's exactly the same point that Boeing makes, right? [00:10:23] Speaker 02: That in the posture of our case, we cannot assume that there's been any determination. [00:10:31] Speaker 02: There is no proper determination about that real-time claims were dismissed with prejudice or that it is not free to refile. [00:10:41] Speaker 03: Let's move off this point. [00:10:43] Speaker 03: You don't have much time. [00:10:44] Speaker 03: So I mean, we have two [00:10:46] Speaker 03: Alternate rulings here one is fees being granted under 285 because this is an exceptional case and then alternatively if that doesn't work because The other side here Netflix is not a prevailing party Nevertheless the judge invoked his inherited authority To grant the same fees now putting aside [00:11:15] Speaker 03: Your argument that Judge Wu didn't exactly say bad faith, let's just assume for the sake of argument that we read his opinion as saying that what happened here is bad faith or tantamount to bad faith. [00:11:35] Speaker 03: So can you just get to the merits of why, in your view, what happened here, your side's conduct [00:11:43] Speaker 03: is either A, not exceptional, or B, not tantamount to bad fees, and thereby requiring us to conclude that the district court abused his discretion, abused the court's discretion in granting fees here. [00:11:59] Speaker 02: Thank you, Judge Chen. [00:12:00] Speaker 02: I would appreciate the opportunity to address that. [00:12:06] Speaker 02: If we look at what was going on in the Delaware litigation in July 2019, real-time had a pending motion to amend its complaint, right? [00:12:18] Speaker 02: So the case was still in the pleading stages with no discovery. [00:12:24] Speaker 02: It had gone on for 20 months. [00:12:25] Speaker 03: Oh, I'm sorry. [00:12:25] Speaker 03: Before you go on, what is the current status of the Fallon patents? [00:12:29] Speaker 03: Are they alive or are they not alive? [00:12:35] Speaker 02: Sure, Your Honor. [00:12:37] Speaker 02: So two of the patents that were asserted against Netflix, the 879 patent and the 046 patent remain valid. [00:12:50] Speaker 02: as does certain claims of the 298 patent, which was asserted. [00:12:55] Speaker 02: Are these the Fallon patents you're talking about? [00:12:58] Speaker 02: The first two I mentioned do list Mr. Fallon as the inventor. [00:13:03] Speaker 03: You know what I'm talking about when I say the Fallon patents, right? [00:13:05] Speaker 03: There were four of them that were the subject of this litigation. [00:13:10] Speaker 02: I believe so, Your Honor. [00:13:12] Speaker 03: But they were, I mean, all of the briefing keeps talking about the Fallon patents, the Fallon patents, the Fallon patents. [00:13:17] Speaker 03: So you know what I'm talking about. [00:13:19] Speaker 03: Sure, Your Honor. [00:13:20] Speaker 03: I just wanted to- What is the status of the Fallon patents? [00:13:25] Speaker 03: So- Just tell it to me straight. [00:13:27] Speaker 02: Give me numbers. [00:13:29] Speaker 02: Yeah, so two of the patents are valid. [00:13:34] Speaker 02: The 879 and the 046 patent are valid. [00:13:39] Speaker 03: No claim was invalidated whether it was for 101 or IPR purposes or something else. [00:13:47] Speaker 02: That is correct for the 046 and the 879 patents, correct. [00:13:51] Speaker 02: What about the other two? [00:13:54] Speaker 02: They were invalidated in IPR. [00:13:59] Speaker 02: Okay. [00:14:00] Speaker 02: Not by any district court. [00:14:05] Speaker 02: Okay. [00:14:07] Speaker 02: And Realtime had received a mixed magistrate ruling that recommended dismissing under 101 for the Fallon patents for four patents, but denied infringement for two other patents. [00:14:22] Speaker 02: And so Realtime looked at those events and [00:14:26] Speaker 02: thought that the case was likely to remain in the pleading stages because not much had gone on. [00:14:34] Speaker 03: And then dismissal... Judge Connolly had made a ruling in a separate litigation invalidating five other real-time patents. [00:14:45] Speaker 02: Is that correct? [00:14:47] Speaker 02: Yes, invalidating patents owned by real-time data. [00:14:51] Speaker 02: Okay. [00:14:52] Speaker 02: Yeah. [00:14:53] Speaker 02: And those five patents [00:14:56] Speaker 03: At least some of those, were they invalidated under Section 101? [00:15:00] Speaker 02: They were all invalidated under Section 101 by Judge Connolly's oral ruling. [00:15:05] Speaker 02: Okay. [00:15:05] Speaker 03: All right. [00:15:06] Speaker 03: And then at least some of those patents that Judge Connolly invalidated real time in this, in the Delaware litigation pointed to as justification for why the Fallon patents are, [00:15:24] Speaker 03: Are patent-eligible? [00:15:25] Speaker 03: Is that correct? [00:15:27] Speaker 02: I believe that they were cited in the briefing and the fact that several district court judges, I think three previous ones, had made findings that they were directed to patent-eligible subject matter. [00:15:40] Speaker 02: That's correct. [00:15:42] Speaker 02: OK. [00:15:43] Speaker 03: And Judge Connolly invalidates those patents. [00:15:47] Speaker 03: And then the next day, [00:15:50] Speaker 03: You dismiss this case and then a couple days later you refile against Netflix on the other side of the country asserting the Fallon patents and a couple others. [00:16:05] Speaker 02: Is that right? [00:16:07] Speaker 02: That's correct, Ron. [00:16:09] Speaker 02: First of all, I have to note that the Judge Connolly's order was vacated by this court. [00:16:15] Speaker 02: And there were many issues that were raised in that vacant order, including that. [00:16:23] Speaker 03: Right now, we're trying to understand your conduct and the nature of your client's conduct when it received an adverse magistrate decision and then it received [00:16:35] Speaker 03: an adverse decision by the judge on these other patents that were related to the Fallon patents, and then you immediately dismissed, and then you subsequently immediately refiled against the same defendant in California on the Fallon patents. [00:16:59] Speaker 02: That's correct, Your Honor. [00:17:03] Speaker 02: Real-time, my client's good faith disagreement with the judge's rulings that have support from this court. [00:17:13] Speaker 02: They're not [00:17:15] Speaker 02: arbitrary and capricious disagreements. [00:17:17] Speaker 02: They are disagreements that are validated by this court in somewhat of a harsh ruling in the real-time B reductio order. [00:17:29] Speaker 00: I think all goes to the fact that... I thought your argument was that this history was irrelevant. [00:17:38] Speaker 00: The only history that the California court could consider was what was before him. [00:17:44] Speaker 00: Is that too much of a simplification? [00:17:47] Speaker 02: Thank you, Your Honor. [00:17:50] Speaker 02: I think there's a little bit of nuance here that certainly that there is a half dozen cases that do say that plaintiffs have the absolute right to voluntarily dismiss the case and that implies or directly or indirectly implies the right to refile in otherwise jurisdictionally proper venues, so certainly. [00:18:13] Speaker 02: But if the court is inclined to dig in [00:18:16] Speaker 01: Counsel, the issue here is not whether you have the right to dismiss a case. [00:18:24] Speaker 01: The issue here is whether the legal relationship between the parties changes upon, in this case, the second voluntary dismissal. [00:18:35] Speaker 01: What's your position on that particular point? [00:18:38] Speaker 01: Do you contend that the legal relationship between the parties doesn't change on that voluntary dismissal, the second voluntary dismissal? [00:18:47] Speaker 02: Yes, Your Honor. [00:18:48] Speaker 02: And so those are two independent bases for reversing the 285 order. [00:18:55] Speaker 01: But what's your answer to the question? [00:18:57] Speaker 01: Does a legal relationship change between the parties upon the second voluntary dismissal? [00:19:03] Speaker 02: No, it is not, Your Honor. [00:19:07] Speaker 02: And if I could turn to that briefly and give you an example. [00:19:11] Speaker 02: So real-time filed the second voluntary dismissal self-executing on November 14, 2019. [00:19:19] Speaker 02: On the next day, November 15, 2019, there is no determination by anyone that real-time unilateral actions [00:19:30] Speaker 01: In this case, does a second voluntary dismissal amount to an adjudication on the merits? [00:19:40] Speaker 02: No, because following and doctrines of claim preclusion tell us that that question, and in particular, the two dismissal rule, is not right. [00:19:51] Speaker 02: And it's an issue that can and must be decided in a third action if and when one is filed. [00:19:59] Speaker 02: And if a third action is never filed, that determination is never made. [00:20:03] Speaker 02: And no court has [00:20:08] Speaker 02: And opine on that issue to the extent that they can. [00:20:12] Speaker 02: That would be an advisory opinion outside of the court's proper jurisdiction. [00:20:20] Speaker 00: All right. [00:20:20] Speaker 00: Let's save you rebuttal time and let's hear from the other side. [00:20:25] Speaker 00: Mr. Gregorio. [00:20:28] Speaker 04: Good morning, Your Honor. [00:20:29] Speaker 04: Smith leads the court. [00:20:30] Speaker 04: This case was exceptional, and it was thus the type for which Section 285 authorizes a fee award. [00:20:37] Speaker 04: The conduct in it was egregious and also supports an award of fees under the court's inherent powers. [00:20:45] Speaker 04: Real-time has started a grab bag of patents that were facially invalid under Section 101 and some that were doubly invalid for... Mr. Gregorian, before we get to that, [00:20:58] Speaker 03: to qualify for fees under section 285, you have to be a prevailing party. [00:21:05] Speaker 03: And now we have to understand what does it mean to be a prevailing party. [00:21:09] Speaker 03: And obviously the case law talks about how there needs to be a change in the legal relationship between the parties. [00:21:16] Speaker 03: But the case law also says that has to be marked with judicial imprimatur. [00:21:22] Speaker 03: That's what we said in OF Mossberg and that's how I understand the Supreme Court's cases [00:21:28] Speaker 03: Buchanan and CRST. [00:21:33] Speaker 03: So then the question is, how can we say a voluntary dismissal, even one that under Rule 41, because this is the second dismissal, says it shall operate as an adjudication on the merits. [00:21:52] Speaker 03: Nevertheless, it's a completely voluntary act that has no court involvement at all. [00:21:58] Speaker 03: The court doesn't issue an order or doesn't need to issue an order. [00:22:02] Speaker 03: It doesn't review the voluntary dismissal. [00:22:06] Speaker 03: How can we say this is marked by judicial imprimatur? [00:22:10] Speaker 03: Sure. [00:22:11] Speaker 04: Well, Your Honor, in Buchanan, the court said the test is that there must be a judicially sanctioned change in the relationship. [00:22:19] Speaker 04: It also said the facts in front of it did not present sufficient judicial imprimatur [00:22:27] Speaker 04: to constitute that change. [00:22:30] Speaker 04: But here there is a change in relationship. [00:22:33] Speaker 04: The rule itself adopted by the Supreme Court and enacted by Congress says that there has been an adjudication of the claims. [00:22:41] Speaker 04: That is necessarily part of the judicial process. [00:22:46] Speaker 03: So, you know, when I look through the Supreme Court cases and this court's cases, [00:22:53] Speaker 03: whenever judicial imprimatur is brought up, judicially sanctioned change in legal relationship is brought up, it's always in the context of the court doing something. [00:23:07] Speaker 03: It could be nothing more than entering a consent decree. [00:23:10] Speaker 03: But there is some judgment that is entered by the court. [00:23:15] Speaker 03: And so I am not aware of any case that says that judicial imprimatur [00:23:23] Speaker 03: extends out to whatever is said in the federal rules of civil procedure. [00:23:29] Speaker 03: Is this the first case that says that? [00:23:35] Speaker 04: It would be the first case that so holds directly. [00:23:40] Speaker 04: This court in the Keith manufacturing case, which is 955 after 936, allowed a prevailing party to move for fees [00:23:49] Speaker 04: after a dismissal under 41A1A2, which is... Key manufacturing wasn't about defining prevailing party, though. [00:23:59] Speaker 04: That's correct, Your Honor. [00:24:01] Speaker 04: So this would be the first direct holding on that question. [00:24:05] Speaker 04: And why we think the court should and must get there is because of the test adopted in Buchanan. [00:24:13] Speaker 04: The lower court in Buchanan, the Fourth Circuit, would have had the court adopt a rule that said you needed a judgment, a consent decree, or a stipulated dismissal pursuant to a settlement. [00:24:29] Speaker 04: And the Supreme Court did not adopt that rule. [00:24:32] Speaker 04: It chose this other standard, leaving open the possibilities that there are other ways that a change in the legal relationship can be judicially sanctioned. [00:24:43] Speaker 04: And this is, although this is a narrow, this is, the overwhelming majority of circumstances in which a court case is going to be resolved is going to be with the judge's test. [00:24:57] Speaker 04: But this nonetheless meets the test. [00:24:59] Speaker 04: And it's because the rule itself states that on filing of the dismissal, it operates to adjudicate the plaintiff's claims. [00:25:12] Speaker 03: By extension, you're saying the entire federal rules of civil procedure are marked by a judicial imprimatur. [00:25:20] Speaker 03: They're all somehow judicially sanctioned. [00:25:23] Speaker 03: Whatever natural effect from any of all of these rules, those are all judicially sanctioned. [00:25:31] Speaker 04: Well, so I would say it's not a judicial sanction that say we have rule 26 on the books that's a buying discovery [00:25:43] Speaker 04: It just exists out there in the abstract. [00:25:46] Speaker 04: But Rule 41 is different. [00:25:47] Speaker 04: Rule 41 says that the filing of that second voluntary dismissal constitutes an adjudication of the merits, no different than if the parties had proceeded to trial. [00:25:59] Speaker 04: So in that case, I would say that on the filing of the dismissal, that change in relationship is judicially sanctioned in a way that's not, doesn't apply to, [00:26:11] Speaker 04: all other rules of civil procedure that are just sitting on the books waiting to be used by the parties in the court. [00:26:19] Speaker 04: If I could address the bowing point, real-time position is basically to read that directly out of Rule 41 and say the parties are left as if no [00:26:34] Speaker 04: action has been brought. [00:26:36] Speaker 04: And as counsel told Judge Raina, nothing has been adjudicated. [00:26:41] Speaker 04: That's exactly the opposite of what the rule says. [00:26:46] Speaker 04: Boeing doesn't apply because this court's law applies to determine a prevailing party for purposes of fee shifting. [00:26:55] Speaker 04: But even if it didn't, it would not matter here. [00:26:57] Speaker 04: All Boeing holds is the court can't [00:27:00] Speaker 04: Use rule 59, which applies to judgments, to go in after the fact and edit the text of a voluntary dismissal. [00:27:11] Speaker 04: Council's other point is that you don't know the exact scope of preclusion, of claim preclusion, until a third action. [00:27:20] Speaker 04: That is true of any case that ends by final judgment as well. [00:27:25] Speaker 04: You don't know the scope of preclusion until there is a later case that presents that question. [00:27:32] Speaker 04: But you do know who won. [00:27:33] Speaker 04: You do know that claims have been adjudicated in favor of one party or the other. [00:27:39] Speaker 04: If there's no further questions on prevailing party, I'll move to why this case was exceptional. [00:27:45] Speaker 04: And that's because this was an abuse of the court in Delaware and California. [00:27:52] Speaker 04: Real-time litigated in Delaware for more than 20 months. [00:27:56] Speaker 04: A final judgment in validity was imminent. [00:28:01] Speaker 01: You're getting ready to address the conduct involved here. [00:28:07] Speaker 01: I'd rather hear a little bit more on some of the other issues that we have raised, like the district court's finding of the sanctions based on Rule 11. [00:28:20] Speaker 01: Is that appropriate? [00:28:22] Speaker 04: So the district court sanctioned real time based on its inherent authority. [00:28:27] Speaker 04: And we argued that that is entirely appropriate of the John A. Critch case, which was affirmed by the DC Circuit, where a party engaged in similar sort of behavior. [00:28:38] Speaker 04: They had an adverse ruling in front of the first court. [00:28:41] Speaker 04: They went to a state court to try and get a different ruling while that first ruling was on appeal. [00:28:48] Speaker 04: And the defendant was forced to remove [00:28:52] Speaker 04: case back to federal court, which the plaintiff resisted, and then transfer it back to the original court to get the judgment to which it was, had already established it was entitled. [00:29:04] Speaker 04: And that's the same sort of conduct here. [00:29:08] Speaker 04: The case was imminently going to be resolved by adoption of the magistrate's recommendation on 101. [00:29:17] Speaker 04: that would have undercut an entire litigation campaign. [00:29:20] Speaker 04: Keep in mind the broader context is that real time had sued scores of companies on these same patents in different forums. [00:29:27] Speaker 04: And this was going to bring it all to an end. [00:29:30] Speaker 04: And so they dismissed and refiled in California. [00:29:33] Speaker 04: And they told the California court that they had done so because the Delaware court had not ruled fast enough and had not moved the case along fast enough. [00:29:42] Speaker 04: They had never asked for a scheduling conference. [00:29:44] Speaker 04: And they had been intent to wait for months until they knew that they were going to lose. [00:29:48] Speaker 04: And so we think that meets the facts of John Eckeridge. [00:29:55] Speaker 04: And it's well established that the court can use its inherent powers to control that sort of behavior. [00:30:02] Speaker 04: Now, Real Time has argued that the court cannot do so or did not do so properly here because it did not say that it had acted in bad faith. [00:30:14] Speaker 04: But the cases are clear in the NICE circuit that those literal words do not have to be recited in the opinion to support a finding of sanctions under the court's inherent authority. [00:30:27] Speaker 04: There just has to be, from the record, conduct that is tantamount to that, I'd say. [00:30:35] Speaker 04: And here, I think that is very clear from the record. [00:30:40] Speaker 04: If I could circle back to, [00:30:43] Speaker 04: The argument about Rule 41 that real-time was entitled to engage in this behavior because Rule 41 permits it. [00:30:54] Speaker 04: If you look at the cases that they cite on that, none of them have anything to do with the conduct that real-time engaged in here. [00:31:02] Speaker 04: The case it relies on in its opening brief, City Trends, the Fourth Circuit case, is simply a declaratory judgment plaintiff [00:31:12] Speaker 04: court judgment defendant racing to the courthouse. [00:31:16] Speaker 04: And they're each free to choose their forum. [00:31:20] Speaker 04: That is forum shopping in a colloquial sense, but it's not the type of forum shopping that happens here, where real-time invokes the powers of the Delaware court for 20 months and then ran away when it lost. [00:31:34] Speaker 04: Similarly, the Walters-Clewer case from the Second Circuit, that just shows Rule 41 as it is intended to operate. [00:31:43] Speaker 04: There, the plaintiff filed in New York. [00:31:45] Speaker 04: The defendant said, there's no personal jurisdiction in New York, but there is in Massachusetts. [00:31:50] Speaker 04: And so the parties dismissed and refiled in Massachusetts. [00:31:54] Speaker 04: And the first court in New York decided to examine the circumstances and motives of the dismissal and decided it was for an improper purpose, to cover up malpractice and sanction that party. [00:32:09] Speaker 04: There, rule 41, working as it's supposed to. [00:32:13] Speaker 04: Everyone agreed the first court was the wrong forum. [00:32:17] Speaker 04: They dismissed and went to the second forum. [00:32:19] Speaker 04: And the holding of the second circuit was that the first court can't inquire into the motives of the dismissal. [00:32:26] Speaker 04: Here, this is not the Delaware court sanctioning real time for leaving the court. [00:32:32] Speaker 04: It's not for the dismissal. [00:32:35] Speaker 04: And it's not imposing restrictions on the refiling in advance. [00:32:38] Speaker 04: It is at the end of a case, after the second court has finally resolved the action, looking back and saying, on the totality of the circumstances, was this case exceptional? [00:32:53] Speaker 04: And that is why the rule 41 cases that real time applies just do not bear on the subject before the court. [00:33:01] Speaker 04: If I could address the cross appeal briefly. [00:33:05] Speaker 04: So this court's standard, to the extent it has adopted one, is that administrative proceedings at the PTO, fees for them can be recovered under 285 if those proceedings substituted for district court litigation on all issues considered by the PTO. [00:33:30] Speaker 04: This court in monolithic power systems [00:33:34] Speaker 04: VO2 micro in 2013, did not state that test but applied it effectively the same. [00:33:41] Speaker 04: It allowed a party to recover discovery fees from a related ITC proceeding when everyone agreed that that discovery was going to serve as the discovery process for the district court litigation. [00:33:54] Speaker 04: Applying that standard, Netflix was eligible to seek its fees to the IPR. [00:34:02] Speaker 04: And that is because, as the court knows, and the estoppel, IPR estoppel is now quite broad by filing those IPR petitions. [00:34:16] Speaker 03: Netflix. [00:34:17] Speaker 03: Mr. Gregorian, the district court said that even if Netflix is eligible to recover fees for IPR proceedings and the Delaware civil action, [00:34:30] Speaker 03: In the judge's view, the facts and circumstances didn't warrant granting fees for those proceedings as well. [00:34:40] Speaker 03: So, again, it's a very deferential standard review we have here in reviewing that and how the judge found the true misconduct was, [00:34:56] Speaker 03: chasing after Netflix in a brand new civil action and hitting the restart button in California. [00:35:03] Speaker 03: And that was the problematic activity, not necessarily that it was so unreasonable for the plaintiff here to defend its patents in the IPRs or to the way it defended its patents in the Delaware litigation. [00:35:25] Speaker 03: So what was so unreasonable about that view of the case by the judge? [00:35:32] Speaker 04: So, Your Honor, that view is not unreasonable. [00:35:38] Speaker 04: And I concede that the judge on remand may reach the same result. [00:35:45] Speaker 04: It's just since we're on an abuse of discretion review, the question is not whether the record [00:35:54] Speaker 04: would hypothetically support an exercise of discretion that the district judge has not made yet. [00:36:03] Speaker 04: It's whether the judge's actual exercise of discretion was based on the law with no errors embedded in it. [00:36:13] Speaker 04: And here the court said it was unclear whether IPR fees were eligible. [00:36:19] Speaker 04: But its alternative ruling was that under the Federal Circuit's case in Munchkin, [00:36:24] Speaker 04: And I'm quoting here, it would be error for it to award the attorney's fees for the litigation that occurred in the Delaware action or in the IPR litigation. [00:36:33] Speaker 03: What about at 814 where the judge said at the bottom, even assuming that it is within the court's discretion, the court finds that such an award is not warranted here. [00:36:45] Speaker 03: As the court noted earlier, it does not find real-time's decision to file the Delaware action an untenable warrant. [00:36:52] Speaker 03: Right. [00:36:53] Speaker 03: And, and the conduct, the court found exceptional was real time decision to voluntarily dismiss the Delaware action only to simultaneously file the California actions with most of the same clients. [00:37:04] Speaker 00: So, so to be clear, it's in your view, the actual filing and existence of the California action is quite significant in terms of the cross appeal and with respect to the [00:37:21] Speaker 00: going back retroactively to the Delaware action and to the IPR? [00:37:27] Speaker 00: Is that accurate that the very fact of the refiling in California shed a new light on these prior practices? [00:37:37] Speaker 04: Yes, Your Honor. [00:37:38] Speaker 04: I think that's, well, in the first instance, we argued below that these patents were bascially invalid and that the claims were baseless when brought in Delaware. [00:37:47] Speaker 04: But yes, accepting the district court's finding that the case became baseless once it was brought in California, I do think that had an impact on whether the IPR fees were recoverable. [00:38:00] Speaker 04: Netflix was forced into a position where it needed to defend itself via one procedure or the other. [00:38:06] Speaker 04: And at a certain point, the case became baseless and it still needed to incur fees. [00:38:12] Speaker 04: I would also say that the, [00:38:15] Speaker 04: determination under 285 is based on the totality of the circumstances and as to the whole case. [00:38:24] Speaker 04: And that determination at least authorized the court below to consider the earlier fees from Delaware and in the IPR. [00:38:35] Speaker 04: But it's clear that if you read the section that Judge Chen quoted in combination with the section that I quoted, [00:38:42] Speaker 04: that the district court thought it was not authorized. [00:38:48] Speaker 04: It couldn't award the Delaware fees to the IPR fees without running afoul of Munchkin. [00:38:56] Speaker 04: It needed to find baselessness from inception. [00:38:59] Speaker 04: And that's just not a formal requirement that this court has. [00:39:03] Speaker 04: The court, as I said to Judge Chen, we don't dispute that. [00:39:09] Speaker 04: If the district court considers this based on the correct legal standard for an award of IPR fees and this court's case is under 285 and comes to the same result for similar reasons, that would be a proper exercise of discretion. [00:39:27] Speaker 04: It's just here that there are two errors baked in. [00:39:31] Speaker 04: One, determining that it's uncertain. [00:39:33] Speaker 04: that IPR fees can be ever recovered. [00:39:36] Speaker 04: And number two, um, ruling that it had to find baselessness in Delaware if it was going to award them, which again, it said it would be error for the court to award, um, without that finding. [00:39:52] Speaker 00: Okay. [00:39:53] Speaker 00: We'll save, we'll save your rebuttal. [00:39:55] Speaker 00: Let's hear from Mr. Wayne. [00:39:59] Speaker 02: Thank you, Your Honor. [00:40:00] Speaker 02: I have a few important points on the prevailing party issue and then on the conduct inherent powers. [00:40:10] Speaker 02: So it is [00:40:12] Speaker 02: Even assuming that the second dismissal created a change in the legal relationship between the parties, which we strongly dispute, the existence of a court order is an independent requirement. [00:40:27] Speaker 02: And it's an important one, stemming back to Buchanan, where it [00:40:33] Speaker 02: as a matter of statutory interpretation, looked at the meaning of prevailing party and found that it is one who has been awarded some relief by the court. [00:40:45] Speaker 02: And when something is a court order, particularly if it pertains to affect a party's substantive rights, it can be important that it's appealable. [00:40:57] Speaker 02: If real-time follows a notice unilaterally, that's not something that can be appealed. [00:41:06] Speaker 02: And then we have Mr. Gregorian and me debating what it means or the effect or when it comes into play. [00:41:14] Speaker 02: That needs to be decided by a court and be appealed for there to be a determination of real-time rights. [00:41:21] Speaker 02: And in that sense, it's akin to what we were talking about this morning with IPR stop under Section 315E. [00:41:32] Speaker 02: Netflix happens to be stopped from challenging two of the patents that were asserted in the California cases or the Delaware cases, right? [00:41:42] Speaker 02: But this idea that Section 315E itself [00:41:49] Speaker 02: changes Netflix's rights today is not quite right. [00:41:53] Speaker 02: We need a determination by a court if there is some future litigation where Netflix is found infringed and their only defense is based on invalidity and a printed publication. [00:42:06] Speaker 02: There needs to be a court decision [00:42:09] Speaker 02: making that finding and giving that order judicial imprimatur, it can't be that a rule itself promulgated by some judge or judges since 1934 constitutes the type of judicial sanction that this court and Supreme Court [00:42:28] Speaker 02: President has consistently required. [00:42:33] Speaker 02: My second point on the prevailing party is I would really call to your honor's attention on footnote seven of Judge Wu's order on appendix 25 to 26. [00:42:43] Speaker 02: where he deemed he ruled for the first time that real-time dismissal was an adjudication on the merits and was with prejudice. [00:42:55] Speaker 02: That ruling is impossible to reconcile with Boeing. [00:43:01] Speaker 02: And it's also inconsistent with Kudron-Gell, right, which says that in an attorney's fee collateral proceeding, the one thing that the court can't do is affect [00:43:13] Speaker 02: a party's legal rights, right? [00:43:18] Speaker 02: That would be an advisory opinion. [00:43:21] Speaker 02: And there's a part of Cooter and Gell, which, by the way, dealt with the court's authority to impose rule 11 sanctions or contempt sanctions, which it can do anytime. [00:43:32] Speaker 02: It can do five years after the fact. [00:43:34] Speaker 02: and Crudinegal held that even if a district court indicated that a complaint was not legally tenable or factually well-founded for Rule 11 purposes, the resulting Rule 11 sanction would nevertheless not preclude the refiling of a complaint. [00:43:50] Speaker 02: So in an attorney's speed order, a judge who can't go back for the first time and make a determination that, by the way, real time, your unilateral notice of dismissal more than a year earlier, more than a year earlier, by the way, that was with prejudice. [00:44:07] Speaker 02: And by the way, no one told you, no person has ever said so, but over the past year, real time, you were not free to refile the complaint. [00:44:17] Speaker 02: And then the final point on prevailing parity is that real-time can file at least another case based on the 879 patent that was in [00:44:30] Speaker 02: the second case, and Netflix even agreed to that in the attorney's fee briefing down below at Apex 3636 at footnote 5. [00:44:42] Speaker 02: And that's another, that's a further fact that contradicts any notion that, and that the district court was wrong to rule that the dismissal was with prejudice. [00:44:54] Speaker 02: On conduct and inherent powers, I want to be very clear what we're saying and what we're not saying, right? [00:45:04] Speaker 02: An improper purpose is filing a case for the purpose of harassing your opponent or for the improper purpose of bankrupting your opponent. [00:45:17] Speaker 02: to gain an advantage in the marketplace, that is improper. [00:45:23] Speaker 02: But it is not improper if your goal is to gain an advantage in a litigation under the rules that the rules allow. [00:45:35] Speaker 02: And avoiding a possibly worse verdict and increasing your odds of a better verdict, that is not the type of improper purpose. [00:45:50] Speaker 02: that courts have found that do warrant rule 11 sanctions. [00:45:55] Speaker 02: And we would submit that that is the most that judge we possibly found, that it is not bad faith to your client walks into your office and asks [00:46:06] Speaker 02: How can I stay within the rules and increase our odds of ultimate success? [00:46:11] Speaker 02: And following the rules to increase your chances in a litigation is not hiding malpractice. [00:46:18] Speaker 02: It is not abusing the judicial process. [00:46:21] Speaker 02: And courts have universally held that. [00:46:25] Speaker 00: What they say is that the purpose was improper not because [00:46:32] Speaker 00: real-time withdrew when it started to become clear that it was extremely likely they would receive an adverse judgment. [00:46:42] Speaker 00: The improbable purpose was the refiling of the same case in another form to try again. [00:46:49] Speaker 02: Well, Your Honor, [00:46:54] Speaker 02: being able to voluntarily dismiss your case and the Beachhawk case cited in our briefing and other cases that address voluntary dismissals make the same point. [00:47:06] Speaker 02: And there are many cases where the defendants oppose a voluntary dismissal that have gone [00:47:13] Speaker 02: far more advanced than our case that included trial, included the end of discovery, far more. [00:47:20] Speaker 02: And the argument is always that allowing this dismissal will allow the plaintiff to form shock and to file a new action. [00:47:28] Speaker 02: And so that comes directly from being able to do this in this case. [00:47:34] Speaker 02: And that conduct is expressly contemplated by Rule 41D that you can refile some of the same claims in a new action. [00:47:47] Speaker 02: which is further support that this is not an abuse of the judicial process or something is sanctionable, right? [00:47:56] Speaker 02: So beyond the pale. [00:47:58] Speaker 02: And Your Honors, my final point on the inherent powers is that we cite like [00:48:05] Speaker 02: several cases in our yellow brief on pages 25 through 27 that directly supports us on the inherent powers point and exceptionality, including Walters and the Adams case, where in those cases there were specific findings, more specific and more improper findings of improper purpose [00:48:31] Speaker 02: from a voluntary dismissal for the purpose of form shopping. [00:48:37] Speaker 02: And the courts in those cases, the Second Circuit in Walters and the Eighth Circuit in Adams, found that it was an abuse of discretion to so hold. [00:48:48] Speaker 02: And then finally, the John Ackridge case is just [00:48:55] Speaker 02: And it goes to my point about, in that case, the plaintiff, their second suit was barred. [00:49:03] Speaker 02: There was a final judgment. [00:49:05] Speaker 02: That was an illegal action. [00:49:08] Speaker 02: They were not following any rules. [00:49:10] Speaker 02: They were breaking rules to do so. [00:49:15] Speaker 02: Because of that, there were specific findings of bad faith in that case. [00:49:21] Speaker 02: Here, there's no dispute that real time was not allowed to file the second case. [00:49:29] Speaker 02: And no specific findings of bad faith, which must be proven by clear and convincing evidence, which we don't think that either Judge Wu made or has any support in the record. [00:49:43] Speaker 00: OK. [00:49:44] Speaker 00: Any more questions for Mr. Wang? [00:49:48] Speaker 00: All right, then you have the last word, Mr. Gorrell, on the cross appeal. [00:49:53] Speaker 04: Thank you, Your Honor. [00:49:54] Speaker 04: I'd like to honor the court's rules concerning rebuttal. [00:50:01] Speaker 04: I don't believe the opposing counsel addressed the cross appeal in his remarks. [00:50:07] Speaker 04: I would just conclude by saying I think it is at best unclear the basis for the district court's purported exercise of discretion to deny the IPR fees. [00:50:19] Speaker 04: And under this court's law, that uncertainty would support a remand for the court to clarify whether it would do the same under the correct legal standard. [00:50:29] Speaker 04: If the court has no questions, we'll submit. [00:50:32] Speaker 00: OK. [00:50:33] Speaker 00: Any questions in this regard? [00:50:36] Speaker 00: All right. [00:50:37] Speaker 00: Our thanks to counsel. [00:50:38] Speaker 00: The case is taken under submission. [00:50:43] Speaker 00: The honorable court is adjourned until tomorrow morning at 10 AM.