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Capital Bridge Co., Ltd v. IVL Technologies Ltd.

October 26, 2007

CAPITAL BRIDGE CO., LTD, PLAINTIFF,
v.
IVL TECHNOLOGIES LTD., MEMCORP INC., AND CRAIG ELECTRONICS INC. DEFENDANTS.



The opinion of the court was delivered by: Kenneth M. Karas, District Judge

OPINION AND ORDER

By Opinion and Order of this Court dated August 30, 2006, Defendants IVL Technologies ("IVL"), Memcorp, Inc. ("Memcorp"), and Craig Electronics, Inc. ("Craig") (collectively "Defendants") were granted summary judgment dismissing Plaintiff Capital Bridge Co.'s ("Capital Bridge") patent infringement claims. See Capital Bridge Co. v. IVL Techs. Ltd., No. 04-CV-4002, 2006 WL 2585529, at *1 (S.D.N.Y. Aug. 30, 2006). Defendants have filed Motions for Sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure, and Defendant IVL has further filed a motion seeking (i) a determination that this case is exceptional and an award of reasonable attorneys' fees pursuant to 35 U.S.C. § 285, and (ii) sanctions under 28 U.S.C. § 1927 and the Court's inherent powers. For the reasons stated herein, Defendants' Motions are DENIED.

I. Background

A. Facts

Plaintiff is the owner of U.S. Patent No. 6,025,553 (the "'553 patent"), entitled "Portable Music Performance Device," which is a wireless, portable, hand-held karaoke device. (Compl. ¶ 8.) The device allows users to select songs and musical accompaniment using a keypad on the device and to wirelessly broadcast their voices and music to multiple FM receivers that are tuned to the correct station. See '553 Patent col.2. l.51-67, col.3 l.1-6 (mailed August 29, 1997). In the specification, Plaintiff explained that the device was created to overcome the disadvantages of the typical karaoke system, including the bulkiness and cost of the equipment, the need for wires, the inability to use the system in cars or outdoors, and the inability to have the performance amplified by multiple receivers in different rooms. See id. at col.1.15 - col.2 l.37.

Defendant IVL manufactures T.V. Star Player and Disney Princess Karaoke and sells them to national retailers and international distributors. (Decl. of Brian Gibson in Supp. of Summ. J. ¶ 4 ("Gibson Decl.").) Defendant Memcorp distributes the Disney Princess Karaoke product to retailers. (Id.) Under license from IVL, Defendant Craig manufactures an industrial design of T.V. Star Player, which is electronically identical to IVL's device and uses custom component parts purchased from IVL. (Id.) These devices constitute the accused devices.

The '553 patent consists of forty claims, including independent claims 1 and 22, which were at issue in this case. Claim 1 describes the Portable Music Performance Device as: "a portable, self-contained hand-carried music performance device for wirelessly transmitting musical accompaniment information stored in a storage medium therein and a voice input from a user, for reception and reproduction by an external receiver and speaker unit." '553 Patent col.10 l.27 (emphasis added). Claim 22 describes the device as: "[a] portable, hand-carried music performance device capable of transmitting wirelessly both musical accompaniment information stored therein in a storage medium and reproduction by an external speaker unit."

Id. at col.13 l.6 (emphasis added). Though the dependent claims in the '553 patent do not use the term "wirelessly," multiple claims refer to transmission through an antenna.

The application process for the '553 patent required multiple amendments to achieve patentability. The U.S. Patent and Trademark Office ("PTO") granted Plaintiff a patent only after Plaintiff amended its application so as to emphasize the device's wireless transmission capabilities. Prior to granting the application, the PTO expressed concern regarding the prior art established by the Takao patent, U.S. Patent No. 5,349,480, and the Mankovitz patent, U.S. Patent No. 5,408,686. The Takao patent taught a portable music performance device but did not disclose the transmission means. (Decl. of Georgia Damoulakis in Supp. of Summ. J. Ex. B at 332 ("Damoulakis Decl.").) The PTO examiner believed that when Takao was combined with Mankovitz, which teaches a means for transmitting human voice and musical accompaniment, a person of ordinary skill could achieve Plaintiff's invention. (Id. Ex. B at 333.) In response to the PTO's rejection, Plaintiff first amended the claims to add "elements, other than a transmitting means," that Plaintiff believed were not taught or suggested by Takao. (Id. Ex. B at 356.) In the first amendment, Plaintiff added details to claim 1 so that where the claim once referred to "a portable music performance device," the claim was changed to "a portable, self-contained hand-carried music performance device." At this time there were only 21 patent claims.

The first amendment was rejected on the same grounds as the original application, and the PTO again referred to additional patents that presented prior art issues. (Id. Ex. B at 361.) Plaintiff then filed a second amendment explaining in the remarks that the claims were amended and new claims were added "to more clearly set forth that which [Plaintiff] regards as the invention" and "to more clearly and thoroughly define the subject matter." (Id. Ex. B at 395.) It was in this August 29, 1997 amendment that the opening clause of claim 1 was finally amended to include the wireless transmitting capabilities, reading "[a] portable, self-contained hand-carried music performance device for wirelessly transmitting . . . ." (Id. Ex. B at 386.) The final clause of claim 1 was also amended to read, a "transmitter disposed in said casing for wirelessly transmitting" instead of just a "means for transmitting." (Id. Ex. B at 387.) Similarly, claim 22 was added to the patent application, which also refers to a device capable of transmitting wirelessly. (Id. Ex. B at 389.) The August 29, 1997 amendment was made following an unrecorded conversation that took place sometime in or around June 1997 between Plaintiff and the PTO, leaving possible the inference that the addition of "wireless" was a result of those conversations. (Id. Ex. B at 395.)

Plaintiff requested amendments to the '553 patent that would remove the term "wirelessly" from claim 1. However, the PTO had rejected early amendments and the latest application for amendment was pending with the PTO at the time summary judgment was granted to Defendants. Defendants' accused devices also serve as hand-held karaoke devices, however the devices do not use wireless transmission. (Gibson Decl. ¶ 9.) In order to operate, the devices are connected by wires to a television. (Id. ¶ 5.) Also, the devices only send signals to a single receiver. (Id. ¶ 11.)

B. Procedural History

On May 6, 2004, Capital Bridge, through its attorney, Brian L. Wamsley, sent IVL a cease and desist letter asserting that IVL's karaoke products infringed the claims secured by Capital Bridge's '553 patent. (Decl. Of Daniel P. Burke Ex. K ("Burke Decl.").) Rather than send this letter directly to IVL, Capital Bridge directed the letter to one of IVL's retail partners, who then forwarded it on to IVL. (Def. IVL's Mot. For a Determination that this Case is Exceptional and for an Award of IVL's Reasonable Attorneys' Fees Under 28 U.S.C. § 285; and for Sanctions Under 28 U.S.C. § 1927 and the Court's Inherent Powers 3 ("IVL's Mot. For Sanctions").) By letter dated May 13, 2004, IVL's Chief Technology Officer, Brian Gibson, responded that the products cited in Capital Bridge's cease and desist letter did not violate the '553 patent because they did not employ a RF signal transmission to a receiver. (Id.) Specifically, IVL asserted that the allegedly infringing products had to be connected directly to a television through an audio/visual ("A/V") cable in contrast to Capital Bridge's '553 patent, which employs a wireless signal for transmission. (Id.) Capital Bridge made no further attempts to communicate with IVL. Instead, on May 26, 2004, Capital Bridge filed the Complaint in this case alleging infringement of the '553 patent. (Burke Decl. Ex. M.)

On August 25, 2004, prior to being served the Complaint but after it had been filed, IVL once again contacted Capital Bridge by letter, setting forth detailed reasons why IVL's products did not infringe the '553 patent. (IVL's Mot. For Sanctions 3.) In addition to reasserting that the '553 patent was expressly limited to wireless transmission, IVL noted that Capital Bridge had, by its own admission, explicitly relinquished any claim to wired transmission in its patent reissue application for the '553 patent.*fn1 (Burke Decl. Ex. N.) IVL enclosed in the same letter publicly available product literature that demonstrated the alleged infringing products employed an A/V cable for wired transmission of data and, thus, were not wireless. (Id.)

On December 17, 2004, Defendants served upon Capital Bridge a motion seeking sanctions against Plaintiff in the form of dismissal of the action, a penalty payable to the Court, and an order directing Plaintiff to pay Defendants' reasonable attorneys' fees and expenses. (Defs.' Mot. for Sanctions Due to Pl.'s Failure to Comply with Federal Rules of Civil Procedure Rule 11 in Connection with the Filing of the Compl. 2 ("Defs.' Mot. For Sanctions").) Defendants argued that Capital Bridge's Complaint violated Fed. R. Civ. P. 11(b)(1), (2) and (3) because at the time it was filed the claims and allegations "were frivolous under existing law, lacked evidentiary support to establish a claim of patent infringement, and had not been formed after an inquiry which was reasonable under the circumstances." (Id at 12.)

By letter dated January 6, 2005, Defendants requested a pre-motion conference seeking permission to file a Motion for Summary Judgment pursuant to Rule 56 and a Motion for Sanctions and Attorneys' Fees pursuant to Rule 11. (Damoulakis Decl. Ex. B.) In response to a Court Order scheduling a status conference for February 1, 2005, Plaintiff and Defendants exchanged and filed a joint discovery plan. Capital Bridge opposed Defendants' proposed Motions for Summary Judgment and Sanctions and argued that discovery should be completed before any such motions were filed. (Id. Ex. C.) At the February 1 status conference, the Court ordered Capital Bridge to submit a letter to the Court detailing the scope of its desired discovery and granted ...


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