440-600-1992

Allflex USA v. Avid Identification Systems

This case illustrates a failed attempt to create the appearance of a continuing controversy by contriving arbitrary damages. Briefly, Allflex originally sued Avid in 2006 for a declaratory judgment that six of Avid's patents were unenforceable due to inequitable conduct. In the course of lengthily proceedings, the District Court ruled that Avid's attorneys should be sanctioned for failure to disclose ongoing reexamination proceedings at the United States Patent and Trademark Office which were relevant to the present case. However, the Court did not actually impose the sanction due to difficulty in determining the appropriate amount. Only July 28, 2010 the Court granted a summary judgment of non-infringement to Allflex, and on February 11 of the following year they denied summary judgment to Allflex on their inequitable conduct claim, but simultaneously held that certain actions by Avid were material to inequitable conduct.

At that point the parties entered into a rather odd settlement agreement. Under the agreement Avid would pay Allflex $6,550,000; however, Avid would get $50,000 of that back if they prevailed on appeal as to any or all of three issues specifically left out of the settlement. Those three issues were 1) the summary judgment of non-infringement, 2) the materiality of Avid's actions to a yet unmade finding of inequitable conduct, and 3) the ruling that Avid's counsel should be sanctioned for a yet undetermined amount. To Avid's credit, the district court stated in its "Stipulated Order of Final Judgment" that these issues are finally adjudicated and ripe for appeal.

In short, the Federal Circuit found on appeal that they lacked jurisdiction over the sanctions issue because, despite the Order to the contrary, since a sanction was never reduced to an amount and assessed there was no final judgment. On the inequitable conduct issue the Court found that a final judgment was in fact made, but that the issue was moot because no adverse judgment had been rendered against Avid or its patents, and no such action was contemplated for the future. In essence, Avid was trying to appeal a favorable judgment. Avid, likely recognized this because they seemed to hang their hat on the contrived $50,000 figure to create a controversy.

Judge Bryson writing for the Court noted that Allflex had not even bothered to participate in the appeal which by itself strongly suggests that there is no ongoing controversy. Moreover, Justice Bryson points out that the $50,000 value was completely disconnected from any real value in the issues on appeal; Avid would receive that identical amount if they won any one or all three of the issues on appeal. In fact, oral argument by Avid's counsel suggested that this amount was selected because it was roughly twice as much as the amount in controversy in another case which the Federal Circuit found not moot. The Court saw through the supposed damages and likened it to making a "side bet" on the outcome of litigation as opposed to representing real damages. Case dismissed...

Dominic A. Frisina

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