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D.C. District Court Unleashes On Patent Holding Company

By Peter Zura

In Re Pabst Licensing GMBH & Co. KG Litigation, District Court For the District of Columbia, May 6, 2008, Misc. Action No. 07-493 (RMC)

A spat broke out between the parties during discovery that resulted in an order levying multiple sanctions against the patent holder, Pabst. Papst objected to the Magistrate Judge?s ruling that it waived all objections based on attorney client privilege, consulting expert privilege, protection under the work product doctrine, and relevance and that Papst is liable for monetary damages. Papst asserted that waiver is too harsh because Papst?s conduct grew out of a misunderstanding of the court order for discovery ?to proceed.?

Needless to say, Judge Collyer was not pleased with Pabst's litigation tactics, and was certainly not swayed by the objection:

Before addressing the merits of the parties? positions, the Court describes the nature of the parties and this litigation to put this matter in context. Casio USA sells digital cameras in the United States. Papst is a German company that produces no products; it acquires patents on products or methods allegedly invented by others and then searches the world for patents it might challenge for infringement. At one of the first status conferences of the MDL, when the Court queried whether this was old-fashioned ?claim-jumping,? counsel for Papst readily agreed that it had been called worse. Of course, this is a perfectly lawful and respectable business. But it underscores that the business of Papst is litigation, not invention or production. Litigation is the business model whereby Papst, when successful, achieves royalty payments from others. As is clear from this record, the threat of litigation alone often achieves royalty payments.

* * *

The Court finds that waiver of privileges is not too harsh a sanction under the circumstances presented here. Papst?s failure to respond to Casio USA?s discovery requests, as directly ordered, was entirely unjustified and inexcusable and smacks of bad faith. How difficult is it to understand a district court order that discovery is ?to proceed?? Were there any doubt, Papst might have inquired. It did nothing. It merely delayed?a delay that continues, in part, to this day. It may be a successful business model, when the ?business? of a business is litigation, to interpose delay at any possible opportunity. Delay costs money to opponents and may, in the end, cause an opponent to settle a case. Ultimately, Papst offers no good reason why its experienced counsel should be allowed, without sanction, to ignore totally a court order on which they had been heard fully.

Accordingly, Papst is required to respond to Casio USA?s initial discovery requests without objection based on attorney client privilege, consulting expert privilege, or attorney work product. Casio has agreed, and there is now a Protective Order entered by the Court, that will shield Papst?s confidential documents from public display.

* * *

Finally, Papst argues that the sanction requiring it to pay Casio USA?s costs and attorney?s fees is unjust. Again, Papst contends that it was merely mistaken regarding its interpretation of the district court?s order for discovery ?to proceed.? As explained above, this contention by Papst?s experienced counsel is not credible. The sanction shall remain in place.

Download a copy of the opinion here.

Full post as published by Two-Seventy-One Patent Blog on May 08, 2008 (boomark / email).