When a party is warned that failure to comply with a Court order will result in entry of default judgment—and then fails to comply with that order—is the entry of default judgment proper?

January 23, 2017

United Construction Products, Inc. v. Tile Tech, Inc.

2016-1392, Decided: December 15, 2016

Case Summary

 

When a party is warned that failure to comply with a Court order will result in entry of default judgment—and then fails to comply with that order—is the entry of default judgment proper? In a patent infringement case involving missed deadlines, repeated delays and destruction of evidence, the United States Court

of Appeals for the Federal Circuit said yes.

 

United Construction Products sued Tile Tech for infringement of U.S. Patent No. 8,302,356, which covers a support pedestal for elevated surface tiles. During discovery, Tile Tech repeatedly missed production deadlines; the few documents it eventually produced were not responsive.

 

At a conference to discuss the deficient responses, Tile Tech agreed to produce “all responsive documents” by an agreed-upon date; but even with a 10-day extension beyond that date, Tile Tech failed to produce any more documents.

 

The patent owner then filed a motion to compel. Tile Tech did not respond to the motion, but instead served two sets of supplemental responses—both of which were deficient.

 

In its Order to Compel, the United States District Court for the Central District of California ordered Tile Tech to respond to the discovery requests, imposed monetary sanctions, and warned that it would enter default judgment if Tile Tech did not comply with the Order by October 12, 2015.

 

Tile Tech did not comply.

 

When United filed its Motion for Entry of Default Judgment, Tile Tech claimed that it

had not known of the Order’s response deadline. It later served another set of supplemental responses, which disclosed Tile Tech’s destruction of a mold used to make one key component of the accused product. United then filed a Motion for Spoliation Sanctions and filed an unopposed Amended Complaint adding a claim for unfair competition, to which Tile Tech never responded. The District Court then

entered default judgment and a permanent injunction, which prohibited Tile Tech

from selling “substantially similar” infringing products.

 

On appeal, Tile Tech argued that its actions—which it characterized as “hiccups in

the discovery process”—did not warrant the entry of default judgment; it also argued that the scope of the injunction was too broad.

 

Because the issues related to default judgment are not unique to patent law, the

Court considered the factors articulated in the Ninth Circuit’s Malone v. United States Postal Service, which are: (1) the public’s interest in expeditious resolution of

litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions. 

 

The panel quickly found the first three factors to favor dismissal, and said the only factor favoring Tile Tech is the public policy favoring disposition of cases on their

merits—which “always weighs against dismissal.” On the availability of less drastic sanctions, Tile Tech argued that the District Court abused its discretion when it “simply penalized Tile Tech rather than [e]nsuring future compliant behavior by Tile Tech’s trial counsel.” In ruling against Tile Tech, the Federal Circuit cited Malone for the proposition that “warning a [non-moving party] that failure to obey a court order will result in dismissal can suffice to meet the ‘consideration of alternatives’ requirement” in Malone’s factor (5). The Court also said that the District Court’s Order to Compel gave ample warning to the defendant, but Tile Tech still did not respond adequately; that Tile Tech never paid the monetary sanction included in that Order; and that the defendant had admitted to spoliation of evidence.

 

In its last argument against the entry of default judgment, Tile Tech said that “while defense counsel perhaps handled the case unreasonably, [the District Court did] not attribute that to bad faith, but instead a complete lack of preparation.” The Federal Circuit also rejected this argument, noting that the Ninth Circuit’s test for default judgment is whether a party’s conduct was due to “willfulness, bad faith, or fault,” and that willfulness may be satisfied simply by finding “disobedient conduct not shown to be outside the control of the litigant.” Although Tile Tech may have been correct that its trial attorney had “unfamiliarity” with federal court practice, the panel said that the

defendant had not offered any evidence to suggest that its actions were outside of its attorney’s control.

 

Finally, Tile Tech argued that permanent injunction is overbroad for three reasons:

(1) it enjoins “substantially similar” products that do not necessarily infringe on the ’356 patent; (2) it requires Tile Tech to surrender a device (the “notched washer mold”) even though the device by itself does not directly infringe; and (3) it prohibits Tile Tech from using images of United’s products in any marketing materials, even if there is no likelihood of confusion. The Court rejected all of these arguments.

 

On the issue of the breadth of the injunction, the panel said that injunctions have satisfactory scope when they prohibit “infringement of the patent by the adjudicated devices and infringement by devices not more than colorably different from the adjudicated devices,” and that infringement by substantially similar products is evaluated under the Federal Circuit’s two-part test articulated in Tivo v. Echostar:

“[1] the party seeking to enforce the​injunction must prove both that the newly accused product is not more than colorably different from the product found to infringe, and [2] that the newly accused product actually infringes.” The Court concluded that there was no problem with the use of the term “substantially similar” in the injunction, to the extent that it prevents Tile Tech from infringing United’s patent as assessed under the Tivo v. Echostar standard. 

 

Regarding the injunction’s requirement that Tile Tech surrender the notched washer mold, the Court found it to be an acceptable means to prevent future infringement, because the notched washer was a “crucial” component of the patented invention (which Tile Tech acknowledged when it intentionally destroyed all molds and notched washers in response to the litigation), and because the patent owner said that it would not seek to enforce the injunction should Tile Tech use notched washers or their molds for non-infringing purposes.

 

The opinion concluded by finding reasonable the prohibition against acts of unfair competition (including using images of United’s products on Tile Tech’s website and advertising materials), because Tile Tech had previously misidentified United’s products as its own, and because the injunction could not be read to prohibit actions that are not “unfair competition”—such as future Tile Tech advertising that clearly distinguishes its products from United’s.

 

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