Big Suits
The American Lawyer
August 01, 2008
In re Brocade Securities Litigation
In what is so far the largest securities class action settlement involving options backdating, Brocade Communications Systems, Inc., agreed June 2 to pay $160 million to settle claims that backdating depressed share values when it became public knowledge.
The Brocade suits marked the beginning of a filing frenzy by investors of companies caught up in the backdating scandals. In May 2005, after the third Brocade announcement of accounting improprieties and restated earnings, a slew of investors filed suit demanding restitution. (Brocade eventually restated its earnings from 2000 to 2004.)
In January 2006, San Francisco federal district judge Charles Breyer named the Arkansas Public Employees Retirement System (APERS) as the lead plaintiff. APERS filed a consolidated complaint a few months later.
Meanwhile, the Securities and Exchange Commission and the U.S. Department of Justice were engaged in parallel investigations of Brocade. In July 2006, the SEC filed a civil action against former CEO Gregory Reyes, former CFO Antonio Canova, and former vice president of human resources Stephanie Jensen for securities fraud. Justice indicted Reyes and Jensen on criminal charges. (Both were convicted last summer and sentenced to prison time, but were free at press time pending appeals.)
In an amended complaint filed in January 2007, APERS named as defendants the company itself; Reyes; Canova; and three company directors, including Wilson Sonsini Goodrich & Rosati name partner Larry Sonsini.
Things got a little complicated in April 2007. That month, Brocade's then counsel, Wilson Sonsini, announced a tentative settlement in a shareholder derivative suit in which APERS did not have a role. The highly unusual settlement purported to release Larry Sonsini and his firm from all claims. APERS filed an objection with Judge Breyer, who was handling that suit as well. APERS argued that the release was inappropriate due to Sonsini's alleged involvement in the backdating. As a result, the plaintiffs in the derivatives suit eventually dropped the proposed settlement, and Brocade subsequently replaced Wilson Sonsini as its defense counsel, appointing new counsel for both the derivative claim and the class action. (The shareholder derivatives action is pending.)
Judge Breyer certified the shareholders' class in October. That same month, he granted a motion for summary judgment against CEO Reyes. APERS moved for summary judgment against the company, alleging that Reyes was acting for Brocade when he signed off on the backdating. On May 13 Breyer ruled that the company was liable for Reyes's actions. Settlement followed three weeks later.
For plaintiff Arkansas Public Employees Retirement System (Little Rock)
Nix, Patterson & Roach: Jeffrey Angelovich, Bradley Beckworth, and associate Susan Whatley. (All are in Daingerfield, Texas.) The firm was appointed lead and class counsel in January 2006.
For defendant Brocade Communications Systems, Inc. (San Jose)
In-house: Vice president, general counsel, and corporate secretary Tyler Wall.
Cooley Godward Kronish: John Dwyer, Grant Fondo, Koji Fukumura, and associates Angela Dunning, James Penning, and Jessica Valenzuela Santamaria. (Fukumura is in San Diego; the rest are in Palo Alto.) The firm replaced Wilson Sonsini Goodrich & Rosati as Brocade's counsel in September 2007. Cooley also represents Brocade in the derivatives suits in federal and state court.
-Francesca Heintz
Cornell University et al. v.Hewlett-Packard
In one of the largest patent infringement verdicts ever awarded to a research university, a federal jury in Syracuse ordered Hewlett-Packard Company to pay $184 million to Cornell University for violating the patent for a microprocessing technique developed there. But the May 30 verdict was not the last word in the case: At a bench trial set for late July, the trial judge will hear defense arguments not considered by the jury.
The dispute centered on a patent granted in 1989 to Cornell professor H.C. Torng. His innovation substantially boosted computer speed, allowing a computer to process more than one instruction simultaneously and out of the order in which instructions were received, eliminating a processing bottleneck.
Fast-forward to 1996, when Palo Alto-based HP began selling the PA 8000 family of microprocessors, used in heavy-lifting servers and work stations. Some time after HP's microprocessors hit the market, Torng and others at Cornell voiced concerns to the university's licensing office that the PA 8000 product line infringed Torng's patent, the rights of which were formally held by Cornell. According to Cornell's counsel, efforts to license the patent to HP proved fruitless, and in late 2001 Cornell filed suit in federal district court in Syracuse claiming that HP had infringed its patent.
After more than seven years of discovery (and more than two years after Torng's patent had expired), trial began in May. At trial, among other arguments, HP's counsel asserted that the patent was invalid because Torng took credit for earlier published research by other authors. Furthermore, HP's counsel claimed that some of the PA 8000 microprocessors sold by HP had been produced by International Business Machines Corporation and Intel Corporation, to which Cornell had licensed the technology, and thus should not be subject to infringement claims. Cornell's lawyers argued that only Intel had a license to the patent, and even so, the microprocessors produced by Intel and sold by HP should still be included in the suit.
The jury sided with Cornell, finding that HP owed the university back royalties for all CPUs containing the PA 8000 microprocessors it sold through the February 2006 expiration of the patent, regardless of who produced them. Cornell had sought $535 million, but the jury chose to use a lower royalty percentage, arriving at a sum roughly one-third of what Cornell had sought.
A bench trial to hear equitable defenses not presented to the jury was scheduled to take place in late July. HP's counsel said they planned to argue that Cornell waited too long to file suit and that the patent should never have been issued. If posttrial motions fail, the company may appeal, according to an HP spokeswoman.
For Cornell University and Cornell Research Foundation, Inc. (Ithaca, New York)
In-house: University counsel James Mingle, deputy university counsel Nelson Roth, and associate university counsel Valerie Cross.
Sidley Austin: Bryan Anderson, Sandra Fujiyama, Denise McKenzie, David Miyamoto, Edward Poplawski, counsel Christopher Broderick, and associates Olivia Kim, Spencer Ririe, and Tashica Williams. (Anderson is in San Francisco; the rest are in Los Angeles.) Poplawski was retained by Cornell in 2000 when he was a partner at Pretty, Schroeder & Poplawski and brought the client to Sidley.
For Hewlett-Packard Company (Palo Alto)
In House: IP litigation manager Paul Roeder.
DLA Piper: John Allcock, Stewart Brown, Sean Cunningham, Licia Vaughn, counsel Arthur Wellman, Jr., and associates Brian Fogarty, Megan McCarthy, Tiffany Miller, and Erin Penning. (They are in San Diego.) DLA Piper has represented HP in a number of other patent litigations.
Fish and Richardson: Barry Shelton. (He is in Austin.) Shelton was formerly at DLA Piper and has worked with HP on other cases.
Harter Secrest & Emery: Jerauld Brydges and counsel James Moore. (Both are in Rochester, New York.) The firm replaced Hiscock & Barclay as local counsel in November 2005.
-Jonathan Thrope
Cook et al. v. Rockwell and Dow Chemical
Almost two decades after federal agents raided the now defunct Rocky Flats nuclear weapons plant, U.S. district court judge John Kane ordered the Dow Chemical Company and Rockwell International Corporation to pay nearly $1 billion to as many as 13,000 local residents to compensate them for deflated property values. The June 2 order marks the largest damages verdict ever entered in Colorado.
An appeal is already planned, and under indemnification agreements with both companies, the U.S. Department of Energy is liable for the damages. (Rockwell International no longer exists; its defense units were acquired by Boeing Co. in 1996.)
Although the federal government owns the plant, which once made plutonium triggers for nuclear warheads, the two companies long had contracts to operate it: Dow from the 1950s until 1975, and Rockwell from 1975 until 1989. In December 1989, the Federal Bureau of Investigation shut the plant down after its investigations revealed that environmental crimes may have been committed there. (In 1992 Rockwell, which was operating the plant at the time of the raid, entered into a plea bargain with the U.S. Department of Justice, pleading guilty to ten counts of environmental crimes and paying a $19 million fine. Dow was not part of that case.)
Within months of the shutdown, nearby residents filed a class action against both companies in federal district court in Denver, claiming that Dow and Rockwell's negligent disposal of plutonium and other nuclear waste damaged property values. The residents claimed that both companies were liable for trespass, by allowing pollutants to enter their property, and nuisance, by interfering with their enjoyment and use of their property.
Over the next decade and a half, the suit was reassigned to a series of judges. Discovery was prolonged. Early on, lawyers for the residents struggled to force the Department of Energy to produce key documents through third-party subpoenas, including records on 2,600 pounds of missing plutonium. In 1995 the judge held the Department of Energy, as a third-party indemnitor, in contempt for failing to comply with attorneys' subpoenas. The case stalled for the next several years as both companies moved to strike the testimony of the residents' expert, arguing that it was inadmissible because of a lack of scientific grounding. But the residents prevailed in most of the Daubert motions, and a four-month jury trial began in October 2005.
The total damages ordered by the judge-$926 million-includes 18 years of prejudgment interest on the compensatory damages. The judge ordered Dow to pay compensatory damages of $653 million, and Rockwell $508 million, but capped the combined damages award at $726 million. Under the order, Dow is also liable for $111 million, and Rockwell for $89 million, in punitive damages.
But under indemnity agreements negotiated when the government contracted with each company, Energy will be paying for both. Following the judgment earlier this month, the government confirmed its obligation to indemnify Boeing Co. Boeing carries full liability for Rockwell since its acquisition of Rockwell's defense unit.
Dow and Rockwell filed notices of appeal June 19.
For plaintiffs Cook et al.
Berger & Montague: Merrill Davidoff, Peter Nordberg, David Sorensen, and associates Jenna MacNaughton-Wong and Ellen Noteware. (Davidoff, Nordberg, Noteware, and Sorensen are in Philadelphia; MacNaughton-Wong has since left the firm.) The firm was lead counsel. Local Colorado lawyers contacted the firm for its expertise in class action and environmental lawsuits.
Waite, Schneider, Bayless & Chesley: Stanley Chesley and associates Paul De Marco, Jean Geoppinger, and Louise Roselle. (All are in Cincinnati.) The firm was co-trial counsel. A Denver lawyer referred clients to the firm because of its experience representing workers and residents near another nuclear weapons plant.
Silver & DeBoskey: Gary Blum, Bruce DeBoskey, and Steven Kelly. (Blum and Kelly are in Denver; DeBoskey has since left the firm.) The firm was local counsel.
For defendants The Dow Chemical Company (Midland, Michigan) and Rockwell International Corporation (Milwaukee)
Kirkland & Ellis: Ellen Ahern, David Bernick, Doug Kurtenbach, Scott McMillin, Mark Nomellini, and Jane Park. (All are in Chicago.) The firm, lead counsel for Dow from the beginning and for Rockwell since 1996, is Dow's longtime litigation counsel and has represented Rockwell in other mass torts.
Goodwin ProctEr: John Aldock, Heather Anderson, Michael Giannotto, Patrick Hanlon, Michael Isenman, Mark Raffman, Valerie Ross, Joseph Yenouskas, and counsel David Beers. (All are in Washington, D.C.) The firm Shea & Gardner, which merged with Goodwin Procter in 2004, led negotiations with the federal government over the terms of indemnification of Rockwell. Shea & Gardner withdrew in 1996, when the Department of Energy directed Kirkland to provide a common defense for Dow and Rockwell.
Sherman & Howard: Joseph Bronesky. (He is in Denver.) The firm served as local counsel.
For indemnitor the United States of America
In-house: At the U.S. attorney's office in Denver: assistant U.S. attorney Stephen Taylor.
-Kirstin Maguire
Medtronic et al. v. Boston Scientific et al.
It's strike two for Boston Scientific Corporation in the not-so-cozy confines of the Eastern District of Texas. On May 27, just four months after a Marshall, Texas, jury ordered the medical device maker to pay a New Jersey doctor $501 million in another patent suit, a second jury ruled that it owes $250 million to Medtronic, Inc.
Minneapolis-based Medtronic filed suit in March 2006, claiming that ten of Boston Scientific's catheter products infringed four Medtronic patents. Medtronic's claims involved two categories of patents-the so-called Fitzmaurice catheter patents and Anderson balloon patents. The Fitzmaurice patents focused on the structure of catheters that deliver balloons or stents to clogged coronary arteries, while the Anderson patents concerned the use of certain polymers in catheter balloons.
Federal district court judge T. John Ward dismissed Medtronic's claim of willful infringement and removed one patent claim on summary judgment. A trial on the three remaining patents began May 16.
At trial, Medtronic's lawyers contended that the Boston Scientific products contained Medtronic's patented technology, including an innovation that eased the delivery of the stent or balloon to the artery site. They also argued that the company's balloon products copied certain polymer specifications patented by Medtronic that made the balloons more durable. Boston Scientific's lawyers brought a cardiologist and several experts to the stand, among others, countering that none of the products infringed the patents at issue and that Medtronic's patents were invalid.
Medtronic's damages expert recommended that Boston Scientific pay as high as 14 percent royalties on sales of products that contained both kinds of Medtronic patents, with damages calculated back to 2001, when Medtronic was granted its patents. In the end, the jury awarded Medtronic $83 million for the lone Anderson patent and $167 million for the two Fitzmaurice patents.
Judge Ward remarked during the trial that it was the most evenly contested case he'd tried in his nearly ten years as judge in the Eastern District of Texas-and it's not over yet. Ward set a bench trial for July 31, allowing Boston Scientific to introduce procedural arguments beyond the scope of what the jury considered. Medtronic's attornies anticipated that Boston Scientific would argue that Medtronic filed suit after the statute of limitations had expired, and that Medtronic did not properly submit its patent information to the Patent and Trademark Office.
For Plaintiff Medtronic, Inc. (Minneapolis)
In-House: For Medtronic: Vice president and chief patent counsel Michael Jaro, vice president and senior legal counsel-IP litigation Andrew Horstman, and senior legal specialist-IP litigation Chad Hanson. For Medtronic CardioVascular: chief patent counsel David Ruschke and senior patent counsel Catherine Maresh.
McKool Smith: Sam Baxter, Kevin Burgess, Mark Mathie, Rosemary Snider, Theodore Stevenson III, counsel Thomas Fasone III, and associates Ada Brown, Josh Budwin, Bradley Caldwell, and Geoffrey Smith, Jr. (Baxter is in Marshall, Texas; Burgess, Budwin, and Smith are in Austin; Mathie, Snider, Stevenson, Fasone, Brown, and Caldwell are in Dallas.) Medtronic has tapped the firm in the past.
For Defendant Boston Scientific Corporation (Natick, MAssachusetts)
Howrey: Edward Han, John Nilsson, Matthew Wolf, and associates Benjamin Deming, Amy DeWitt, Heather Fan, Robert McAlhany, Jr., Georgianna Witt, and Wallace Wu. (Han, Nilsson, Wolf, and DeWitt are in Washington, D.C.; Deming, Fan, and Wu are in Los Angeles; McAlhany is in East Palo Alto, California; and Witt is in Houston.) Howrey has worked with the company for many years on numerous matters.
Capshaw & DeRieux: S. Calvin Capshaw III and Elizabeth DeRieux. (Both are in Longview, Texas.)
-Jonathan Thrope
Silvaco v. Cypress
A California appeals court on May 30 clarified a key state law regarding the statute of limitations in trade secret cases. The ruling, which came as a result of an interlocutory appeal by Cypress Semiconductor Corporation, could curb plaintiffs' ability to sue over stolen trade secrets, and protect companies that accidentally possess the information from being sued years after the breach is discovered.
A state appeals court in San Jose determined that the statue of limitations for a small software-design company, Silvaco International, Inc., to sue a third-party customer, Cypress, began when Silvaco first suspected that Cypress knowingly possessed software stolen from Silvaco. The three-judge appeals panel sent the case back to the trial court for a determination of when Cypress became aware of the trade secret theft. Because chips containing the stolen code are allegedly inside Apple Inc.'s iPhone and many other consumer items, several hundred million dollars are at stake in the Cypress case and four related suits.
The litigation stems from the 1998 theft of Santa Clara, California-based Silvaco's software code. That year, a Silvaco employee incorporated the stolen code into software sold by his new employer, Circuit Semantics, Inc. Silvaco discovered the theft in 2000 and sued the employee, a group of executives, and Circuit Semantics.
In August 2003 Circuit Semantics paid Silvaco an undisclosed sum and subsequently went out of business. Silvaco then notified dozens of companies that had purchased software from Circuit Semantics that their products contained stolen code. Silvaco demanded that they properly license the program or stop using it.
In 2003 and 2004, Silvaco sued a dozen companies that refused its initial demand. Seven companies settled. Five others, including Cypress, were scheduled to go to trial.
All of the cases hinge on the interpretation of the California Uniform Trade Secrets Act, which states that plaintiffs can sue up to three years after discovering that another party is knowingly using their trade secrets. A Santa Clara state judge ruled in September 2007 that Silvaco could proceed to trial against Cypress, finding that the statute of limitations dated from August 2003, when Silvaco officially notified Cypress that its products contained code stolen from Silvaco. Cypress appealed the trial judge's ruling, arguing that the court should count from 2000, when Silvaco discovered the theft.
The appeals court rejected both arguments, finding that the statute began when Silvaco first had reason to believe that Cypress knew its products contained stolen material. Cypress's lawyers say that occurred in 2000; Silvaco, late 2002.
When the trial resumes, the jury will determine whether the statute of limitations has expired. If it adopts Cypress's interpretation, the suits will be precluded.
But Silvaco's lawyers say the lower court is expected to stay the trial pending a decision in a related appeal involving Circuit Semantics's software customers Cirrus Logic, Inc., Agilent Technologies, Inc., and Intel Corporation. Those companies argue they are not liable for possessing trade secrets because the code they purchased was written in a format that can only be read by computer. Silvaco's litigation with Hewlett-Packard Company, in the same court, was stayed pending the outcome of the appeal.
For Plaintiff Silvaco International, Inc. (Santa Clara, California)
Dechert: Chris Scott Graham, Jill Kopeikin, and associate Sarah Wager. (All are in Palo Alto.) The firm became Silvaco's outside counsel when the Circuit Semantics suit was filed; it represents Silvaco in all trade secret litigation.
For Defendant Cypress Semiconductor Corporation (San Jose)
In-House: Assistant general counsel Victoria Tidwell and corporate counsel Daniel Waldman.
Morrison & Foerster: Arturo González, James Pooley, William Stern, and associates Brian Martinez and Claudia Vetesi. (Pooley is in Palo Alto; the rest are in San Francisco.) The firm, which replaced Perkins Coie, was retained because of its trial experience.
For Amicus Intel Corporation (Santa Clara, California)
Orrick, Herrington & Sutcliffe: Christopher Ottenweller, Robert Shwarts, and Michael Spillner. (Ottenweller and Spillner are in Menlo Park, California; Shwarts is in San Francisco.) Orrick is Intel's counsel in the dispute and wrote a brief in support of Cypress's statute of limitations argument.
-Claire Duffett
E-mail: BigSuits@alm.com.
