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As Part of Protective Order, District Court Orders Prosecution Bar and Covenant Not to Sue for New Patents Acquired by Patent Holder

In this patent infringement action, a dispute arose between Plaintiff Blackbird Tech LLC (“Blackbird”) and the defendants over the terms of proposed protective orders to govern the use of confidential information produced. Although the parties agreed that a protective order was appropriate, they disagreed on the level of access by Blackbird’s in-house counsel and the scope of a patent prosecution bar.

The district court explained that the protective order presented a unique circumstance given Blackbird’s business, which was described as “a new model for individual inventors and small companies to monetize their intellectual property.” “Blackbird achieves this goal by acquiring patents and litigating on behalf of itself, using experienced patent litigators that are directly employed by Blackbird instead of outside counsel, at a great cost savings.” Blackbird also described the acquisition of patents as being “essential” to its business. An important part of Blackbird’s business model is to maintain “a diverse portfolio of patents and not to be concentrated in one technological area.”

The defendants sought to exclude Blackbird’s in-house attorneys from being given access to information designated as “Highly Confidential” or “Highly Confidential–Subject to Prosecution Bar.” The defendants asserted that Blackbird’s in-house counsel “will likely be unable to compartmentalize information regarding Defendants’ proprietary technical and financial information when they are engaged in company management and strategy, analyzing patents for acquisition and assertion, prosecuting the scope of ongoing patent applications, or negotiating the terms of a settlement or license.” The defendants were concerned that disclosing its confidential information to Blackbird’s in-house attorneys would “allow Blackbird to tailor its patent assertion business model to target Defendants in future actions.”

In response, Blackbird argued that its in-house lawyers should be able to access the defendants’ highly confidential information because, without such information, Blackbird would be prevented from pursuing these cases within its low-cost litigation business model, which “will make continued litigation of these cases extremely difficult.” Blackbird also asserted that it “does not compete in the marketplace with the defendants and its portfolio is not focused on any particular technology area.” Finally, Blackbird argued that even if there is a risk of inadvertent disclosure, it is far outweighed by the harm it would incur from restrictions on its right to have litigation counsel of its choice.

The district court determined that “Blackbird’s argument that its principals are not competitive decisionmakers because it is not a direct competitor of any Defendants rings hollow. In bringing a patent infringement action, Blackbird is asserting that Defendants have encroached upon its exclusive right to exploit a specific technology in the marketplace. In other words, Blackbird is essentially declaring that Defendants are improperly competing with it in the marketplace, in contravention of Blackbird’s patent monopoly on that technology. Blackbird cannot have it both ways. For Blackbird to seek to hold Defendants liable for improperly competing in the marketplace and turn around and say it in no way competes with Defendants is too convenient, and other courts have similarly given little weight to such arguments. See, e.g., ST Sales Tech Holdings, LLC v. Daimler Chrysler Co., 2008 WL 5634214, at *6 (E.D. Tex. Mar. 14, 2008) (“[I]t is somewhat disingenuous to argue [Plaintiff] is not Defendants’ competitor simply because [Plaintiff] is in the business of acquiring and enforcing patents while Defendants manufacture and design automobiles. Plaintiff and Defendants all seek to utilize, in one manner of another, intellectual property as part of a business model for pecuniary gain.”).

As a result, the district court determined that there was “a concrete, particularized risk of inadvertent disclosure and misuse here. To give Blackbird’s competitive decisionmakers access to Defendants’ confidential technical and financial information would raise the specter of prosecuting or acquiring patents that read on Defendants’ products. See, e.g., ST Sales Tech., 2008 WL 5634214 at *5 (observing that counsel’s involvement in patent acquisition for various patent-holding entities put him in position to purchase or otherwise ‘seek out certain patents and then propose claim constructions that read on Defendants’ known use of the allegedly infringing systems.’). Although I presume the good faith of Blackbird’s counsel, once such confidential information is disclosed, the bell cannot be unrung.”

The district court then concluded “that a prosecution bar and covenant not to sue these Defendants on after-acquired patents in the lighting industry would adequately protect Defendants’ interests while allowing Blackbird to prosecute these actions with its in-house lawyers. First, while the record suggests that Blackbird’s attorneys are unlikely to be involved in prosecuting patents, it remains a possibility that should be foreclosed in order to protect Defendants’ interests. Given the affidavits from relevant Blackbird counsel saying that they do not currently and do not intend to engage in prosecution activity, and that acquisition is the heart of Blackbird’s business, this provision will create little burden on Blackbird. I will also reject Blackbird’s effort to limit the scope of the prosecution bar to information relating to products not on sale as of the date of the entry of this Protective Order.”

The district court also determined that a covenant not to sue on future acquired patents would be appropriate. “Second, the Court will require that Blackbird agree to a covenant not to sue any of these Defendants for infringement of patents involving lighting technology that are acquired during the time between the entry of the protective order and one year after the conclusion of the litigation. To be clear, if Blackbird acquires a patent on any lighting technology6 during the restricted time period, it may never assert that specific patent against these Defendants.7 Given Blackbird’s acquisition-based business model, the possibility that Blackbird could acquire patents that read on Defendants’ products is the most immediate, tangible concern raised by Defendants. With these restrictions in place, Blackbird’s counsel of record in these cases should be able to receive Defendants’ confidential information and participate in litigating these cases, resolving the dispute on page 10 of the redlined protective order.”

Thus, the district court imposed a prosecution bar and a covenant not to sue on the patent holder’s in-house counsel.

Blackbird Tech LCC d/b/a Blackbird Technologies v. Service Lighting and Electrical Supplies, Inc., Case No. 15-53-RGA (D. Del. May 2016)

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