The opinion of the court was delivered by: HARRY LEINENWEBER, District Judge
MEMORANDUM OPINION AND ORDER
Before the Court is the motion of Glenayre Electronics, Inc.
(hereinafter, "Glenayre") for sanctions pursuant to Rule 11 of
the Federal Rules of Civil Procedure ("Rule 11") against Philip
Jackson and PMJ Family Partnership (hereinafter "Jackson"), and
all counsel who have appeared on behalf of Jackson (the
"Motion"). For the following reasons, the Motion is denied.
Glenayre filed the instant action seeking a declaratory
judgement that its products do not infringe any claim of U.S. Patent No. 4,596,900 (the "`900 Patent") held by Jackson. Jackson
filed a counterclaim against Glenayre for contributory
infringement or inducement to infringe the `900 Patent, and
against some of Jackson's named and unnamed customers for direct
infringement of Jackson's `900 Patent. In September 2002, the
Court stayed and enjoined Jackson's counterclaim against Glenayre
for contributory infringement or inducement and against its
customers for direct infringement pending resolution and final
judgment in Glenayre's declaratory judgment suit. Subsequently,
Jackson amended its counterclaim to include a claim for direct
infringement against Glenayre. The jury returned a $12 million
verdict for Jackson on the direct infringement claim. The Court
entered a remittitur reducing the award and entered a final
judgment in the amount of $2,929,674.41. Neither party contests
that Glenayre has satisfied the judgment in full.
After voluntarily dismissing its infringement claims against
Glenayre's customers, Jackson filed a Motion to Set Trial on the
remaining issues of Glenayre's contributory infringement and
inducement claims, as well as any resulting damages from such
infringement (the "Set Trial Motion").
In response to Jackson's Set Trial Motion, Glenayre filed the
present Motion arguing that Jackson violated Rule 11 by
continuing to prosecute its counterclaims relating to further
liability for Glenayre's infringement, despite the fact that Jackson
purportedly had already been fully compensated in the earlier
Glenayre alleges that Jackson has violated Rule 11(b)(1), (3),
and (4) of the Federal Rules of Civil Procedure. FED. R. CIV. P.
11. Rule 11 seeks to ensure that documents submitted by counsel
to the Court "are well grounded in fact and in law or present a
good faith argument for the extension, modification, or reversal
of existing law." Pacific Dunlop Holdings, Inc. v. Barosh,
22 F.3d 113, 118 (7th Cir. 1994). Under Rule 11, motions must not be
made for any improper purpose and allegations and factual
contentions must have evidentiary support. See FED. R. CIV. PRO.
11(b)(1)(3)(4). The court evaluates whether "a party's conduct
was imposed for an improper purpose by an objective standard."
Pacific Dunlop Holdings, Inc., 22 F.3d at 118. The Seventh
Circuit further instructs that Rule 11 "sanctions are to be
imposed sparingly, as they can `have significant impact beyond
the merits of the individual case' and can affect the reputation
and creativity of counsel." Hartmarx Corp. v. Abboud,
326 F.3d 862, 867 (7th Cir. 2003) (quoting Pacific Dunlop Holdings, Inc.
22 F.3d at 118)).
Glenayre contends that "Glenayre's payment of the judgment
against it has the effect of extinguishing Jackson's patent
rights, and precluding any liability for inducement to infringe
or contributory infringement." (Motion for Sanctions, at ¶ 8).
Further, Glenayre argues that its payment of the six percent
royalty rate "assessed in the Remittitur Order grants it the
unrestricted right to sell to customers, permit customers to use
the products, and exhausts Jackson's patent rights. Glenayre's
customers do not directly infringe, since Glenayre has paid the
maximum royalty as reflected in the Remittitur Order." Finally,
Glenayre contends that at the time Jackson filed the Set Trial
Motion, it was not reasonable for Jackson's counsel to assert
that Glenayre had remaining liability relating to the `900
Jackson contends that due to the bifurcated trial, only the
issues of liability and damages for Glenayre's direct
infringement have been resolved. The jury instructions and
verdict, Jackson contends, clearly indicate that the damages
awarded were not intended to compensate Jackson for Glenayre's
contributory infringement/inducement as such issues were not
presented to the jury. Further, Jackson contends that "no trier
of fact has ever been presented the opportunity to analyze the
full profits realized by users of Jackson's Patent in the
Glenayre supply chain." (Orum and Roth's Response, at ¶ 2).
Jackson further argues that it was attempting to comply with the
Court's earlier rulings in setting the issues for trial that the
Court specifically contemplated and stayed pending resolution of
the direct infringement matter. Jackson also notes that Glenayre
at no point submitted an order to withdraw the remaining claims and there was no order dismissing
the claims when Jackson filed the Set Trial Motion. In the Set
Trial Motion, Jackson advocates for a one-day trial with limited
discovery at the earliest possible date.
As noted above, Rule 11 sanctions are to be used very sparingly
because of the potential chilling effect such sanctions can have
on the extension of good faith arguments and the potential for
reputational harm. Here, Court's previous orders carried some
ambiguity as to the continuing viability of Jackson's
counterclaims. For instance, the Court expressly stayed and
enjoined any discovery and other proceedings relating to
Glenayre's contributory infringement or inducement of the `900
Patent. See 9/27/02 Minute Order; 10/9/02 Motion to Clarify.
Further, even in the amended judgment, the Court by its own
language contemplates the possibility of additional claims. That
said, the Court has also made clear in oral comments and by
previous rulings from the bench that no counterclaims survive.
Accordingly, there is sufficient good faith basis for Jackson's
Set Trial Motion. Or, put another way, even if ill-advised, the
Set Trial Motion is not so devoid of merit or aimed at improper
purpose as to warrant the imposition of Rule 11 sanctions.
Because it was not objectively unreasonable for Jackson ...