Tesco Corporation v. Weatherford International, Inc. et al
Filing
1034
MEMORANDUM AND ORDER. The case is dismissed with prejudice pursuant to the Court's inherent authority. All pending motions are terminated as moot. (Signed by Judge Keith P Ellison) Parties notified.(rsmith, 4)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
TESCO CORPORATION,
Plaintiff,
v.
WEATHERFORD INTERNATIONAL,
INC., NATIONAL OILWELL VARCO,
L.P., OFFSHORE ENERGY SERVICES,
INC., and FRANK’S CASING CREW &
RENTAL TOOLS, INC.,
Defendants.
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CIVIL ACTION NO. H-08-2531
MEMORANDUM AND ORDER
Pending before the Court are Plaintiff Tesco Corp.’s (“Tesco”) Motion for Summary
Judgment (Doc. No. 890), Defendant National Oilwell Varco, L.P.’s (“NOV”) Fifth Motion to
Compel (Doc. No. 973), NOV’s Motion for Finding of Exceptional Case under 35 U.S.C. § 285
(Doc. No. 987), Defendant Frank’s International, LLC (“Frank’s”) Motion for Judgment of
Exceptional Case upon Inequitable Conduct under 35 U.S.C. § 285 (Doc. No. 993), NOV’s
Motion to Unseal a Pre-Trial Conference Transcript (Doc. No. 1005), Frank’s Motion for
Judgment of Patent Invalidity under the On-Sale Provision of 35 U.S.C. § 102(b) (Doc. No.
1009), Frank’s Motion for Judgment of Patent Invalidity under 35 U.S.C. § 102(b) (Anticipation)
(Doc. No. 1010), and Tesco’s Motion to Strike Frank’s Motion for Judgment of Patent Invalidity
under the On-Sale Provision of 35 U.S.C. § 102(b) and Frank’s Motion for Judgment of Patent
Invalidity under 35 U.S.C. § 102(b) (Anticipation) (Doc. No. 1017).
The post-trial discovery conducted in this case surrounding allegations of inequitable
conduct and litigation misconduct on the part of Tesco has revealed that Tesco’s counsel
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affirmatively misrepresented to the Court during trial the statements of key witnesses regarding
important evidence disclosed only during trial. Accordingly, in an effort to safeguard the
integrity of the Court and these proceedings, the Court utilizes its inherent authority to DISMISS
the case WITH PREJUDICE. As a result, the Court TERMINATES AS MOOT all of the
pending motions.
I.
BACKGROUND
This case was filed in 2008, and has been the subject of previous rulings of the Court.
(See Doc. Nos. 386, 805, 821). The background set forth in earlier writings will not be repeated,
except as necessary to provide context for the facts and law discussed herein.
Tesco owns U.S. Patent No. 7,140,443 (“the ‘443 patent”) and U.S. Patent No. 7,377,324
(“the ‘324 patent”). The ‘324 patent, granted in May 2008, is a continuation of the ‘443 patent,
granted in November 2006. The two patents describe a tool used on a drilling rig. Drilling rigs
are used to bore and encase holes in the ground for the purpose of extracting oil. The patents
describe an apparatus and method for handling the sections of the pipe or pipe strings that are
used for drilling or lining a well bore. Stated summarily, the patent covers a “Case Drilling
System with a link tilt” referred to by all parties as “CDS with link tilt.” More detailed
descriptions of the device and its function can be found in the Court’s earlier opinions.
Tesco brought suit against Weatherford International, Inc., NOV, OES, and Frank’s for
infringement of those patents. After re-examination of the patents with the United States Patent
and Trademark Office (“PTO”), lengthy discovery and many pre-trial motions, the Court and the
parties spent three weeks in jury trial. The jury found that claims 27 and 55 of the ‘443 patent,
and claim 14 of the ‘324 patent were valid. The jury found that claims 13, 25 and 59 of the ‘443
patent, and claims 1 and 12 of the ‘324 patent were not valid.
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Tesco sought to have the Court enter judgment on the verdict. Defendants sought
judgment as a matter of law in their favor. The Court did neither. Rather, because of internal
inconsistencies in the jury verdict, and because of concern – re-enforced during the trial in no
small part because of the events discussed herein – that Tesco had not produced all of the
discovery that Defendants had properly requested, the Court authorized limited additional
discovery.
After engaging in limited post-trial discovery, the parties filed numerous post-trial
motions. Following several extensive hearings, the Court denied Defendants’ motions for
summary judgment under the on-sale bar provision, 35 U.S.C. § 102(b), (Doc. No. 805), and
granted their motions for summary judgment under the obviousness provision, 35 U.S.C. §
103(a), (Doc. No. 821). The Court also denied Tesco’s motion for entry of judgment on the
verdict, and NOV and OES’s motion for summary judgment based on anticipation under 35
U.S.C. § 102(b). (Doc. No. 808). Tesco appealed this Court’s decision granting summary
judgment as to obviousness, and Frank’s counter-appealed. The Federal Circuit dismissed
Tesco’s appeal as premature. See Order (Doc. No. 49), Tesco Corp. v. National Oilwell Varco,
LP, No. 13-1155 (Fed. Cir. Oct. 3, 2013) (unpublished). The Court then allowed the parties again
to conduct limited discovery, this time on the question of whether Tesco’s conduct warranted a
finding of exceptional case under 35 U.S.C. § 285. They then engaged in extensive briefing of
that issue, producing the pending motions, and the Court conducted equally extensive hearings
on them. The decision that follows arises from the Court’s consideration of all the evidence
presented therein.
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II.
LEGAL STANDARD
This Court possesses certain implied powers to “‘manage [its] own affairs so as to
achieve the orderly and expeditious disposition of cases.’” Chambers v. NASCO, Inc., 501 U.S.
32, 43 (1991) (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)). One of these
implied powers is the “ability to fashion an appropriate sanction”—such as involuntary dismissal
of a lawsuit or the imposition of attorney’s fees—“for conduct which abuses the judicial
process.” Id. at 44-45. Pursuant to such inherent authority, the Court, in its discretion, may
dismiss an action, though such a dismissal is “a particularly severe sanction.” Id. at 45 (citing
Roadway Exp., Inc. v. Piper, 447 U.S. 752, 765 (1980)). In addition, the Court “may assess
attorney’s fees when a party has ‘acted in bad faith, vexatiously, wantonly, or for oppressive
reasons.’” Id. at 45-46 (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240,
258-59 (1975)). However, the Supreme Court has warned that “[b]ecause of their very potency,
inherent powers must be exercised with restraint and discretion.” Id. (citing Roadway Express,
447 U.S., at 764).
In light of Chambers, the Federal Circuit has determined that “when statutes or rules
provide an adequate sanction for bad faith, a trial court should ordinarily rely on those express
authorities for sanctions.” Amsted Indus. Inc. v. Buckeye Steel Castings Co., 23 F.3d 374, 379
(Fed. Cir. 1994) (citing Chambers, 501 U.S. at 50). “But,” the Supreme Court explained, and the
Federal Circuit affirmed, “if in the informed discretion of the court, neither the statute nor the
rules are up to the task, the court may safely rely on its inherent power.” Chambers, 501 U.S. at
50; see id. In Amsted, the Federal Circuit clarified when a court may invoke its inherent powers
to sanction in place of the sanctions offered by 35 U.S.C. § 285. It found that the district court
had abused its discretion in awarding the full amount of expert witness fees because, though the
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conduct of the party facing sanctions “justif[ied] an award of attorney fees and enhanced
damages under section 285, [it] did not amount to a fraud on the court or an abuse of the judicial
process.” Amsted, 23 F.3d at 379. The Federal Circuit admonished that a district court “should
resort to its inherent power only where the rules or statutes do not reach the ‘acts which degrade
the judicial system.’” Id. (quoting Chambers, 501 U.S. at 41-42).
III.
RELEVANT STATEMENTS
A. Tesco’s Representations to the Court
On October 28, 2010, Day Four of the trial in this case, Tesco called to the stand Kevin
Nikiforuk, co-inventor of the CDS with link tilt. Much to the surprise of all present, Mr.
Nikiforuk testified that a marketing brochure developed by Tesco in August 2002 (“the August
2002 brochure”), well before the November 8, 2002 on-sale bar critical date, displayed his
invention. Trial Tr. at 777:22-779:3. This testimony could easily have been the fulcrum in the
trial, leading to a prompt dismissal of all of Tesco’s claims.
Whether the brochure in question had been produced to the Defendants in discovery is
hotly contested. Tesco claims that it produced a black-and-white copy in 2009, while Defendants
argue that Tesco never produced the color version of the brochure. If the August 2002 brochure
indeed showed the CDS with link tilt invention prior to the on-sale bar’s critical date, then the
patent would be invalid. See 35 U.S.C. § 102(a)(1). Accordingly, the importance of Mr.
Nikiforuk’s declaration is impossible to overstate.
The next day, Friday, October 29, 2010, Tesco asked the Court for time, through the
weekend, to “find out what this rendering is, where it came from . . . .” Trial Tr. at 871:24-872:5.
When trial resumed the following Monday, November 1, 2010, Glen A. Ballard, Jr., Tesco’s
counsel, reported to the Court that:
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As I told the Court, I would get to the bottom of this August brochure issue . . .
over the weekend. We did so. We found the animator who actually did the
rendering in question. The animator is Don Carr [sic]. He says unequivocally that
this is not the invention in the brochure. . . . He says – he says the date is in
August of 2002 but the rendering is not of the invention; that, in fact, the
rendering is of link arms just above the grabber box on the top drive.
Trial. Tr. at 895-897. Mr. Ballard went on:
I think the issue has been put to bed. It’s not the image. I can call Don Carr [sic]
to tell you that. We also talked to a guy last night, Jim Orcherton, who was also an
individual who worked on the rendering. . . . He also confirms that it’s not the
tool. And so we could call both of them. . . . These guys can come in – I think Mr.
Orcherton may be able to be here as early as Wednesday but surely Thursday, and
Mr. Carr can be here by Friday. I think this trial will still be going by then,
unfortunately; and so as a consequence, I think we can get them on if this is still
an issue.
Trial Tr. at 898-900. Importantly, Mr. Ballard claimed:
The animators that actually did the brochure and that actually did the rendering
are prepared to swear and testify that this is not Mr. Nikiforuk’s invention; and in
fact, there is no doubt it’s not Mr. Nikiforuk’s invention.
Trial Tr. at 907. Mr. Ballard later reaffirmed this representation in even stronger terms:
[T]hat is what he’s [Don Karr] going to say; and he’s going to say unequivocally
that this is not it. And so is Mr. Orcherton who also worked on the rendering. Two
individuals, same rendering, both will say that.
Trial Tr. at 923.
B. Don Karr’s Deposition Testimony
In a post-trial deposition, Don Karr testified as follows:
Q: One question: Have you ever – have you ever told anybody associated with
Tesco or Tesco themselves that you were the creator of the brochure graphics or
animation?
A: Which one are we talking about?
Q. The one for the [August 2002] brochure.
A. No, because I was not involved in the brochure.
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Karr Depo. at 12:22-13:4.
Q: If someone claimed in court claimed that you were the one who created the
image, that would not be truthful -A. That’s -Q. -- correct?
A. -- right.
Q. Is that correct?
A. Correct.
Karr Depo. at 12:12-19.
Q. All right. Did you inform Tesco at that time you were not the one who created
the image? Did you tell them one way or another whether you -A. No, I did -- I -- my only input to this brochure was the photographs. Someone
in Houston created this -- this image.
Q. Did you tell Tesco that in November of 2010?
A. Yes.
Q. Who did you tell that to?
A. It would have been John.
Q. Luman?
A. Yes.
Karr Depo at 20:16-21:3.
Q. Would it surprise you that they told the Court that they’ve gotten to the bottom
of it, and that you and Mr. Orcherton did the brochure, and they never mentioned
PriMarc?
A. There is no way I did that brochure.
Q. So that would be a false statement; correct?
A. Totally.
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Karr Depo. at 36:3-7.
Q: I’m reading from the transcript of proceedings in court November 1st, 2010.
Mr. Ballard, quote: “As I’ve told the Court, I would get to the bottom of this
August brochure, 4008, over the weekend. We did so. We found the animator
who actually did the rendering in question. The animator is Don Karr.” Unquote.
That’s not a truthful statement is it, sir?
A. I don’t have the ability – it’s – no, it’s not true in any way, shape, or form.
Karr Depo 42:13-43:2.
Q: Did you have a discussion with Mr. Luman about who prepared this graphic,
the one in the centerfold?
A: He had asked me if I had, and I said no. I had nothing to do with it.
Karr Depo. at 55:4-8.
Q . . . You said a minute ago that when the first image was sent to you, you
thought it might be a scan and it wasn’t clear to you, correct?
A. That’s correct.
Q: So you did not say one way or another at that time whether the CDS with link
tilt was in the image. You just said you couldn’t tell – correct?
A: I –
Q. – correct?
A: That’s right.
Karr Depo. at 18:8-13.
IV.
ANALYSIS
Defendants uniformly argue that these statements show that Tesco affirmatively and
knowingly misrepresented that Mr. Karr was the “animator” who “actually did” the rendering in
the August 2002 brochure and that Mr. Karr had stated “unequivocally” that the rendering in the
August 2002 brochure did not depict the CDS with link tilt.
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Despite this deposition testimony, Tesco claims that it accurately reported to the Court
what Mr. Karr had told it. In support, Tesco claims that Mr. Karr at first stated that the invention
depicted in the August 2002 brochure was not the CDS with link tilt, which is consistent, it
argues, with its representations to the Court:
Q. I’m going to read to you something that was said in this Tesco interrogatory
answer. And again, this relates to the first version that was sent to you. Quote:
“Specifically Mr. Karr said initially that the subject rendering in Exhibit 4008, the
subject rendering, depicted link arms on the grabber box, which is part of the top
drive.” End quote. Did you tell Mr. Luman that?
A. That’s what it looked like to me. Yes.
Karr Depo. at 106:12-23. However, what Tesco does not report is that Mr. Karr continued as
follows:
Q. So even though it was unclear and even though you just said you couldn’t tell
where it was connected to the grabber box?
A. Well, I know what a top drive looks like, and because it wasn’t totally clear, I
made the assumption that that’s what it was.
Q. And did you tell Mr. Luman that that was an assumption because it wasn’t
clear?
A. I said I didn’t -- he wanted a definitive answer, and I said I could not give him
one because I could not see it.
Karr Depo. at 106:24-107:10 (emphasis added). And, just before the testimony quoted by Tesco,
Mr. Karr stated:
Q. . . . Were you asked by Mr. Luman with respect to that first illustration that
you received, the first copy of the brochure, whether or not the link tilt was
attached to the pipe engaging apparatus or to the top drive?
A. I was asked, yep, if I saw it there or if it was there: and my comment was is the
image was so poor and it was disguised behind the mast that I – I actually
couldn’t tell.
Q. You couldn’t tell where the link arm was attached at all?
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A. No.
Karr. Depo. at 105:25-106:11. The Court strains to understand how such equivocal answers to
John Luman, another of Tesco’s counsel, could be represented to the Court as an “unequivocal”
statement that the image did not depict the CDS with link tilt. Tesco also attempts to minimize its
misrepresentations by arguing that Mr. Karr told it that “probably 95 percent of the photographs
in that brochure [were mine].” Karr Depo. at 32:5-11. Tesco claims that this “clearly support[s]
why Tesco told the Court [that Mr. Karr was] involved in the brochure during trial.” Tesco MSJ
at 41. But, Tesco did not simply report to the Court that Mr. Karr was “involved” – it assured the
Court that it had contacted “the animator who actually did the rendering in question. The
animator is Don Carr [sic].” Trial. Tr. at 895-897. Finally, Tesco argues that any
misrepresentations it might have made to the Court did not make a difference because it never
made them in front of the jury and Defendants rejected the mistrial offered by the Court.
The Court is not persuaded by Tesco’s arguments. Defendants have produced testimonial
evidence clearly and directly contrary to the representations Tesco made to the Court during trial.
That Tesco may have backpedaled from these statements over time, after trial had finished, does
not relieve it of its responsibility for its misrepresentations to the Court at what all present
recognized was an absolutely critical point in the trial. Although Tesco testified in nearly directly
opposite terms, Mr. Karr could not, in fact, “unequivocally” state that the CDS with link tilt was
not in the rendering. Nor did he ever tell counsel that he was the “animator” who “actually did”
the rendering. The testimony reveals that this is not a simple case of innocent
mischaracterization. Mr. Karr said one thing, and counsel told the Court that he said something
else. Such willfulness compels a finding of bad faith. If the actual statements made by Mr. Karr
and Mr. Orcherton at this critical inflection point had been reported to the Court, the Defendants’
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trial strategy would have been entirely different. More significantly, the Court would, in all
probability, have entered judgment for the Defendants forthwith.
Further, the Court is deeply concerned about Tesco’s attitude towards its
misrepresentations to the Court. Counsel owes the Court a duty of complete candor at all times,
regardless of whether the jury is in the courtroom, or opposing counsel rejects other sanctions.
Moreover, any sanctions opposing counsel rejected have nothing to do with Tesco’s
misrepresentations to the Court. As the trial transcript makes abundantly clear, the Court offered
a mistrial as a way to cure any prejudice to Defendants from the new evidence. Post-trial
disclosures show that the Defendants were denied access to critical information they needed in
deciding whether to accept a mistrial.
Beyond the effect on Defendants, the Court has an independent obligation to safeguard its
own integrity and those of the proceedings before it. It is impossible to know exactly what the
result would have been had Tesco been forthright with the Court. Nevertheless, it cannot be
understated how critical this brochure has been in this case. The Court well recognized at the
time of Mr. Nikiforuk’s testimony that the brochure might very well be case dispositive. Trial Tr.
871:11-23. So did the parties. Tesco’s advantage-seeking misrepresentations sought nothing
other than to minimize the importance of Mr. Nikiforuk’s testimony and the significance of the
rendering in the August 2002 brochure at a critical point at which the Court and the parties were
trying to find the best way forward following the disclosure of such important evidence and Mr.
Nikiforuk’s surprising testimony. Such misrepresentations irrevocably poisoned these
proceedings, and could not have been calculated to assist the Court in the administration of
justice, but only to win an advantage. Accordingly, the Court reluctantly concludes that Tesco’s
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representations amount to an abuse of the judicial system; they are most certainly “‘acts which
degrade the judicial system.’” Amsted, 23 F.3d at 379 (quoting Chambers, 501 U.S. at 41-42).
Lesser sanctions will not suffice here. While the Court still may award attorney’s fees as
a sanction in addition to this dismissal, an award of attorney’s fees alone is insufficient to deter
such conduct. As the First Circuit has explained in a case which similarly dealt with a matter at
the heart of judicial integrity,
the sanction was obviously severe and lesser sanctions were available. . . . His
deceits were substantial, deliberate, and went to the heart of the case. And since
not everyone will be caught, the penalty needs to be severe enough to deter.
Hull v. Municipality of San Juan, 356 F.3d 98, 102 (1st Cir. 2004). Just as with witnesses
testifying truthfully under oath, the proper administration of justice depends upon counsel being
completely forthright with the Court. As the court recognized in Hull, not every lawyer who lies
to a court will be caught, so when such deliberate and advantage-seeking untruthful conduct is
uncovered, the penalty must be severe enough to act as a deterrent. Awarding attorney’s fees –
even if they were to be paid by Tesco’s counsel alone – is insufficient. Such serious
misrepresentations cannot be excused as simply the cost of doing business. Attorney’s fees also
may be appropriate, but such an affront to this Court, to the other parties, and to judicial integrity
can only be answered with dismissal.
V.
CONCLUSION
The Court reaches its decision with great reluctance. The Court is entirely confident that
the conduct that it finds so troubling is entirely out of character for the attorneys. However, the
conduct is serious and has had significant and costly ramifications to the Court and Defendants.
For the reasons stated above, the case is DISMISSED WITH PREJUDICE pursuant to
the Court’s inherent authority. All pending motions are TERMINATED AS MOOT. The Court
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will entertain motions for attorney’s fees based on this ruling. Those parties seeking attorney’s
fees should file their motions within sixty days of this Order. In keeping with the Southern
District of Texas’s Local Rules, any Responses will be due twenty-one days following that date
and any Replies will be due ten days later.
IT IS SO ORDERED.
SIGNED at Houston, Texas, on this the twenty-fifth day of August, 2014.
KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE
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