SanDisk Issues Statement On Lexar's October 23 Press Release
SUNNYVALE, Calif., Oct 24, 2000 (BUSINESS WIRE) -- SanDisk Corporation
(Nasdaq:SNDK) today issued the following statement in response Lexar
Media's
Oct. 23 press release.
SanDisk believes Lexar is engaging in misrepresentation of the rulings
made by
Judge Breyer of the U.S. District Court of Northern California on
several
motions in the patent infringement lawsuit filed by SanDisk against
Lexar. For
example in the order, the judge made the following findings:
"The CFA (CompactFlash Association) did not have any written
regulations that
could be interpreted as requiring SanDisk to disclose its pending
patent
application. Accordingly, to the extent Lexar's claim is based on the
CFA's
written regulations, its claim fails as a matter of law."
"No reasonable trier of fact could find that SanDisk violated the
written
regulations of the PCMCIA (Personal Computer Memory Card International
Association)."
To properly set the record straight, SanDisk is hereby reproducing in
its
entirety the Memorandum and Order issued Oct. 17, 2000 by Judge Breyer.
The entire court document follows:
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
SANDISK CORPORATION, No. C 98-01115 CRB
Plaintiff, MEMORANDUM AND ORDER
v.
LEXAR MEDIA, INC.,
Defendant.
________________________________
AND RELATED COUNTERCLAIMS
________________________________
Now before the Court is SanDisk's motion to dismiss and for
summary judgment on Lexar's counterclaims relating to the Personal
Computer Memory Card International Association and Compact Flash
Association. After carefully considering the papers filed by the
parties, and having had the benefit of oral argument on October 6,
2000, SanDisk's motion is GRANTED in part and DENIED in part.
BACKGROUND
In 1989, SanDisk filed patent application `566. SanDisk
subsequently filed a continuation patent application based on the 1989
application. That application resulted in the issuance of the `987 in
February 1997. The application was not publicly disclosed until the
patent issued.
During the period that the `987 application was pending, SanDisk
was a member of the Personal Computer Memory Card International
Association ("PCMCIA"), which was organized, in part, to establish
standards for the use of flash memory. During the period that the
standards were being adopted SanDisk never disclosed its pending
patent application to its fellow PCMCIA members. Lexar alleges that
the written and unwritten rules of the PCMCIA required SanDisk to
disclose its pending patent applications to the PCMCIA members.
After the PCMCIA standards were adopted, SanDisk, together with
others, founded the Compact Flash Association ("CFA"), composed of
companies, including Lexar, with an interest in establishing standards
for digital film. Lexar alleges that the CFA members agreed orally
that its members were required to disclose pending patents that were
necessary for a commercially-practicable implementation of a CFA
standard or a proposed standard and that SanDisk breached that
obligation by not disclosing the pending `987.
Lexar's answer includes counterclaims that arise from its
contention that SanDisk improperly manipulated the adoption of
industry-wide standards for flash memory products to ensure that no
competitor could produce a commercially viable, standard-meeting flash
memory product without infringing the `987. Lexar originally alleged
that SanDisk committed fraud, unfair competition, patent misuse, and
rendered the patent unenforceable by failing to disclose the pending
`987 while the PCMCIA and CFA members were adopting standards which
could not be met without infringing the `987. Now that Lexar has
publicly announced that is has designed a flash memory product that
does not infringe the `987 it has modified its theory of liability; it
now contends that the rules of the PCMCIA and CFA required its members
to disclose patents, such as the `987, which would be useful to
complying with the industry standards.
SanDisk has moved for summary judgment on the fraud, unfair
competition, and unenforceability claims that arise from this theory
on the ground that the evidence presented is insufficient to support a
finding that SanDisk had a duty to disclose the pending `987
application and/or that Lexar reasonably relied on SanDisk's
nondisclosure.
DISCUSSION
A. The Fraud Claims
Lexar contends that SanDisk committed fraud by (1) affirmatively
representing to the CFA and PCMCIA members that it did not have any
intellectual property that covered the standards, and/or (2) failing
to disclose its intellectual property (that is, the pending `987) to
the members. SanDisk moves for summary judgment on the ground that
Lexar cannot prove that SanDisk made a misrepresentation or a legally
actionable omission, and/or cannot prove reasonable reliance.
1. Whether There Is Sufficient Evidence Of A
Misrepresentation Or Actionable Omission
a. The affirmative misrepresentations
Lexar alleges that SanDisk "on multiple occasions affirmatively
assured the CFA and its members that SanDisk did not possess
intellectual property related to the standards that SanDisk was urging
those organizations to adopt. See Section II, supra." Lexar Opposition
("Opp.") at 16. Section II of Lexar's opposition identifies two
alleged misrepresentations: "5/1/00 Frank Dep. at 170" and "5/1(00
Frank Dep. at 185." Lexar Opp. at 4. Neither of these deposition
citations comes close to supporting Lexar's allegations of affirmative
misrepresentations. Accordingly, no reasonable trier of fact could
find that SanDisk made the affirmative misrepresentations alleged by
Lexar.
b. The failure to disclose
Lexar's next theory is that SanDisk had an obligation to disclose
the pending `987 application, but failed to do so. As it is undisputed
that SanDisk did not disclose the `987 until it was issued, the
viability of this theory turns on whether SanDisk had a duty to
disclose the pending patent application to the CFA and PCMCIA members.
Lexar contends that the duty arose from (1) the written regulations of
the CFA and PCMCIA; (2) unwritten agreements; and (3) law.
i. written regulations
The CFA did not have any written regulations that could be
interpreted as requiring SanDisk to disclose its pending patent
application. Accordingly, to the extent Lexar's claim is based on the
CFA's written regulations, its claim fails as a matter of law.
The PCMCIA bylaws provide that "members of the Association are
expected to disclose all known proprietary technology in a
specification or in a proposal for a specification as soon as it comes
to their attention," and members "who know of intellectual property
contained within the PC Card Standard or within a proposed addition or
modification to the PC Card Standard" are expected to disclose the
information. PCMCIA at 39-40. SanDisk contends that it did not violate
this duty because the `987 is not "contained within" the PC Card
Standard; that is, that the `987 can be worked around and one can make
a standard-meeting flash memory product without infringing the `987.
Lexar has not specifically identified how the `987 is "contained
within the PC Card Standard." Nor has Lexar identified any
specification or proposal for a specification which contains the
claims of the `987. Accordingly, no reasonable trier of fact could
find that SanDisk violated the written regulations of the PCMCIA.
ii. unwritten agreements
Lexar next contends that SanDisk's duty to disclose the pending
`987 arose from unwritten agreements among the members of the CFA and
PCMCIA. In support of this contention Lexar offers the declaration of
John Reimer, Lexar's President and Chief Executive Officer. Reimer
attests that PCMCIA members were required to disclose "any patents
that were pending or issued that would be useful for the standard,"
and that CFA members had an agreement to disclose intellectual
property necessary to making a commercially-practicable product. As
support for Reimer's testimony, Lexar points to evidence of the
negative reaction of the CFA and PCMCIA members when SanDisk announced
the issuance of the `987.
SanDisk makes numerous objections to Reimer's testimony. The
objections, however, go to the weight to be given to his testimony.
The Court recognizes that the evidence also demonstrates that the CFA
ultimately concluded that SanDisk had not violated any CFA rule by not
disclosing the pending `987. This fact, too, is evidence the trier of
fact should consider in evaluating Reimer's testimony, but it does not
entitle SanDisk to judgment as a matter of law. Accordingly, in light
of Reimer's declaration, there is a genuine dispute as to whether
SanDisk had a duty to disclose the pending `987 application.
iv. reasonable reliance
SanDisk argues that Lexar cannot demonstrate reasonable reliance
because SanDisk was not required to disclose the pending `987
application. As is set forth above, however, there is a genuine
dispute as to whether SanDisk was in fact required to disclose the
application.
In its reply memorandum SanDisk also argues that Lexar could not
have reasonably relied on SanDisk's nondisclosure as a matter of law
because Lexar did not manufacture its product until after SanDisk
disclosed the `987. The Court will not address this argument since it
was raised for the first time in the reply. See Smith V. Marsh, 194
F.3d 1045, 1052 (9th Cir. 1999).
B. The Unfair Competition Claim
Since the court has concluded that it must deny SanDisk's motion
for summary judgment on Lexar's fraud claims, it must also deny
SanDisk's motion with respect to the unfair competition claim. See
Cal. Bus & Prof. Codess.17200 (proscribing any conduct that is
"unlawful," unfair," or "fraudulent").
C. The Uneforceability Claim
As Lexar's unenforceability claim arises from the same facts as
its fraud claim, the Court declines to grant summary judgment on the
claim at this time. After the trial the Court will determine if the
facts as established at trial support an order declaring the `987
unenforceable.
D. The Patent Misuse Claim
Lexar's answer includes a counterclaim of "patent misuse." SanDisk
moves to dismiss, or in the alternative, for summary judgment on the
patent misuse claim. As Lexar notes, however, it is too late in the
litigation for the Court to entertain a motion to dismiss.
Accordingly, the Court will treat SanDisk's motion as a motion for
judgment on the pleadings. See Fed.R.Civ.P. 12(c).
Lexar's first theory of patent misuse is that SanDisk initiated
this patent infringement lawsuit in order to gain an unfair
competitive advantage. To prevail on a claim of patent misuse under
such a theory a defendant must prove, among other things, that the
patent holder knew that the patent was invalid or unenforceable at the
time it filed its lawsuit for patent infringement. See Raines v.
Switch Mfg., 1997 WL 578547 *3 (N.D. Cal. July 28, 1997). The reason
for the first requirement -- knowledge that the patent is invalid --
is that "nder 35 U.S.C.ss.27 1(d), a patent owner cannot be denied
relief or found guilty of misuse simply by reason of seeking to
enforce his or her patent." Id.
To plead such a claim, and survive a motion to dismiss (or for
judgment on the pleadings), a "`defendant must provide some factual
basis for the allegation that plaintiff knew the patent was invalid or
unenforceable when plaintiff filed the present action."' Raines, 1997
WL 578547 *4 (citation omitted). Lexar contends that it has met this
burden by alleging that SanDisk knew the facts that render its `987
patent invalid and/or unenforceable at the time the suit was
commenced. Lexar Opp. at 10. The answer/counterclaim paragraphs cited
by Lexar, however, only allege Lexar's theory that SanDisk schemed to
have the CFA and PCMCIA adopt standards that could not be met without
infringing the `987. AnswerP.P. 52-69. These allegations do not
provide a factual basis for Lexar's implicit allegation that SanDisk
knew its patent was unenforceable at the time it initiated this
lawsuit. This is especially true given that the Court previously
denied Lexar's motion for summary judgment of unenforceability.
Accordingly, SanDisk's motion for judgment on the pleadings with
respect to Lexar's claim of patent misuse must be granted.
The Court will not grant Lexar leave to amend to allege facts that
provide a factual basis for its allegation of SanDisk's alleged
knowledge because such amendment would be futile. Even though this
lawsuit was filed two and half years ago, fact discovery is complete,
and it is the eve of trial, Lexar has not identified any facts that
suggest that SanDisk believed the `987 was unenforceable at the time
it brought this lawsuit.
Lexar's second theory of patent misuse is that SanDisk, by
imposing certain conditions on the licensing of the `987, has
"`impermissibly broadened the "physical or temporal" scope of the
patent grant with anticompetitive effect."' B Braun Medical Inc v.
Abbott Labs., 124 F.3d 1419, 1426 (Fed. Cir. 1997). Lexar identifies
several examples of conduct which it contends demonstrate SanDisk's
anticompetitive behavior. This conduct includes refusing to license
the `987 unless the licensee purchases the memory necessary to
practice the `987 from certain SanDisk designees (allegedly unlawful
"tying"), and refusing to license the `987 individually, and instead
requiring the licensee to license SanDisk's entire intellectual
property portfolio regardless of need.
SanDisk's only response to this argument is that because Lexar's
theory of SanDisk's anticompetitive behavior was not pled in its
answer and counterclaims it should not be allowed to proceed on that
theory now. SanDisk Reply at 9. Assuming that Lexar was required to
plead the particular facts or theory of anticompetitive behavior, see
Raines ,1997 WL 578547 ("[defendant must state how plaintiff has
attempted to overbroadly and impermissibly construe its patent such as
to cause an anticompetitive effect," the Court will grant Lexar leave
to amend its answer to identify the alleged anticompetitive behavior
with more specificity. SanDisk argues that Lexar should not be allowed
to do so on the eve of trial. SanDisk, however, created this conundrum
by waiting more than two years -- until the eve of trial -- to move to
dismiss the patent misuse claim. Moreover, SanDisk has not offered any
evidence that it has not taken discovery on these issues or was
somehow misled in discovery as to what anticompetitive theory Lexar
was asserting. Accordingly, the patent misuse claim will be dismissed
with leave to amend.
CONCLUSION
For the foregoing reasons, SanDisk's motion for summary judgment
on Lexar's fraud, unfair competition, and unenforceability claims is
GRANTED in part and DENIED in part. The motion is granted with respect
to Lexar's claims that SanDisk made affirmative misrepresentations and
that the written rules of the CPA and PCMCIA required SanDisk to
disclose the pending `987 application. In all other respects the
motion is DENIED.
SanDisk's motion to dismiss the patent misuse claims is GRANTED.
Lexar's claim that SanDisk engaged in patent misuse by filing this
lawsuit is dismissed without leave to amend. Lexar's claim that
SanDisk impermissibly broadened the scope of its patent is dismissed
with 10 days leave to amend.
IT IS SO ORDERED.
Dated: October 17, 2000 CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE
SanDisk Corporation, the world's largest supplier of flash data
storage products, designs, manufactures and markets industry-standard,
solid-state data, digital imaging and audio storage products using its
patented, high density flash memory and controller technology. SanDisk
is based in Sunnyvale, CA.
The matters discussed in this news release contain forward looking
statements that are subject to certain risks and uncertainties as
described under the caption "Factors That May Affect Future Results"
in the company's annual report on Form 10-K and quarterly reports on
Form 10-Q, filed with the Securities and Exchange Commission. The
company assumes no obligation to update the information in this
release.
Note to Editors: All trade names are either registered trademarks
or trademarks of their respective holders. SanDisk's web site/home
page address: sandisk.com
CONTACT: SanDisk
Bob Goligoski, 408/542-0463
bgoligoski@sandisk.com
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KEYWORD: CALIFORNIA
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