Case4:10-cv SBA Document81 Filed05/31/11 Page1 of 14 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

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1 Case:-cv-0-SBA Document Filed0// Page of IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION RITZ CAMERA & IMAGE, LLC, VS. PLAINTIFF, SANDISK CORPORATION, ET AL, DEFENDANT. CV---JF SAN JOSE, CALIFORNIA MAY, 0 PAGES - TRANSCRIPT OF PROCEEDINGS BEFORE THE HONORABLE JEREMY FOGEL UNITED STATES DISTRICT JUDGE A P P E A R A N C E S: 0 FOR THE PLAINTIFF: MORGAN DUFFY-SMITH & TIDALGO BY: COLLEEN DUFFY-SMITH 0 THE ALAMEDA, STE 0 SAN JOSE, CA FOR THE DEFENDANT: SKADDEN ARPS, ET AL BY: DAVID HANSEN JAMES SCHAEFER FOUR EMBARCADERO CTR, STE 00 SAN FRANCISCO, CA (APPEARANCES CONTINUED ON THE NEXT PAGE OFFICIAL COURT REPORTER: SUMMER FISHER, CSR, CRR CERTIFICATE NUMBER

2 Case:-cv-0-SBA Document Filed0// Page of FOR THE PLAINTIFF: KELLOG HUBER HANSEN BY: JOSEPH HALL M STREET NW, STE 00 WASHINGTON, DC 00 0

3 Case:-cv-0-SBA Document Filed0// Page of 0 SAN JOSE, CALIFORNIA MAY, 0 P R O C E E D I N G S (WHEREUPON, COURT CONVENED AND THE FOLLOWING PROCEEDINGS WERE HELD: THE COURT: NEXT MATTER IS RITZ CAMERA & IMAGE VERSUS SANDISK. MR. HALL: GOOD MORNING, YOUR HONOR. JOSEPH HALL FROM KELLOGG HUBER ON BEHALF OF PLAINTIFF, RITZ CAMERA. MS. DUFFY-SMITH: GOOD MORNING, YOUR HONOR. COLLEEN DUFFY-SMITH FROM MORGAN DUFFY-SMITH & TIDALGO, FOR THE PLAINTIFFS. MR. HANSEN: DAVE HANSEN AND JAMES SCHAEFER FOR SANDISK. THE COURT: GOOD MORNING. WELL, I THINK THIS IS A REALLY INTERESTING LEGAL ISSUE. I DON'T THINK IT'S CLEAR, AND I THINK THE RULING THAT THE COURT MADE EARLIER WHILE I THINK IT WAS RIGHT, OBVIOUSLY I THINK IT'S HARDLY ONE WHERE THERE'S LOT OF AUTHORITY ON POINT. I THINK THIS WOULD BENEFIT -- THIS IS THE TYPE OF CASE THAT WOULD BENEFIT FROM INTERLOCUTORY REVIEW. AND IN FACT, IT'S KIND OF AN ALL OR NOTHING -- STANDING ISSUES IS AN ALL OR NOTHING

4 Case:-cv-0-SBA Document Filed0// Page of TYPE OF ISSUE HERE. IF RITZ DOESN'T HAVE STANDING, THERE'S REALLY NO CASE. AND IF IT DOES THEN IT'S A SIGNIFICANT CASE. SO MY INCLINATION IS TO GRANT THE RELIEF, BUT LET ME HEAR FROM RITZ ON THAT. MR. HALL: THANK YOU, YOUR HONOR. I 0 MEAN, GETTING TO YOUR HONOR'S POINT, FIRST OF ALL, I DON'T THINK THAT THE STANDING ISSUE HERE -- THIS IS NOT JURISDICTIONAL STANDING, THIS IS STANDING WITH REGARD TO ONE OF PLAINTIFF'S CLAIMS, SPECIFICALLY THE WALKER PROCESS CLAIM. AND AS WE POINTED OUT IN OUR PAPERS THERE ARE OTHER CLAIMS HERE BESIDES THE WALKER PROCESS CLAIM THAT INVOLVE MONOPOLIZATION CLAIMS WITH REGARD TO SETTLEMENTS AND WITH REGARD TO CUSTOMER INTIMIDATION AND THREATS. THE COURT: BUT DOESN'T THE CORE OF IT, I KNOW THAT'S THE WAY YOU'VE PLED IT, BUT DOESN'T THE CORE OF THE CASE REALLY HAVE TO DO WITH PATENT MISUSE? I MEAN, THE SETTLEMENTS ALLEGEDLY WERE EXTORTED THROUGH WAIVING PATENTS AT PEOPLE AND SAYING, WE ARE GOING TO SUE YOU IF YOU DON'T SETTLE. OR THEY WERE SETTLEMENTS OF PATENT

5 Case:-cv-0-SBA Document Filed0// Page of 0 INFRINGEMENT CASES, AND EVEN THE CUSTOMER INTIMIDATION THAT'S ALLEGED GOES BACK TO PATENT RIGHTS THAT WERE ALLEGEDLY IMPROPERLY OBTAINED. MR. HALL: YES. BUT AS THE COURTS HAVE HELD EVEN WITH THE VALID PATENTS BUYING OFF COMPETITORS, EVEN IF A VALID PATENT IS INVOLVED, CAN INVOLVE SECTION II SHERMAN ACT CLAIMS, THAT'S ONE OF THE THINGS WE ALLEGE HERE. THAT DOESN'T DEPEND ON THE VALIDITY OF THE PATENTS. THE COURT: HOW DO YOU LITIGATE THIS CASE THOUGH IF A MAJOR PART OF WHAT YOU ARE CLAIMING, EVEN IF IT'S NOT A HUNDRED PERCENT, IT CERTAINLY IS A SIGNIFICANT PART OF WHAT YOU ARE CLAIMING. HOW DO YOU LITIGATE THIS CASE WITHOUT KNOWING WHETHER YOU ARE ABLE TO ASSERT THE PATENT MISUSE CLAIMS? MR. HALL: WELL, I MEAN I THINK IT WOULD PRESENT SOMEWHAT OF AN OBSTACLE, YOUR HONOR. BUT I THINK THAT GOES TO THE FACT THIS SHOULDN'T BE DONE PIECEMEAL. WE HAVE CLAIMS HERE, ONE OF WHICH IS THE WALKER PROCESS CLAIM. I CAN EXPLAIN TO YOUR HONOR WHY I THINK YOUR HONOR'S RULING DOESN'T DEPART MUCH FROM THIS COURT'S PRIOR PRECEDENT IN NETFLIX OR THE

6 Case:-cv-0-SBA Document Filed0// Page of 0 SECOND CIRCUITS PRECEDENT IN DDAVP. THE COURT: AS I SAY, I THINK I WAS RIGHT. BUT THE QUESTION IS WHETHER REASONABLE MINDS COULD DIFFER AND WHETHER IT WOULD ADVANCE THE RESOLUTION OF THE LITIGATION TO GET APPELLATE REVIEW. IT'S NOT THAT I'M HAVING DOUBTS ABOUT MY CONCLUSION, AS MUCH AS I THINK THAT IF I'M WRONG YOU COULD SPEND A LOT OF TIME AND MONEY LITIGATING THE CASE THAT IS GOING TO LOOK VERY, VERY DIFFERENT WITHOUT THE WALKER PROCESS CLAIM. MR. HALL: LET ME ADDRESS BOTH POINTS, YOUR HONOR. FIRST OF ALL, I DON'T BELIEVE THE STANDARD IS REASONABLE MINDS COULD DIFFER ON THIS, I BELIEVE IT'S A MUCH HIGHER STANDARD, IT'S THE EXCEEDINGLY RARE CIRCUMSTANCE. HERE THE ONLY CASE THAT DEFENDANTS HAVE CITED, AND THEY HAVEN'T RESPONDED TO THIS POINT IN THEIR REPLY, ALL COME IN THE VERY PECULIAR HATCH-WAXMAN ACT CONTEXT WHERE THERE'S AN ARTIFICIAL INFRINGEMENT SUIT CREATED AND WHERE THE ANTI-TRUST STANDING IS VERY MUCH DEPENDENT UPON AN ARTIFICIAL PATENT INFRINGEMENT CASE THAT'S CREATED BY THE HATCH ACT REGULATORY STRUCTURE, AND THAT'S

7 Case:-cv-0-SBA Document Filed0// Page of 0 SUPERIMPOSED UPON THE FDA'S DECISION ABOUT WHETHER OR NOT TO GRANT FURTHER RIGHTS TO USE THE DRUG. THAT ALL MAKES THE ANTI-TRUST INJURY MUCH MORE SPECULATIVE. IN THIS CASE WE ARE MUCH MORE LIKE THE NETFLIX CASE WHERE WE ACTUALLY HAVE PRODUCTS IN A MARKET AND WE CAN EVALUATE VERY TANGIBLY THE EFFECT. I DON'T THINK THAT THERE'S AS MUCH OF A SPLIT HERE IN THE AUTHORITY AS THEY WOULD HAVE YOU BELIEVE. ALL HARD CASES, AND YOU KNOW THIS I THINK MAY BE ONE, BUT THAT DOESN'T NECESSARILY MEAN THAT IT SHOULD BE SUITABLE FOR REVIEW. THE COURT: RIGHT. THERE'S JUST NOT A LOT OF CASES, PERIOD, THAT ALLEGE THE THEORY THAT RITZ IS ALLEGING. MR. HALL: AGREED, YOUR HONOR. I MEAN I THINK NETFLIX IS ONE. BUT, YOU KNOW, THE OTHER THING IS THE COURT -- DEFENDANTS POINT OUT THAT IT'S CERTAINLY A NOVEL ISSUE, IS A GROUND FOR CERTIFICATION. THEY CITE TWO CASES, ONE OF WHICH IN RE CALIFORNIA TITLE WAS CERTIFIED. THE NINTH CIRCUIT RECENTLY DENIED THAT PETITION. IT'S NOT SUFFICIENT UNDER NINTH CIRCUIT CASE LAW FOR A CASE TO BE --

8 Case:-cv-0-SBA Document Filed0// Page of THE COURT: OKAY. I'M SORRY TO INTERRUPT. 0 WHAT ABOUT THE CASE MANAGEMENT ASPECT, THOUGH? I MEAN, AS YOU SAY, IT'S NOT GOING TO BE THE EASIEST THING IN THE WORLD TO WORK AROUND THE WALKER PROCESS CLAIMS. I MEAN, IF YOU ARE DOING DISCOVERY, IF YOU ARE TAKING DEPOSITIONS THEN YOU ARE OBVIOUSLY GOING TO WANT TO GET INTO ALL OF IT. IF IT TURNS OUT THAT NONE OF THAT WAS PROPER, HOW DO YOU UN RING THE BELL? MR. HALL: WELL, I MEAN, THAT'S TRUE IN EVERY CASE, YOUR HONOR. I MEAN, IT'S VERY POSSIBLE IN ANY ONE PARTICULAR CASE ONE CLAIM MIGHT ULTIMATELY NOT WITHSTAND APPEAL. BUT THAT'S NOT, I THINK, SUFFICIENT BASIS FOR GRANTING. THAT'S NOT THE EXCEEDINGLY RARE CIRCUMSTANCE. WHEN YOU HAVE MULTIPLE CLAIMS HERE SOME OF WHICH DO NOT DEPEND ON THE WALKER PROCESS CLAIM. FURTHERMORE, THIS ISN'T AN ORDINARY ANTI-TRUST CASE. THERE'S A VERY WELL DEVELOPED RECORD HERE THAT WE INTEND TO USE FROM THE STM SANDISK LITIGATION. AND, YOU KNOW, THERE ARE ISSUES COMING UP THAT WE THINK WOULD ALSO INVOLVE THINGS LIKE CLASS

9 Case:-cv-0-SBA Document Filed0// Page of 0 CERTIFICATION THAT DEFENDANTS MAY WANT TO AGAIN TRY CERTIFICATION. THAT WOULD RESULT IN EVEN MORE FRACTIONALIZED LITIGATION. WE JUST DON'T THINK THAT'S PROPER AT THIS POINT. THE COURT: OKAY. THANK YOU. LET ME GET A RESPONSE FROM SANDISK. MR. HANSEN: GOOD MORNING, YOUR HONOR. WE AGREE WITH YOUR LEANING ON THE RULING. IT IS -- WE THINK IF IT'S NOT COMPLETELY CASE DISPOSITIVE IT WILL DISPOSE OF PRETTY MUCH EVERYTHING IN THE CASE. AS TO THE CASE MANAGEMENT ASPECT AND THE WELL DEVELOPED RECORD, WE HAVEN'T -- THERE HAS BEEN ONE SET OF DISCOVERY THAT HAS BEEN PROPOUNDED THAT OUR RESPONSES ARE DUE NEXT WEEK, AND LET'S JUST SAY IT SUGGESTS A GOOD REASON THAT THE WALKER PROCESS RULING, IF IN OUR FAVOR, WOULD SAVE EVERYONE A LOT OF TIME AND MONEY OVER THE COURSE OF THE NEXT YEAR. THE COURT: ESSENTIALLY WHAT YOU ARE SAYING IS IF THERE HADN'T BEEN THE STMICRO CASE, AND THE COURT'S -- THIS COURT'S WILLINGNESS TO ALLOW A WALKER PROCESS CLAIM TO PROCEED IN THAT CASE, THAT THIS CASE WOULDN'T EXIST. THIS RITZ CAMERA CASE WOULDN'T EXIST, THAT THERE'S A DIRECT

10 Case:-cv-0-SBA Document Filed0// Page of 0 CAUSAL RELATIONSHIP BETWEEN THE TWO. THAT'S WHAT I UNDERSTAND YOU TO BE ARGUING. MR. HANSEN: YEAH. I THINK THAT'S CORRECT. YOU COULD GO BACK AND IT'S POSSIBLE SOMEONE, A DIRECT PURCHASER WOULD FILE IT, BUT I DON'T THINK -- WE HAVEN'T REALLY RUN INTO THAT SITUATION HERE. WE RESPECTFULLY DISAGREE, OBVIOUSLY, WITH THE RULING. BUT THAT SAID, THE FEDERAL CIRCUIT IS -- THE COURT ULTIMATELY WE BELIEVE WILL CHIME IN ON THIS AND THEY HAVEN'T. I DON'T KNOW IF YOU WANT TO ADDRESS THAT ISSUE. THE COURT: WHY WOULDN'T IT BE THE FEDERAL CIRCUIT? MR. HANSEN: IT IS THE FEDERAL CIRCUIT. THERE WAS A DISPUTE IN THE BRIEFS. THE COURT: WELL, IT'S AN ANTI-TRUST CLAIM WHICH WOULD ORDINARILY NOT GO THERE, IT WOULD GO TO THE NINTH CIRCUIT BUT BECAUSE IT INVOLVES PATENT MISUSE, THE DEFAULT WOULD BE THE FEDERAL CIRCUIT. MR. HANSEN: WE AGREE WITH THAT. AND THE SECOND CIRCUIT IN RE DDAVP SETS THAT OUT VERY NICELY.

11 Case:-cv-0-SBA Document Filed0// Page of 0 SO WE AGREE WITH YOUR HONOR'S TENTATIVE RULING ON THAT. THE COURT: OKAY. THANK YOU. AND COUNSEL, WE DIDN'T TALK ABOUT WHICH COURT. SO LET ME GIVE YOU A MINUTE OR TWO ON THAT. MR. HALL: THANK YOU, YOUR HONOR. THIS CASE I THINK SHOULD GO TO THE NINTH CIRCUIT AND THE REASON WHY IS THIS IS AN ANTI-TRUST CASE. WE TAKE THE PLEADINGS AS THEY EXIST AND WE ASSUME THAT THE PATENTS WERE SUBJECT TO FRAUDULENT PROCUREMENT. THE QUESTION IS, IS THIS PLAINTIFF THE KIND OF PLAINTIFF THAT THE ANTI-TRUST LAWS ARE MEANT TO PROTECT? THAT'S A QUESTION OF ANTI-TRUST. SIMPLY BECAUSE THERE'S A PATENT IN THE CASE DOESN'T MEAN THAT IT GOES TO THE FEDERAL CIRCUIT. THE CONTROLLING QUESTION HERE IS GOING TO BE ONE OF SHERMAN ACT AND CLAYTON ACT LAW. THAT IS A QUESTION THAT WILL NECESSARILY, EVEN UNDER THE FEDERAL CIRCUIT PRECEDENT, BE DECIDED BY NINTH CIRCUIT PRECEDENT, THEREFORE THE NINTH CIRCUIT IS THE APPROPRIATE FORUM TO DECIDE IT. THE COURT: WHAT ABOUT THE IMPLICATION OF A COURT OTHER THAN THE FEDERAL CIRCUIT DECIDING

12 Case:-cv-0-SBA Document Filed0// Page of 0 WHAT THE IMPORT OF PATENT MISUSE IS? MR. HALL: I'M NOT SURE WHY THAT WOULD BE YOUR HONOR, BECAUSE ULTIMATELY THE QUESTION HERE IS WHO HAS STANDING? IS IT A DIRECT PURCHASER OR CONSUMER OR INDIRECT PURCHASER? THAT IS A QUESTION OF THE CONCRETENESS OF THE ANTI-TRUST INDUSTRY. THAT WOULD INVOLVE QUESTIONS UNDER SHERMAN AND CLAYTON ACT, IT DOESN'T INVOLVE QUESTIONS OF PATENT MISUSE. THE COURT: BUT THE INJURY IS ALLEGEDLY CAUSED BY PATENT MISUSE. MR. HALL: THAT MAY VERY WELL BE. BUT THE QUESTION OF WHAT PLAINTIFF IS ABLE TO BRING AN ACTION IS GOING TO BE ONE THAT IS DECIDED UNDER ANTI-TRUST LAW NOT UNDER PATENT LAW. THE COURT: OKAY. ALL RIGHT. MR. HALL: MOREOVER, WE HAVE OTHER CLAIMS HERE AS I POINTED OUT. JURISDICTION IN THE FEDERAL CIRCUIT IS ONLY PROPER IF EACH AND EVERY CLAIM INVOLVES A PATENT. AND OUR ALLEGATIONS GO BEYOND THAT, SOME CLAIMS WOULD NOT INVOLVE A PATENT AT ALL. IN OTHER WORDS, CONTESTING THE VEIL OF THE PATENT BECAUSE EVEN THOUGH THE PATENT IS VALID WE STILL HAVE CLAIMS THAT INVOLVE SETTLEMENTS THAT

13 Case:-cv-0-SBA Document Filed0// Page of WE THINK ARE MONOPOLISTIC THRUSTS TO CUSTOMERS. THOSE DO NOT HINGE ON THE VALIDITY OF THE PATENT AND WOULD NOT INVOLVE LITIGATING THE PATENT AND THEREFORE WOULD BE PART OF THE NINTH CIRCUIT. THE COURT: THANK YOU. ARGUMENT HAS BEEN HELPFUL. I WILL GET A DECISION OUT SOON. THANK YOU VERY MUCH. MS. DUFFY-SMITH: YOUR HONOR, IF I MAY. THE COURT: YES. MS. DUFFY-SMITH: MAY TH WE HAVE A DISCOVERY CONFERENCE BEFORE JUDGE LLOYD. THE COURT: OKAY. I WILL GIVE YOU SOME TYPE OF HEADS UP BEFORE MAY TH. THANK YOU. (WHEREUPON, THE PROCEEDINGS IN THIS MATTER WERE CONCLUDED. 0

14 Case:-cv-0-SBA Document Filed0// Page of CERTIFICATE OF REPORTER I, THE UNDERSIGNED OFFICIAL COURT REPORTER OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, 0 SOUTH FIRST STREET, SAN JOSE, CALIFORNIA, DO HEREBY CERTIFY: THAT THE FOREGOING TRANSCRIPT, CERTIFICATE INCLUSIVE, CONSTITUTES A TRUE, FULL AND CORRECT TRANSCRIPT OF MY SHORTHAND NOTES TAKEN AS SUCH OFFICIAL COURT REPORTER OF THE PROCEEDINGS HEREINBEFORE ENTITLED AND REDUCED BY COMPUTER-AIDED TRANSCRIPTION TO THE BEST OF MY ABILITY. 0 SUMMER A. FISHER, CSR, CRR CERTIFICATE NUMBER