SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ------------------------------------------------------------------------X ECONOMIC ALCHEMY LLC, Index No.: 653632/2015 Plaintiff, against- BYRNE POH LLP, MATTHEW T. BYRNE, PHILIP R. POH, and GARY WALPERT, Defendants. ------------------------------------------------------------------------X Assigned to: Judge Manuel J. Mendez, J.S.C. REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF THE MOTION FOR REARGUMENT BY DEFENDANTS 1 of 24
TABLE OF CONTENTS INTRODUCTION...2 PRELIMINARY STATEMENT...5 LEGAL ARGUMENT...8 POINT I: REARGUMENT IS WARRANTED BECAUSE THE PATENTABILITY OF PLAINTIFF S ALLEGED INVENTION MUST BE DEMONSTRATED IN ORDER FOR PLAINTIFF TO SUSTAIN ITS LEGAL MALPRACTICE CLAIM AS A MATTER OF LAW...8 Page(s) 1. Plaintiff is Required to Show Patentability to Sustain its Claim that Byrne Poh Caused Damages...8 2. Plaintiff s Argument that Byrne Poh is Liable for Malpractice Regardless of Whether its Alleged Invention is Patent-Eligible is False and Based Entirely on a Distortion of the Law...10 3. The Attorneys Fees that Plaintiff Paid to Successor Patent Counsel Are Not An Independent Basis for Malpractice Liability...12 POINT II: THIS COURT IS REQUIRED TO MAKE A HYPOTHETICAL DETERMINATION OF PATENTABILITY IN ORDER TO DETERMINE WHETHER PLAINTIFF HAS MET THE BURDEN OF PLEADING PROXIMATE CAUSATION...14 1. This Court Can Make a Determination of the Patentability of Plaintiff s Alleged Invention to Assess if Proximate Causation is Properly Pleaded...15 2. It is Not Premature to Assess Whether Plaintiff s Alleged Invention is Patent-Eligible...19 CONCLUSION...21 i 2 of 24
TABLE OF AUTHORITIES Page(s) Am. Harley Corp. v. Irvin Indus., Inc. 27 N.Y.2d 168 N.E.2d 552 (1970)...2, 16, 18 Bioenergy Life Science, Inc. v. Ribocor, Inc 2015 N.Y. Slip. Op. 30166(U) (N.Y. Sup. Ct. 2015)... 16, 18, 19 Darby & Darby v. VSI Intl. 95 N.Y.2d 308 N.Y.S.2d 378 (2000)...7, 11 Encyclopaedia Britannica, Inc. v. Dickstein Shapiro LLP 128 F. Supp. 3d 103 (D.D.C. 2015)...passim Gamiel v. Curtis & Reiss-Curtis, P.C. 16 A.D.3d 140 (1st Dept. 2005)...13 Gunn v. Minton 568 U.S. 251 (2013)...passim Hill v. Fisher & Fisher 203 A.D.2d 328 N.Y.S.2d 548 (2d Dept. 1994)...15 Immunocept, LLC v. Fulbright & Jaworski, LLP 504 F.3d 1281 (Fed. Cir. 2007)...16, 17 NeuroRepair, Inc. v. Nath Law Group 781 F.3d 1340 (Fed. Cir. 2015)...passim Pellegrino v. File 291 A.D.2d 60 N.Y.S.2d 320 (1st Dept. 2002)...15 Rosner v. Paley 65 N.Y.2d 736 N.Y.S.2d 13 (1985)...11 Sklover & Donath, LLC v. Eber-Schmid 71 A.D.3d 497 N.Y.S.2d 62 (1st Dept. 2010)...7, 11 State Street Bank & Trust Co. v. Signature Financial Group, Inc. 149 F.3d 1368 (Fed. Cir. 1998)...7 Synchronoss Techs., Inc. v. Hyperlync Techs., Inc. 2016 U.S. Dist. LEXIS 28727 (D.N.J. 2016)...20 ii 3 of 24
Tanel v. Kreitzer & Vogelman 293 A.D.2d 420 N.Y.S.2d 221 (1st Dept. 2002)...15 WAG Acquisition, LLC v. MultiMedia, LLC 2015 U.S. Dist. LEXIS 121028 (D.N.J. 2015)...20 STATUTES Page(s) 28 U.S.C. 1338... 14, 17, 18 35 U.S.C. 101...7 C.P.L.R. 2221...2, 21 C.P.L.R. 3211...13, 21 iii 4 of 24
This Reply Memorandum of Law is respectfully submitted in response to Plaintiff s Opposition and in further support of Defendants Byrne Poh LLP, Matthew T. Byrne, Philip R. Poh, and Gary Walpert s (collectively referred to herein as Byrne Poh or Defendants ) motion for an Order pursuant to C.P.L.R. 2221(d) granting reargument of the portion of its motion to dismiss Plaintiff s legal malpractice claim, and upon reargument, dismissing Plaintiff s legal malpractice claim. INTRODUCTION This Court s August 4, 2017 Decision and Order ( Decision ) raises the critical question of whether Plaintiff s legal malpractice claim can be adjudicated in state court and/or whether removal to federal court is proper. Specifically, in its Decision, this Court stated This court has jurisdiction to entertain lawsuits regarding contracts relating to patents regardless if the validity of the patent may somehow be involved. (Am. Harley Corp. v. Irvin Indus., Inc., 27 N.Y.2d 168, 172, 263 N.E.2d 552 (1970)). It is not for this court to determine whether Plaintiff s software is currently patentable under recent Supreme Court decisions and therefore, Plaintiff sufficiently plead that Defendants negligence was the proximate cause of its damages. Plaintiff alleges that [h]ad Byrne Poh not committed malpractice, upon information and belief, EA would have received patent protection for all five patents by March of 2014. See Exhibit E 1, p. 2. From this quoted language, it is unclear whether the Court is saying that: (i) the Court does not have jurisdiction to decide the patentability of Plaintiff s alleged invention (as Plaintiff's argue); (ii) the Court has jurisdiction to decide the patentability of Plaintiff's alleged invention, but it need not consider the patentability of Plaintiff's alleged invention under Alice because 1 All Exhibits referenced herein are annexed to the original moving papers filed in support of the instant motion for reargument. See NYSCEF Docket Document Nos. 41-46. 2 5 of 24
Plaintiff alleges that it would have been issued patents pre-alice 2 (as Defendants believe); or (iii) the Court has jurisdiction to decide the patentability of Plaintiff s alleged invention but cannot make this determination on a pre-answer motion to dismiss. As this Court referenced in its Decision, Plaintiff seeks damages for destroying EA s ability to obtain patents for otherwise patentable inventions while allowing EA s competitors to benefit from Defendants mistakes (Complaint). Specifically, Defendants alleged malpractice caused lost licensing revenue, royalty income, and ongoing costs in connection with mitigating damages (id). See Exhibit E, p. 3. In order to demonstrate that Plaintiff suffered damages in the form of lost licensing revenue, lost royalty income, and lost competitive advantage (collectively referred to herein as lost patent benefit ), Plaintiff must be able to prove, and this Court must be able to decide, that Plaintiff's alleged invention was ever patent eligible in the first place. Likewise, in order to show that costs allegedly incurred by Plaintiff were mitigating damages, Plaintiff must be able to prove, and this Court must be able to decide, that Plaintiff's alleged invention was ever patent eligible -- otherwise, any money spent by Plaintiff in pursuing patents for non-patent-eligible subject matter does not constitute damages proximately caused by Byrne Poh s alleged conduct. If this Court has jurisdiction to determine whether Plaintiff s alleged invention is patenteligible, which is the way that Byrne Poh interprets the August 4, 2017 Decision and Order, then this Court must evaluate Plaintiff s alleged invention under the controlling legal standard in 2 In the Complaint, Plaintiff alleges that but-for Byrne Poh s conduct it would have been issued patents by March of 2014. Alice was decided on June 19, 2014. If Plaintiff s allegation that it would have received patents by March of 2014 is accepted as true, Plaintiff would have been issued patents pre-alice. However, in assessing the proximate causation element of a legal malpractice claim and applying the backward-looking analysis, this Court is required to apply Alice retroactively to determine whether Plaintiff s alleged invention was ever patent-eligible based on the standard articulated in Alice. Under this framework, Plaintiff cannot show that it would have received any patents by March of 2014. This is the basis of Byrne Poh s motion for reargument, i.e., that this Court overlooked the retroactivity of Alice is fatal to Plaintiff s legal malpractice claim in issuing its Decision denying the dismissal of the legal malpractice claim. See Legal Argument Section I below. 3 6 of 24
Alice, which is retroactive to all patents issued, and patent applications filed, even before Alice. Under the Alice standard, Plaintiff s alleged invention is not and was never eligible for a patent. Thus, Plaintiff s legal malpractice claim must be dismissed as a matter of law because Plaintiff cannot show that but-for Byrne Poh s conduct it would not have sustained any damages since it was not entitled to any patents in the first instance. Alternatively, if Byrne Poh s interpretation of this Court s Decision is incorrect, and this Court does not have jurisdiction to determine whether Plaintiff s alleged invention is patenteligible, then this action must be removed to federal court. Finally, to the extent that this Court has jurisdiction to determine whether Plaintiff's alleged invention is patent-eligible, but the Court agrees with Plaintiff's position in its Opposition that the alleged damages of increased legal fees and costs associated with mitigating damages to the patent applications does not depend on the patent eligibility of Plaintiff's alleged invention, then, at the very least, this Court must conclude that, because Plaintiff's alleged invention is not patent eligible, Plaintiff cannot plead and ultimately establish damages relating to lost patent benefit, which it claims is in excess of $50 Million. This Court should therefore dismiss the portion of Plaintiff s legal malpractice claim seeking damages related to lost patent benefit, and only allow Plaintiff to pursue its legal malpractice claim asserting damages for legal fees and expenses incurred solely due to Byrne Poh's alleged conduct. Even if this Court adheres to its Decision denying the dismissal of the legal malpractice claim, clarification of the above-quote language from the Decision is necessary for the parties to move forward on the legal malpractice claim before this Court. The issue of whether or not this Court can decide the patentability of Plaintiff s alleged invention will ultimately determine if the parties are litigating a legal malpractice claim alleging damages in excess of $50 Million or a 4 7 of 24
legal malpractice claim alleging damages for increased legal fees and costs. A ruling on this issue is requested to allow the parties to engage in efficient and streamlined discovery. PRELIMINARY STATEMENT In its Opposition, Plaintiff does not refute that the Supreme Court s decision in Alice sets forth the current legal standard for computer-implemented inventions and that the application of this standard will determine if Plaintiff s alleged invention is patent-eligible and if it is entitled to receive any patents. Instead, Plaintiff speciously takes the position that the issue of patentability is not material to its legal malpractice claim and need not be addressed by this Court. Plaintiff s argument is belied by its own theory of liability asserted against Byrne Poh in its Complaint. Plaintiff explicitly alleges in the Complaint that had Byrne Poh not committed malpractice, upon information and belief, EA [Plaintiff] would have received patent protection for all five patents by March of 2014. See Complaint, 66. Plaintiff s malpractice theory against Byrne Poh is premised on allegations that but-for Byrne Poh s delay and inaction in amending the five patent applications, Plaintiff would not have sustained massive damages believed to exceed $50 million consisting of, inter alia, lost revenue, loss of competitive advantage, and the impairment of its patent portfolio. Id. at 65. Based on its own allegations, Plaintiff cannot maintain its legal malpractice claim without being able to demonstrate that its alleged invention is eligible for a patent and that it would have received patents in the first place. Under the controlling legal standard for patentability of computer-implemented inventions articulated in Alice, which is retroactively applied to all patents issued, and patent applications filed, even before Alice (which is the case here), Plaintiff s alleged invention is not patenteligible and thus Plaintiff was not and is not entitled to receive any patents irrespective of Byrne 5 8 of 24
Poh s conduct. As such, Plaintiff is unable to plead and ultimately will not be able to prove its legal malpractice claim. Contrary to Plaintiff s Opposition, there are no independent bases to connect Byrne Poh s conduct to Plaintiff s alleged damages. Because Plaintiff s alleged invention is not patenteligible under Alice as a matter of law, none of the alleged damages asserted in the Complaint (i.e., lost patent benefit, and fees and costs paid to successor counsel to allegedly fix Byrne Poh s work) should have been incurred. As discussed further below, the caselaw cited by Plaintiff in an attempt to support its argument presents entirely distinguishable circumstances that are not applicable to the facts of this case. In its Opposition, Plaintiff argues that Byrne Poh frivolously prosecuted its patent applications and allegedly committed a fraud on the USPTO because it should have known that Plaintiff s alleged invention was not patent-eligible. This is the first time that Plaintiff has ever raised this argument. Plaintiff s Complaint is devoid of any allegation that Byrne Poh was negligent in advising Plaintiff regarding the patentability of its alleged invention. As this Court is aware, it is entirely improper for Plaintiff to attempt to assert a new theory of liability in opposition to a motion. As such, this Court should not entertain Plaintiff s argument. Nevertheless, to the extent this Court considers Plaintiff s new argument, it fails as a matter of law because it is based entirely on a misapprehension of the application of the standard for proximate causation and standard of care. In making the argument that Byrne Poh frivolously prosecuted its patent applications, Plaintiff conflates the analysis for the elements of standard of care (i.e., attorney negligence) and proximate causation, and erroneously attempts to employ the backward-looking hypothetical evaluation required to assess proximate causation to standard of care. The standard of care to which an attorney is held is in accordance with the laws at the time 6 9 of 24
of legal representation. See Darby & Darby v. VSI Intl., 95 N.Y.2d 308, 315, 716 N.Y.S.2d 378 (2000); see also Sklover & Donath, LLC v. Eber-Schmid, 71 A.D.3d 497, 498, 897 N.Y.S.2d 62 (1st Dept. 2010). It is well-established law in New York that an attorney is not held liable (and cannot be held liable) for legal strategy and decisions based on legal precedent that had not yet been established at the time of their representation, which is what Plaintiff attempts to argue. Byrne Poh provided legal services to Plaintiff before Alice during a time in which inventions like Plaintiff s alleged invention were not excluded from patent eligibility under 35 U.S.C. 101 as construed by the courts and USPTO. 3 It was only on June 19, 2014 (seven months after Byrne Poh was discharged) when the Supreme Court issued its decision in Alice that the courts and USPTO considered inventions like Plaintiff s alleged invention to be ineligible for patents. As such, the determination that Plaintiff s alleged invention was not patent-eligible could not have been made by Byrne Poh until the Supreme Court s ruling in Alice on June 19, 2014. Thus, Byrne Poh did not commit malpractice in preparing and filing the subject patent applications at the time of its representation of Plaintiff (October 11, 2012 through November 12, 2013) as Plaintiff improperly argues for the first time in its Opposition. Plaintiff s ability to plead and ultimately prove its alleged damages is dependent upon whether its alleged invention is eligible for a patent. Plaintiff cannot demonstrate that its alleged invention is patent-eligible based on the undisputed legal standard for patent eligibility in Alice, 3 101 is a paragraph within U.S. patent law that defines what can be patented, stating: Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent. There are three notable exceptions to what is patentable under 101. Patents cannot be granted for: (1) laws of nature; (2) natural phenomena; and (3) abstract ideas. Prior to Alice, there was not a concrete definition and legal analysis as to what constituted abstract ideas. Software on business methods had been patentable in the U.S. since 1998 when the Court of Appeals for the Federal Circuit decided State Street Bank & Trust Co. v. Signature Financial Group, Inc. (149 F.3d 1368 (Fed. Cir. 1998). However, there were inconsistencies in federal precedent as to the appropriate test for patent eligibility of software under 101. The Supreme Court heard the Alice case to resolve those inconsistencies and in that decision articulated a single, uniform subject-matter test for patentability under 101. 7 10 of 24
which is retroactively applied, and clearly and unambiguously prohibits a computerized implementation of an abstract idea. Because Plaintiff s alleged invention is not patent-eligible, Plaintiff fails to plead and is unable to establish that its damages would not have been incurred but-for Byrne Poh s alleged conduct. Accordingly, Plaintiff s legal malpractice claim is defective as a matter of law, and should be dismissed by this Court upon reargument. LEGAL ARGUMENT POINT I REARGUMENT IS WARRANTED BECAUSE THE PATENTABILITY OF PLAINTIFF S ALLEGED INVENTION MUST BE DEMONSTRATED IN ORDER FOR PLAINTIFF TO SUSTAIN ITS LEGAL MALPRACTICE CLAIM AS A MATTER OF LAW 1. Plaintiff is Required to Show Patentability to Sustain its Claim that Byrne Poh Caused Damages The issue of whether Plaintiff s alleged invention is patent-eligible is a necessary predicate to demonstrating the proximate causation element of its legal malpractice claim. Plaintiff s malpractice theory is indisputably based on allegations that but-for Byrne Poh s alleged delay and inaction in amending its five patent applications, Plaintiff would have received patents for its alleged invention and would not have sustained massive damages believed to exceed $50 million consisting of, inter alia, lost revenue, loss of competitive advantage, and the impairment of its patent portfolio and costs associated with retention of successor patent counsel. See Complaint, 65, 66. Since Plaintiff cannot show that its alleged invention is patent-eligible as matter of law based on the controlling patentability standard in Alice, then Plaintiff is unable to establish that its damages were caused by Byrne Poh s conduct. As discussed in detail in Byrne Poh s moving papers, to evaluate the element of but-for proximate causation in legal malpractice cases, the patentability standard in Alice is retroactively 8 11 of 24
applied to patent applications even if the applications were filed years before the Supreme Court s ruling in Alice. See Encyclopaedia Britannica, Inc. v. Dickstein Shapiro LLP, 128 F. Supp. 3d 103 (D.D.C. 2015) (dismissing a legal malpractice claim for lack of proximate causation by retroactively applying the patentability standard in Alice to a patent application filed in 1993 and finding that plaintiff s invention did not meet the patentability standard of Alice). The Court s inquiry in assessing but-for causation is what result should have been given the current standard, not what the result would have been. Id. The analysis of the butfor proximate causation element requires this Court to make a hypothetical determination of whether Plaintiff s pre-alice patent applications were ever patent-eligible under the current controlling Alice standard. Id. Accepting as true Plaintiff s allegations in the Complaint (see Complaint, 25), Plaintiff s alleged invention is computer software in which data/information gathered from various online sources is applied through generic computer functions to predict market trends in the economy. Plaintiff does not dispute that its alleged invention does not improve the functionality or operability of a computer, but rather merely uses the computer as a vehicle to facilitate data collection, data integration, and data application. As such, Plaintiff s alleged invention amounts to nothing more than an abstract idea implemented through the basic functions of a computer, which is excluded from patent eligibility by Alice. Accordingly, adopting the backward-looking analysis articulated in Encyclopaedia Britannica to assess proximate causation, since Plaintiff was never entitled to receive any patents in the first place, Plaintiff should have never incurred any of the alleged damages, including lost patent benefit and increased legal fees and costs. 9 12 of 24
Thus, Plaintiff s legal malpractice claim fails as a matter of law because Plaintiff is unable to establish that Byrne Poh s alleged acts or omissions were the but-for cause of its damages for lost patent benefit (i.e., lost revenue, loss of competitive advantage, the impairment of its patent portfolio), and attorneys fees and costs paid to successor counsel. As such, if this Court has jurisdiction to determine whether Plaintiff s alleged invention is eligible for a patent, Plaintiff s legal malpractice claim should be dismissed. Alternatively, if this Court has jurisdiction to determine whether Plaintiff's alleged invention is patent-eligible, but the Court agrees with Plaintiff's position that the alleged damages of increased legal fees and costs associated with mitigating damages does not depend on the patent eligibility of Plaintiff's alleged invention, then, at the very least, this Court must conclude that, because Plaintiff's alleged invention is not patent eligible, Plaintiff cannot plead and ultimately establish damages relating to lost patent benefit, which it claims is in excess of $50 Million. This Court should therefore dismiss the portion of Plaintiff s legal malpractice claim seeking damages related to lost patent benefit, and only allow Plaintiff to pursue its legal malpractice claim asserting damages for legal fees and expenses incurred solely due to Byrne Poh's alleged conduct. Finally, if this Court does not have jurisdiction to determine whether Plaintiff s alleged invention is eligible for a patent under the controlling standard in Alice, this case must be removed to federal court for a proper adjudication of this issue. 2. Plaintiff s Argument that Byrne Poh is Liable for Malpractice Regardless of Whether its Alleged Invention is Patent-Eligible is False and Based Entirely on a Distortion of the Law Plaintiff mistakenly conflates the issues of standard of care (i.e., attorney negligence) and proximate causation, and the analysis required to evaluate these two elements in making its 10 13 of 24
argument that Byrne Poh frivolously prosecuted Plaintiff s patent applications and perpetrated a fraud on the USPTO because it knew that Plaintiff s alleged invention was not patent-eligible. Byrne Poh s position in its moving papers that the legal fees and costs that Plaintiff paid to successor patent counsel should not have been incurred because its alleged invention was not patent-eligible under Alice is a proximate causation argument, not a standard of care argument. In other words, Byrne Poh is not arguing that successor counsel was negligent or deviated from the standard of care in continuing to prosecute Plaintiff s patent applications after Byrne Poh was discharged. Rather, Byrne Poh contends that, in employing the backward-looking (what-shouldhave-been) analysis required to assess proximate causation and retroactively applying Alice, since Plaintiff s alleged invention is not and was never patent-eligible, Plaintiff should not have incurred any attorneys fees or costs associated with prosecuting the patent applications. In its Opposition, Plaintiff misguidedly employs the backward-looking analysis required to assess proximate causation to the standard of care element and erroneously concludes that if successor patent counsel should have known that Plaintiff s alleged invention was not patenteligible, Byrne Poh should have known the same, and thus is liable for malpractice. Plaintiff s argument is fatally flawed because unlike proximate causation, which requires a backwardlooking analysis, the standard of care to which an attorney is held is in accordance with the state of the law at the time of legal representation. See Darby & Darby v. VSI Intl., 95 N.Y.2d 308, 315, 716 N.Y.S.2d 378 (2000) (holding that attorneys are free to act in a manner that is reasonable and consistent with the law as it existed at the time of the representation and noting that the perfect vision and wisdom of hindsight is an unreliable test for determining malpractice); Sklover & Donath, LLC v. Eber-Schmid, 71 A.D.3d 497, 498, 897 N.Y.S.2d 62 (1st Dept. 2010) (holding that an attorney s course of action is not judged based on hindsight); see also Rosner v. 11 14 of 24
Paley, 65 N.Y.2d 736, 738, 492 N.Y.S.2d 13 (1985) (attorneys are free to select among reasonable courses of action in prosecuting clients cases without exposing themselves to liability for malpractice). When Byrne Poh represented Plaintiff (from October 11, 2012 through November 12, 2013), which was pre-alice, there was no legal precedent that rendered Plaintiff s alleged invention ineligible for a patent. Plaintiff s alleged invention did not become retroactively ineligible for a patent until June 19, 2014 when the Supreme Court issued its ruling in Alice. Byrne Poh was discharged by Plaintiff seven months before the Alice decision. Therefore, Byrne Poh cannot be held liable for failing to provide legal advice based on legal precedent that was not yet created. See Encyclopedia Britannica v. Dickstein Shapiro, 128 F. Supp. 3d 103, 110 (D.D.C. 2015) (holding that an attorney s conduct is to be viewed in the context of events prevailing at the time of the alleged malpractice, not in light of subsequent developments). 3. The Attorneys Fees that Plaintiff Paid to Successor Patent Counsel Are Not An Independent Basis for Malpractice Liability Contrary to Plaintiff s argument, increased legal fees and costs alleged by Plaintiff to be damages caused by Byrne Poh s alleged conduct cannot be assessed without considering the issue of patentability. Since Plaintiff s alleged invention was never patent-eligible, then employing the backward-looking proximate causation analysis, which requires this Court to assess what the outcome should have been taking into consideration Alice, Plaintiff should have never incurred attorneys fees and costs paid to successor patent counsel to prosecute its patent applications when its alleged invention was not patent-eligible subject matter. Therefore, 12 15 of 24
Plaintiff cannot demonstrate that attorneys fees and costs allegedly incurred after the discharge of Byrne Poh are an independent basis for malpractice liability 4. If this Court agrees with Plaintiff s argument that increased legal fees sustained after the discharge of Byrne Poh are sufficient to plead proximate causation irrespective of the patentability of Plaintiff's alleged invention, it must dismiss that portion of Plaintiff s legal malpractice claim seeking damages for lost patent benefit (i.e., lost patent royalty revenue, impairment of its patent portfolio, loss of competitive advantage). Since Plaintiff s alleged invention is not patent-eligible, there is no factual or legal basis for Plaintiff to sustain the element of proximate causation with respect to its damages of lost patent benefit. As such, Plaintiff must be limited to litigating the portion of its legal malpractice claim for attorneys fees and costs allegedly incurred (and that would allegedly not have been incurred absent Byrne Poh's alleged negligence). Gamiel v. Curtis & Reiss-Curtis, P.C. does not support Plaintiff s argument that legal fees paid to successor patent counsel is sufficient to plead a legal malpractice irrespective of whether its alleged invention is patent-eligible. See 16 A.D.3d 140, 141 (1st Dept. 2005). In Gamiel, the First Department held that allegations that an attorney s negligence resulted in legal expenses that would not have otherwise been incurred were sufficient to survive a C.P.L.R. 3211(a)(7) motion. Id. Unlike Gamiel where additional fees should have been incurred as a result of the attorney's negligence, in this case, the legal fees Plaintiff alleges to have paid successor patent counsel and any related expenses should not have been incurred under the 4 It should be noted that Plaintiff paid Byrne Poh a total of $3,000 in connection with the preparation and filing of its patent applications. The entirety of the $3,000 was applied to cover fees paid to the USPTO. As such, Plaintiff never paid Byrne Poh for any of the legal work in preparing the patent applications, and thus cannot claim as damages the $3,000 paid to Byrne Poh. 13 16 of 24
backward-looking analysis for proximate causation because Plaintiff s alleged invention is not and was never patent-eligible. Plaintiff s reliance on NeuroRepair, Inc. v. Nath Law Group is likewise misguided. The sole issue presented for review in NeuroRepair was whether a legal malpractice action arising from the prosecution of patent applications was properly removed to federal court under 28 U.S.C. 1338. See 781 F.3d 1340, 1343-45. The Court did not address whether the allegations sufficiently demonstrated the proximate causation element necessary to sustain a legal malpractice cause of action nor did the Court issue any ruling as to whether plaintiff properly pleaded the proximate causation element of its legal malpractice claim. Id. Thus, NeuroRepair has no applicability as to whether Plaintiff has sufficiently pleaded proximate causation in this case. Thus, this Court should either dismiss Plaintiff s legal malpractice claim in its entirety or dismiss that portion of Plaintiff s legal malpractice claim asserting damages relating to lost patent benefit. POINT II THIS COURT IS REQUIRED TO MAKE A HYPOTHETICAL DETERMINATION OF PATENTABILITY IN ORDER TO DETERMINE WHETHER PLAINTIFF HAS MET THE BURDEN OF PLEADING PROXIMATE CAUSATION To assess whether Plaintiff can sustain its legal malpractice claim, this Court must address and decide whether Plaintiff s alleged invention is patentable under the current legal standard in the first place. As argued in Point I above, since Plaintiff s alleged invention is not patent-eligible under the current controlling legal standard, Plaintiff fails to plead and will be unable to prove that but-for Byrne Poh s alleged conduct, it would have received patents for its alleged invention and would not have sustained damages for lost patent benefit, and increased 14 17 of 24
legal fees and costs for successor patent counsel. In other words, because Plaintiff s alleged invention is not patentable for reasons unrelated to Byrne Poh s alleged delays, inaction, and misrepresentations, (i.e., Plaintiff s alleged invention is not patentable because it is not patent eligible under controlling legal standard set forth in Alice), then Plaintiff cannot demonstrate that Byrne Poh s alleged malpractice caused its damages. See e.g., Encyclopaedia Britannica v. Dickstein Shapiro, LLP, 128 F. Supp. 3d 103, 110 (D.D.C. 2015). It is well-settled in the First Department that Plaintiff s failure or inability to demonstrate proximate causation mandates the dismissal of a legal malpractice claim, regardless of the negligence of the attorney. See Tanel v. Kreitzer & Vogelman, 293 A.D.2d 420, 741 N.Y.S.2d 221 (1st Dept. 2002); Pellegrino v. File, 291 A.D.2d 60, 63, 738 N.Y.S.2d 320 (1st Dept. 2002). New York Courts have routinely held that even if an attorney makes misrepresentations or omissions to a client, the misrepresentations and/or omissions are not the proximate cause of the harm if the client cannot demonstrate its own likelihood of success absent the misrepresentations and/or omissions. See Pellegrino, 219 A.D.2d at 63 citing Hill v. Fisher & Fisher, 203 A.D.2d 328, 610 N.Y.S.2d 548 (2d Dept. 1994). Here, without showing that its alleged invention is patent eligible under the Alice standard, Plaintiff s allegations of damages in support of its legal malpractice claim are conclusory, and insufficient as a matter of law to satisfy the pleading standard necessary to sustain a claim for legal malpractice. See Pellegrino, 219 A.D.2d at 64. 1. This Court Can Make a Determination of the Patentability of Plaintiff s Alleged Invention to Assess if Proximate Causation is Properly Pleaded The issue of whether this Court can adjudicate the patentability of Plaintiff s alleged invention is disputed by the parties and the Court s position on this matter is open to interpretation based on the language in the August 4, 2017 Decision. In its Decision, this Court 15 18 of 24
states that it has jurisdiction over the legal malpractice claim but that it is not for this Court to determine whether Plaintiff s software is currently patentable. Clarification of whether this Court has jurisdiction to determine the patentability of Plaintiff s alleged invention will determine whether this action remains in state court, whether there are grounds to remove this action to federal court, and whether dismissal of Plaintiff s legal malpractice claim seeking damages for lost patent benefit is warranted. In its Opposition, Plaintiff does not dispute that its alleged invention is not patent-eligible subject matter under Alice. Indeed, Plaintiff fails to set forth a single argument to show that its alleged invention is patent-eligible based on the undisputed controlling legal standard set forth in Alice. Instead, Plaintiff contends that this Court does not have jurisdiction to determine the patentability of its alleged invention. In arguing that this Court lacks jurisdiction to make a hypothetical determination of patentability, Plaintiff misconstrues Immunocept, LLC v. Fulbright & Jaworski, LLP and NeuroRepair, Inc. v. Nath Law Group. See 504 F.3d 1281 (Fed. Cir. 2007); 781 F.3d 1340 (Fed. Cir. 2015). Plaintiff likewise misapprehends Gunn v. Minton and Bioenergy Life Science, Inc. v. Ribocor, Inc. in arguing that the outcome of those cases are not applicable to the circumstances presented herein. See 568 U.S. 251 (2013); 2015 N.Y. Slip. Op. 30166(U) (N.Y. Sup. Ct. 2015) citing Am. Harley Corp. v. Irvin Indus., Inc., 27 N.Y.2d 168, 172, 263 N.E.2d 552 (1970). It is important to note that this Court cited Am. Harley Corp. in support of its finding of jurisdiction. See Exhibit E, p. 3. The Court of Appeals in Am. Harley Corp. held that a state court can, where it becomes necessary for it to do so in order to decide the case before it, pass upon the meaning, the scope, the validity, or the infringement of a patent. Id. at 173. The state court is precluded from entertaining only those actions where the cases arise under patent laws. Id. 16 19 of 24
In relying on Immunocept, Plaintiff disregards that Immunocept is no longer controlling law as it was overruled by the Supreme Court in Gunn v. Minton. Notwithstanding that Immunocept is no longer prevailing law, it is still distinguishable from this matter. In Immunocept, plaintiffs alleged as the sole cause of malpractice that a drafting error of a claim in a patent application by defendants-attorneys allegedly narrowed the scope of its patent and allowed competitors to copy its methods without infringing its patent. Id. at 1284-85. The defendants-attorneys disputed that there was any drafting error. Id. The U.S. Court of Appeals for the Federal Circuit found that there was federal jurisdiction under 28 U.S.C. 1338 because in light of the dispute as to whether there was a drafting error that prevented a finding of infringement, the Court had to determine the proper scope of the claim drafted by the defendantsattorneys, which constituted a substantial question of federal law. Id. at 1285. Here, unlike Immunocept, Plaintiff does not allege a drafting error in the patent applications filed by Byrne Poh nor does Plaintiff allege any substantive defects with the patent applications. Rather, Plaintiff s malpractice allegations are that Byrne Poh delayed, failed to file amendments to the patent applications elaborating on components of its alleged invention, and did not keep its principal informed. Furthermore, contrary to Immunocept where the parties disputed whether there was a drafting error, in this case, for purposes of this motion, Plaintiff s allegations of malpractice are accepted as true and Plaintiff is afforded the benefit of every favorable inference. In fact, in its Opposition, Plaintiff does not even dispute that its invention is not patentable subject matter under Alice. As such, Immunocept has no applicability to the circumstances presented here. NeuroRepair does not support Plaintiff s argument that this Court does not have jurisdiction to assess the patentability of Plaintiff s alleged invention in order to assess whether 17 20 of 24
Plaintiff can sustain the element of proximate causation. In fact, the U.S. Court of Appeals for the Federal Circuit in NeuroRepair actually remanded the legal malpractice case to California state court holding that federal jurisdiction under 28 U.S.C. 1338 was lacking. 781 F.3d 1340 (Fed. Cir. 2015). The NeuroRepair Court s reasoning as to why federal jurisdiction was absent is instructive here: because of the backward-looking nature of a legal malpractice claim, the patent law question is posed in a merely hypothetical sense and that no matter how the state courts resolve that hypothetical case within a case, it will not change the real-world result of the federal patent litigation. Id. at 1345. Thus, NeuroRepair fails to show that this Court has no jurisdiction to undertake a hypothetical determination of the validity of Plaintiff s patent applications. Plaintiff also distorts the rationale in Gunn v. Minton and Bioenergy Life Science, Inc. v. Ribocor, Inc. in arguing that they are not applicable to the circumstances presented in this case. See 568 U.S. 251 (2013); 2015 NY Slip Op 30166(U) (N.Y. Sup. Ct. 2015) citing Am. Harley Corp. v. Irvin Indus., Inc., 27 N.Y.2d 168, 172, 263 N.E.2d 552 (1970). While the malpractice allegations in Gunn arose out of a patent infringement action, the outcome of the malpractice claim, as is the case here, was entirely dependent on the application of federal patent law. Id. at 259. Specifically, the central issue in Gunn, which is identical to the instant matter, is that the plaintiff in Gunn was required to demonstrate that but-for his attorney s alleged acts or omissions, the plaintiff s patent would have had a valid patent. Id. The Court in Gunn held that the legal malpractice case belonged in state court reasoning that the need to decide a hypothetical patent issue is not substantial enough to deprive the state court of jurisdiction. Id. at 252. The Court in Bioenergy Life Science relied on Gunn in finding that a breach of contract claim that concerns the validity of patents is properly adjudicated in state court reasoning that 18 21 of 24
actions involving contracts relating to patents are not considered suits arising under [patent] laws and are properly brought in state court, even if the validity of the patent may somehow be involved and the plaintiff could have brought suit for its infringement in federal court. 2015 NY Slip Op 30166(U) at *8. Here, applying the principles of Gunn and Bioenergy Life Science, this Court is not precluded from undertaking a hypothetical examination of whether or not Plaintiff s alleged invention is patent-eligible under the Alice standard in order to determine if Plaintiff can sustain a claim for legal malpractice. Accordingly, Plaintiff s legal malpractice claim should be dismissed. If this Court does not have jurisdiction to determine whether Plaintiff s alleged invention is patent-eligible under the controlling federal standard set forth in Alice, then this action must be adjudicated in federal court and should be removed. 2. It is Not Premature to Assess Whether Plaintiff s Alleged Invention is Patent- Eligible Plaintiff s argument that it is premature to determine whether Plaintiff s alleged invention is patent-eligible is nothing more than a delay tactic. There is nothing to prevent this Court from making a hypothetical determination of patent-eligibility at this stage. The character and meaning of Plaintiff s alleged invention is not in dispute, as Byrne Poh has accepted as true Plaintiff s own allegations in the Complaint that describe its alleged invention (for purposes of this motion) (See Complaint, 25). Moreover, other than Plaintiff s allegations of its invention, there is no additional information that is required for this Court to issue a ruling as to whether Plaintiff s alleged invention is patent-eligible under Alice. Plaintiff s position that discovery is necessary to obtain an understanding of the basic character of Plaintiff s alleged invention and to determine whether it is patent-eligible under the controlling Alice is unsupported by any legal authority. In fact, contrary to Plaintiff s position, there is no requirement for courts to construe 19 22 of 24
claims before determining patentability of an invention. See Encyclopaedia Britannica, 128 F. Supp. 3d at 111 (dismissing a legal malpractice claim, without any claim construction or discovery, by applying the controlling legal standard for patentability set forth in Alice to a patent that was issued in 1993 and holding that the patent was invalid as a matter of law because it merely recited computerized implementation of abstract ideas). The caselaw Plaintiff relies upon in attempting to argue that additional information is or documents are required before this Court can apply the Alice standard is inapposite. Both WAG Acquisition, LLC v. MultiMedia, LLC and Synchronoss Techs., Inc. v. Hyperlync Techs., Inc. in which the Court ruled that discovery was required to conduct a patentability evaluation are distinguishable from the instant matter because in those cases the parties vigorously disputed the basic character and meaning of the invention at issue. 2015 U.S. Dist. LEXIS 121028 at *17 (D.N.J. 2015); 2016 U.S. Dist. LEXIS 28727 at *8-9 (D.N.J. 2016). Here, there is no dispute as to the character and meaning of Plaintiff s alleged invention because, for purposes of this motion, Plaintiff s own allegations in the Complaint that describe its alleged invention are accepted as true (See Complaint, 25). Furthermore, unlike WAG Acquisition, LLC and Synchronoss Techs., Inc. in which the Court s determination of patentability would declare patents invalid and have a significant impact on the patent-holders and the public, in this case, Plaintiff has no patents. Furthermore, this Court s hypothetical analysis of patentability in the context of the legal malpractice claim at issue will not bind nor in any way influence the USPTO in evaluating Plaintiff s patent applications. Thus, this Court should issue a decision at this time that the Plaintiffs alleged invention is not patentable subject matter. 20 23 of 24
CONCLUSION Based on the foregoing and the arguments set forth in Defendants original moving papers, it is respectfully submitted that the instant motion for reargument under C.P.L.R. 2221(d) is granted and that Plaintiff s legal malpractice claim is dismissed, with prejudice, pursuant to C.P.L.R. 3211(a)(7), together with such other, and further relief as this Court deems just and proper. Dated: New York, New York October 26, 2017 Respectfully submitted, FURMAN KORNFELD & BRENNAN LLP By: /s/ Izabell Lemkhen A. Michael Furman, Esq. Izabell Lemkhen, Esq. Attorneys for Defendants BYRNE POH LLP, MATTHEW T. BYRNE, PHILIP R. POH, and GARY WALPERT 61 Broadway, 26 th Floor New York, New York 10006 Telephone No.: (212) 867-4100 Our File No. 313.054 21 24 of 24