EXHIBIT 2009
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page1 of 21
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`
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`Brooke A. M. Taylor, WSBA 33190 (Admitted Pro Hac Vice)
`btaylor@susmangodfrey.com
`Jordan W. Connors, WSBA 41649 (Admitted Pro Hac Vice)
`jconnors@susmangodfrey.com
`SUSMAN GODFREY L.L.P.
`1201 Third Avenue, Suite 3800
`Seattle, WA 98101-3000
`Telephone: (206) 516-3880
`Facsimile: (206) 516-3883
`
`Stephen E. Morrissey, CA Bar 187865
`smorrissey@susmangodfrey.com
`SUSMAN GODFREY L.L.P.
`1901 Avenue of the Stars, Suite 950
`Los Angeles, CA 90067-6029
`Telephone: (310) 789-3103
`
`Facsimile: (310) 789-3150
`
`Plaintiff Vasudevan Software, Inc.
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`
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`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
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`VASUDEVAN SOFTWARE, INC.,
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`vs.
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`MICROSTRATEGY INCORPORATED,
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`Plaintiff,
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`Defendant.
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`Case No. 3:11-06637-RS-PSG
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`PLAINTIFF VASUDEVAN SOFTWARE,
`INC.’S REPLY IN SUPPORT OF
`MOTION FOR SANCTIONS AGAINST
`MICROSTRATEGY
`
`Date: January 24, 2013
`Time: 1:30 pm
`Location: 450 Golden Gate Avenue
`San Francisco, California
`
`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS -i
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`I.
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`II.
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page2 of 21
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`TABLE OF CONTENTS
`
`MicroStrategy Does not Deny That it Threatened VSi and its Counsel and Filed the
`Zillow Petition With a Vindictive and Improper Purpose to Extort a Settlement ............. 2
`
`The First Amendment Does not Immunize MicroStrategy From Court Sanctions for
`Threatening VSi and its Counsel and For Seeking to Harm VSi in Bad Faith .................. 5
`
`A.
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`B.
`
`The Noerr-Pennington Doctrine Relied on By MicroStrategy Does not
`Immunize Activity From the Court’s Inherent Sanctioning Authority .................. 5
`
`Binding Supreme Court and Ninth Circuit Precedent Establishes that Even
`Non-Frivolous Conduct Is Sanctionable if a Court Finds Bad Faith or an
`Improper Purpose ................................................................................................... 8
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`MicroStrategy’s Threats and Extortion Are not Petitioning Activity .................. 10
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`
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`C.
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`D. MicroStrategy’s Proposed Rule Would Invite Abuse .......................................... 12
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`III. MicroStrategy’s Summary of PTO Procedure Is Inaccurate, and Zillow’s Right to
`Seek Further Relief Before the PTO Does Not Immunize MicroStrategy From Relief
`in This Court for the Harm and Threats it Has Inflicted on VSi ...................................... 13
`
`
`IV.
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`V.
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`VSi’s Sanctions Motion Complies With the Local Rules and the Federal Rules of
`Civil Procedures; MicroStrategy’s Request for Attorneys’ Fees Does Not ..................... 14
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`Appropriate Sanctions ...................................................................................................... 15
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS -ii
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page3 of 21
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`
`
`
`TABLE OF AUTHORITIES
`
`
`Cases
`B.K.B. v. Maui Police Dept.,
`276 F.3d 1091(9th Cir. 2002)....................................................................................................... 9
`
`BE & K Const. Co. v. N.L.R.B.,
`536 U.S. 516 (2002) ............................................................................................................... 6, 10
`
`Bridge C.A.T. Scan Assoc. v. Technicare Corp.,
`710 F.2d 940 (2nd Cir. 1983) ....................................................................................................... 7
`
`Edwards v. Marin Park, Inc.,
`91 F. App’x 14 (9th Cir. 2004) .................................................................................................. 14
`
`Fink v. Gomez,
`239 F.3d 989 (9th Cir. 2001)........................................................................................................ 9
`
`George v. Industrial Maintenance Corp.,
`305 F. Supp. 2d (D. V. I. 2002) ................................................................................................... 7
`
`Globetrotter Software, Inc. v. Elan Computer Group,
`362 F.3d 1367 (Fed. Cir. 2004) .................................................................................................... 7
`
`GP Indus., Inc. v. Eran Indus., Inc.,
`500 F.3d 1369 (Fed. Cir. 2007) .............................................................................................. 7, 11
`
`iLOR, LLC v. Google, Inc.,
`631 F.3d 1372 (Fed. Cir. 2011) .................................................................................................... 8
`
`In re Itel Securities Litigation,
`791 F.2d 672 (9th Cir. 1986)........................................................................................................ 9
`
`Kramer v. Tribe,
`156 F.R.D. 96 (D.N.J. 1994) ...................................................................................................... 12
`
`Lipsig v. National Student Mktg. Corp.,
`663 F.2d 178 (D.C. Cir. 1980) ..................................................................................................... 9
`
`Panduit Corp. v. All States Plastic Mfg. Co.,
`744 F.2d 1564 (Fed. Cir. 1984) .................................................................................................... 8
`
`Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc.,
`508 U.S. 49 (1993) ........................................................................................................... 7, 11, 12
`
`Richardson–Merrell Inc. v. Koller,
`472 U.S. 424 (1985) ..................................................................................................................... 8
`
`Roadway Express, Inc.,
`447 U.S. 752 (1980) ................................................................................................................... 10
`
`Sosa v. DIRECTV, Inc.,
`
`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS -iii
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page4 of 21
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`437 F.3d 923 (9th Cir. 2006).................................................................................................. 8, 11
`
`Summerfield v. Strategic Lending Corp.,
`No. 09-cv-02609-HRL, 2010 WL 509923, (N.D. Cal. June 17, 2010) ..................................... 15
`
`U.S. v. Carmichael,
`326 F. Supp. 2d 1267, 1273 (M.D. Ala. 2004) ............................................................................ 7
`
`Zaldivar v. Los Angeles,
`780 F.2d 823 (9th Cir. 1986)........................................................................................................ 7
`Other Authorities
`35 U.S.C. § 285 ................................................................................................................................ 8
`
`35 U.S.C.A. § 313 .......................................................................................................................... 14
`
`Leahy–Smith America Invents Act, Pub.L.
`No. 112–29, § 6, 125 Stat. 284, 299–305 (2011)………………………………………………………………14
`
`42 U.S.C. § 3613 ............................................................................................................................ 14
`
`
`Sandra Day O'Connor, Professionalism,
`76 Wash. U. L.Q. 5 (1998) ......................................................................................................... 13
`Rules
`Federal Rules and Civil Procedures 11 ...................................................................................... 7, 15
`
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS -iv
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page5 of 21
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`VSi seeks sanctions against MicroStrategy not merely because MicroStrategy filed a
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`petition to review a patent that is unrelated to MicroStrategy’s business, but because
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`MicroStrategy threatened VSi and its counsel, and filed the petition to review Zillow’s patent
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`(“Zillow Petition”) for the purpose of extorting a settlement in this case. VSi submitted three
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`sworn declarations from witnesses who heard Jonathan Klein threaten VSi and Susman Godfrey,
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`and state his motivation for harming Susman Godfrey—to pressure VSi to dismiss its claims.
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`Tellingly, Mr. Klein did not submit a declaration denying his stated motives, and Mr. Sean Pak,
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`MicroStrategy’s other witness to Mr. Klein’s statements, also submitted no denial either.
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`MicroStrategy does not—because it cannot—deny that it engaged in the reprehensible
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`conduct at issue. Instead, MicroStrategy argues that it is immune from punishment unless this
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`Court delves into the merits of the Zillow Petition and finds that it is objectively baseless.1 But
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`MicroStrategy is wrong on the law. The most recent Supreme Court precedent that
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`MicroStrategy cites expressly rejected the notion that the immunity MicroStrategy claims applies
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`to Court sanctions. Numerous other Supreme Court and Ninth Circuit cases confirm that the
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`Court has authority to sanction a litigant who engages in bad faith or who “is substantially
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`motivated by vindictiveness, obduracy, or mala fides,” under the Court’s inherent powers,
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`without delving into the objective reasonableness of the litigant’s conduct or filing.
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`This binding Supreme Court and Ninth Circuit precedent exists for a reason. Allowing
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`MicroStrategy to threaten its adversaries and file separate actions in bad faith to extort settlements
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`is a waste and misuse of administrative resources and a threat to its adversaries’ right to a fair
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`hearing. The Court should sanction MicroStrategy to stop this abuse, and deter other defendants
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`1 MicroStrategy also opens its Opposition with a prejudicial and highly misleading review of
`some of the discovery issues and motions practice in this case. Opposition at 1. VSi disputes
`MicroStrategy’s account of these matters, but will not engage in this side-show, as it has no
`relevance to the instant Motion and is a transparent attempt to distract from the merits.
`
`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 1
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page6 of 21
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`
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`from engaging in this behavior as a Court-approved strategy to avoid the merits.
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`I.
`MicroStrategy Does not Deny That it Threatened VSi and its Counsel And Filed the Zillow
`Petition With a Vindictive and Improper Purpose to Extort a Settlement
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`VSi’s motion for sanctions established three facts: (1) MicroStrategy threatened to harm
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`VSi and its counsel, Susman Godfrey, if VSi did not dismiss its lawsuit; (2) after VSi refused to
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`dismiss the suit, MicroStrategy made good on its threats and sought to harm VSi and Susman
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`Godfrey by filing the Zillow Petition; and (3) MicroStrategy’s threats and actions were motivated
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`by its vindictive desire to extort a settlement from VSi.
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`VSi established MicroStrategy’s threats with the sworn declarations of three attorneys
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`who personally witnessed MicroStrategy’s then-General Counsel (now President) Jonathan Klein
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`threaten to harm VSi and Susman Godfrey. Motion at 4-5. Mr. Klein’s threats included that he
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`would make VSi’s litigation as “painful as possible” and take action against Susman Godfrey. Id.
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`VSi established MicroStrategy’s efforts to harm VSi and Susman Godfrey by
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`demonstrating that, seven weeks after Mr. Klein threatened VSi and its counsel, MicroStrategy
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`filed the Zillow Petition, which has the potential to impose significant costs and delays upon
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`Susman Godfrey’s separate client, Zillow. Id. at 5-9.
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`VSi established MicroStrategy’s vindictive and extortive motivations in several ways. It
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`wasn’t difficult. According to sworn testimony, Mr. Klein told VSi’s attorneys that he would take
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`action against Susman Godfrey if VSi did not dismiss its lawsuit. Id. at 4-5. VSi demonstrated
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`that Mr. Klein signed and submitted the Zillow Petition seven weeks after his extortive threat. Id.
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`at 5-6. VSi also demonstrated that the patent MicroStrategy petitioned the PTO to review,
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`Zillow’s patent, regards online automatic real estate valuations, and has nothing to do with
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`MicroStrategy’s business intelligence software business. Id. at 6-7. Further, VSi demonstrated
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`that the only link between MicroStrategy and the patent MicroStrategy challenged is the fact that
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 2
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page7 of 21
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`Brooke Taylor and Jordan Connors, the lawyers at whom Mr. Klein directed his threats, have
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`asserted the Zillow Patent in a lawsuit that MicroStrategy threatens. Id. Finally, VSi
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`demonstrated that MicroStrategy’s conduct is part of a larger pattern of behavior from
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`MicroStrategy in which MicroStrategy wields legal and administrative procedures as clubs in bad
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`faith to harm its legal adversaries. Id. at 8-9.
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`In the face of these serious accusations and evidentiary support, MicroStrategy does not
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`deny that it engaged in the threats and harmful actions at issue. Nor does MicroStrategy deny its
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`extortive and vindictive motivations. MicroStrategy does not even deny that it acted in bad faith.
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`MicroStrategy’s only substantive factual statement submitted along with its opposition is an
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`irrelevant statement from Jennifer Kash, an attorney who was not on the offending September 10
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`phone call, stating that she was unaware of MicroStrategy’s threats and harmful actions back in
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`November, 2012. Opposition at 4. MicroStrategy submits no statement from Mr. Pak,
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`MicroStrategy’s outside counsel who was on the September 10 phone call, or from Mr. Klein,
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`MicroStrategy’s then-general counsel who made the threats against VSi, carried them out, and
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`stands accused of vindictive and extortionate motives.
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`Rather than deny the accused conduct and malicious motivations, MicroStrategy makes a
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`half-hearted attempt to argue that VSi failed to present enough evidence. MicroStrategy first
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`asserts that “VSI has presented no evidence of an improper purpose.” Demonstrably false. See
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`supra; see also Motion at 5-9. MicroStrategy then shrugs off Mr. Klein’s threats as “typical
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`statements made during settlement negotiations” and “entirely proper.” Opposition at 8-9.
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`MicroStrategy also insinuates, but does not come out and say, that Mr. Klein’s threats to take
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`action against Susman Godfrey regarded MicroStrategy’s boilerplate counterclaim in this case,
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`filed in March, 2012, to seek its attorneys’ fees. Opposition at 9. Finally, in a footnote,
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`MicroStrategy insinuates, but does not come out and say, that MicroStrategy filed the Zillow
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 3
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page8 of 21
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`
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`Petition because “MicroStrategy’s software is, in any event, used by companies in the real estate
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`industry, the same field as the Zillow patent.” Opposition at 10 n.9.
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`But MicroStrategy’s indirect insinuations are not credible for the reasons explained below
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`and its lack of counter-evidence is glaring. If Mr. Klein had any motivation other than to harm,
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`threaten, intimidate, and extort, he would have submitted a sworn declaration stating his actual
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`motivation. If Mr. Klein did not, in fact, link his threat to harm Susman Godfrey with his demand
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`that VSi dismiss this lawsuit on the September 10 call, Mr. Pak would have so declared. If
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`MicroStrategy, a publicly owned company with a stated purpose to sell business intelligence
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`software, was using its shareholder-owned resources to launch a new endeavor to “quality check”
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`patents issued by the PTO, its public SEC filings would say so. If MicroStrategy’s true motive in
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`challenging the Zillow Patent was to serve some of its customers who happen to conduct business
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`in real estate, it would point to its communications and marketing efforts informing those
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`customers about what a comprehensive competitor-patent-quality-checking service MicroStrategy
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`provides. If Mr. Klein’s threats referred to MicroStrategy’s earlier boilerplate counterclaim about
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`attorneys’ fees, he wouldn’t have said “you’ll have to wait and see,” when Les Payne asked Mr.
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`Klein what he meant by his threat. If MicroStrategy’s filing of the Zillow Petition were anything
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`other than a targeted attack on Brooke Taylor, Jordan Connors, and Susman Godfrey’s business
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`as lawyers and as a law firm, MicroStrategy would be able to point to other review petitions that
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`it has filed that are unrelated to MicroStrategy’s business. MicroStrategy has no counter-
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`evidence to point to; all it has is indirect and incredible insinuations.
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`Accordingly, VSi’s evidence, including Mr. Klein’s own statements confirming his
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`vindictive and extortive motive, establishes that MicroStrategy threatened to harm VSi and its
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`counsel, acted in bad faith, and filed the Zillow Petition in an effort to extort a settlement.
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`MicroStrategy’s failure to offer evidence refuting these facts confirms them.
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 4
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page9 of 21
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`II.
`The First Amendment Does not Immunize MicroStrategy From Court Sanctions for Threatening
`VSi and its Counsel and For Seeking to Harm VSi in Bad Faith
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`Rather than deny facts that MicroStrategy cannot deny, MicroStrategy argues that it is
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`immune from punishment. MicroStrategy says that despite its threats to VSi and its counsel, its
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`efforts to carry out those threats, and its motivation to extort a settlement from VSi,
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`MicroStrategy is immune from any penalty or sanction by the First Amendment.
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`But MicroStrategy misleads the Court; as its argument is contravened by clear Supreme
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`Court and Ninth Circuit precedent. MicroStrategy’s argument that its bad faith conduct is
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`immune from punishment is incorrect for four reasons: (1) as the Supreme Court has held, the
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`Noerr-Pennington doctrine does not immunize litigants from sanctions under the Court’s inherent
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`powers, and no case MicroStrategy cited holds that it does so; (2) clear, binding Ninth Circuit
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`precedent establishes that sanctions are appropriate “where a litigant is substantially motivated by
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`vindictiveness, obduracy, or mala fides” or “if the court specifically finds bad faith or conduct
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`tantamount to bad faith”; (3) even if the First Amendment shielded MicroStrategy from liability
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`for filing the Zillow Petition, VSi’s motion concerns MicroStrategy’s threats to VSi and its
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`malicious use of the Zillow Petition to harm VSi’s counsel in a collateral lawsuit, for which
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`MicroStrategy has no immunity; and (4) the rule MicroStrategy advocates would grant
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`MicroStrategy and other litigants carte blanche to employ judicial and administrative resources to
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`threaten and intimidate, in bad faith, for their own extortive means.
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`A. The Noerr-Pennington Doctrine Relied on By MicroStrategy Does not Immunize
`any Activity From the Court’s Inherent Sanctioning Authority
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`MicroStrategy says the law is the following: “[P]etitioning activity cannot be sanctioned
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`or subject to liability unless the petition is objectively baseless, regardless of any allegedly
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`improper subjective motivation.” That statement is simply false. Opposition at 6. None of the
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 5
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page10 of 21
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`
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`cases that MicroStrategy paraphrases actually support such a holding, and in fact, the most recent
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`Supreme Court case on which MicroStrategy relies expressly denies it.
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`The Noerr-Pennington doctrine, on which MicroStrategy relies, is a doctrine of statutory
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`interpretation that construes the Sherman Act not to apply to certain activity such as petitioning
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`the three branches of the government. See BE & K Const. Co. v. N.L.R.B., 536 U.S. 516, 525
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`(2002). The interpretation is based “in part on the principle that we would not lightly impute to
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`Congress an intent to invade ... freedoms’ protected by the Bill of Rights, such as the right to
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`petition.” Id. at 525 (citations omitted). While the Noerr-Pennington doctrine has been applied
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`to construe other statutes as well, the doctrine has never been applied to grant litigants immunity
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`from the Court’s inherent power to sanction them for bad faith conduct.
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`To the contrary, in the most recent Supreme Court case on which MicroStrategy relies, BE
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`& K Constr., the Court expressly denies that the First Amendment immunizes litigants from being
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`sanctioned even for activity that is protected by the First Amendment and not covered by the
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`Sherman Act and other statutes. In BE & K Constr., the Court held that, while the National Labor
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`Relations Act did not impose liability upon reasonably based, unsuccessful lawsuits:
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`[N]othing in our holding today should be read to question the validity of
`common litigation sanctions imposed by courts themselves-such as those
`authorized under Rule 11 of the Federal Rules of Civil Procedure—or the
`validity of statutory provisions that merely authorize the imposition of attorney's
`fees on a losing plaintiff.
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`BE & K Constr., 536 U.S. at 537 (all emphasis in this Reply is added). MicroStrategy cites the
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`case to support its immunity defense, but completely ignores the clear admonition from the
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`Supreme Court that litigation sanctions are not implicated by the doctrine. Thus, while
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`MicroStrategy’s cases may establish that VSi cannot bring certain antitrust or NLRA claims
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`against MicroStrategy for its malicious conduct and bad faith, MicroStrategy has no immunity
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`from litigation sanctions.
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 6
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
`

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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page11 of 21
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`The other cases MicroStrategy cites are no more applicable and no more supportive of
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`MicroStrategy’s claimed immunity. MicroStrategy cites a string of cases from other jurisdictions
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`to support its proposition that “[e]ven a court’s inherent power, including the power to sanction, is
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`subject to the limitations imposed by the First Amendment.” Motion at 6 & n.4. But all of those
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`cases merely discuss certain remedies imposed by courts and whether they run afoul of First
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`Amendment jurisprudence on prior restraints; none of the cases limits the kind of activity that
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`may be sanctioned in the first place. See Bridge C.A.T. Scan Assoc. v. Technicare Corp., 710
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`F.2d 940 (2nd Cir. 1983) (concerning whether injunction granted by district court enjoining
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`disclosure of trade secret data constituted invalid prior restraint); U.S. v. Carmichael, 326 F.
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`Supp. 2d 1267, 1273 (M.D. Ala. 2004) (concerning whether court order requiring criminal
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`defendant to take down website proclaiming his innocence is valid prior restraint on free speech);
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`George v. Industrial Maintenance Corp., 305 F. Supp. 2d 537, 543 (D. V. I. 2002) (concerning
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`whether to impose remedy that would impose limits on “dissemination of information regarding
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`hiring and pay practices” in light of First Amendment principles).
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`MicroStrategy also cites four cases to support propositions regarding the “objectively
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`baseless” litigation standard. Motion at 6-7. But none of these cases, or the others cited by
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`MicroStrategy, hold that the objectively baseless standard applies as a restriction on a court’s
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`sanctioning authority under its inherent powers when a litigant has acted in bad faith. See Prof’l
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`Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993) (concerning
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`antitrust liability, not court sanctions); Globetrotter Software, Inc. v. Elan Computer Group, 362
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`F.3d 1367 (Fed. Cir. 2004) (concerning state law business tort liability, not court sanctions); GP
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`Indus., Inc. v. Eran Indus., Inc., 500 F.3d 1369 (Fed. Cir. 2007) (same); Zaldivar v. Los Angeles,
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`780 F.2d 823, 832 (9th Cir. 1986) (concerning the interpretation of FRCP 11, without any
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 7
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page12 of 21
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`discussion of First Amendment).2 In other words, MicroStrategy cites no case (and VSi is aware
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`of none) that holds or suggests that petitioning activity that is objectively reasonable, but
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`conducted in bad faith or for an improper purpose, has any immunity at all from, in the Supreme
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`Court’s words, litigation sanctions imposed by the courts themselves.”
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`B. Binding Supreme Court and Ninth Circuit Precedent Establishes That Even Non-
`Frivolous Conduct Is Sanctionable if a Court Finds Bad Faith or an Improper
`Purpose
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`MicroStrategy’s claimed immunity from punishment is also contradicted by clear,
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`binding3 Ninth Circuit precedent. As VSi explained in its Motion, the Ninth Circuit does not
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`require a court to consider the merits of an offending action in imposing sanctions, so long as the
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`court finds bad faith or an improper purpose:
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`[f]or purposes of imposing sanctions under the inherent power of the court, a
`finding of bad faith does not require that the legal and factual basis for the
`action prove totally frivolous; where a litigant is substantially motivated by
`vindictiveness, obduracy, or mala fides, the assertion of a colorable claim will not
`bar the assessment of attorney's fees. …
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`[S]anctions are available if the court specifically finds bad faith or conduct
`tantamount to bad faith. Sanctions are available for a variety of types of willful
`actions, including recklessness when combined with an additional factor such
`as frivolousness, harassment, or an improper purpose.
`
`2 MicroStrategy also cites two cases for the limited proposition that courts have extended the
`Noerr-Pennington doctrine beyond antitrust suits. Motion at 6. But neither case held that
`activities such as filing petitions to harm your adversaries grant the petitioner immunity from the
`Court’s inherent power to sanction litigants. See Sosa v. DIRECTV, Inc., 437 F.3d 923, 942 (9th
`Cir. 2006) (dismissing RICO complaint based on pre-suit demand letters after construing RICO
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`not to apply to such activity); iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1376-77 (Fed. Cir.
`2011) (construing 35 U.S.C. § 285, which allows for attorneys’ fees in patent suits that present
`“exceptional cases,” not to apply to plaintiff’s lawsuit because suit was not objectively baseless,
`but also recognizing, despite lack of objective baselessness, “a court can invoke its inherent
`power to award such fees in exceptional cases based upon a finding of bad faith”).
`3 In a patent case, the applicable regional circuit court (the Ninth Circuit here) supplies the
`applicable law to procedural issues that are not unique to patent law, such as sanctions under the
`Court’s inherent authority. See Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564,
`1574–75 (Fed. Cir. 1984), overruled on other grounds by Richardson–Merrell Inc. v. Koller, 472
`U.S. 424 (1985) (“[T]he Federal Circuit [ ] review[s] procedural matters, that are not unique to
`patent issues, under the law of the particular regional circuit court where appeals from the district
`court would normally lie.”).
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`PLAINTIFF VSI’S REPLY IN SUPPORT OF MOTION FOR
`SANCTIONS AGAINST MICROSTRATEGY - 8
`
`C:\Users\mbruns\Desktop\2013-01-14 VSI-MicroStrategy Reply ISO Mtn for Sanctions re Zillow Re-exam Petition.doc
`
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`Case3:11-cv-06637-RS Document151 Filed01/14/13 Page13 of 21
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`B.K.B. v. Maui Police Dept., 276 F.3d 1091, 1108 (9th Cir. 2002).
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`MicroStrategy argues
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`that
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`this clear statement by
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`the Ninth Circuit rejecting
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`MicroStrategy’s position is either dicta, or the Ninth Circuit just got it wrong and it violates
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`Supreme Court precedent. Opposition at 7. The statement is not dicta. In B.K.B. v. Maui Police
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`Dept., the Ninth Circuit upheld a district court’s sanction (which included both attorneys’ fees
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`and compensatory fees for “emotional damage”) after defense counsel introduced improper
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`evidence of the plaintiff’s sexual history at trial. B.K.B., 276 F.3d at 1106. Under
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`MicroStrategy’s purported statement of the law (“petitioning activity,” which extends to actions
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`before the courts, cannot be sanctioned unless “obj