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`SMART EXHIBIT 1018
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 1 of 9
`United States District Court
`Southern District of Texas
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`UNITED STATES DISTRICT COURT
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`SOUTHERN DISTRICT OF TEXAS
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`HOUSTON DIVISION
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`ENTERED
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`August 30, 2016
`David J. Bradley, Clerk
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`JAMES B. GOODMAN,
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`Plaintiff,
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`V.
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`SMART MODULAR TECHNOLOGIES, INc.,
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`Defendant.
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`€0D<0J€&><0D<0DCO.>C03C0.>€03
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`CIVIL ACTION H-14-1380
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`AMENDED MEMORANDUM OPINION AND ORDER
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`Pending before the court are (1) defendant Smart Modular Technologies, Inc. (“Smart”)
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`motion to enforce the settlement agreement (Dkt. 136); (2) Smart’s request for sanctions (id.); and
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`(3) plaintiffJames Goodman’ s motion to compel Smart to accept his proposed settlement documents
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`and end the litigation (Dkt. l39).1 The court held a hearing on these motions on August 23, 2016.
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`After considering the motions, related documents in the record, arguments at the hearing, and the
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`applicable law, the court is of the opinion that Smart’s motion to enforce should be GRANTED IN
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`PART AND DENIED IN PART, Smart’s request for sanctions should be DENIED, and Goodman’s
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`motion should be DENIED.
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`I. MOTIONS TO ENFORCE
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`This is a patent case relating to U.S. Patent No. 6,243,3 15 (“the ‘3 15 Patent”), and the instant
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`motions relate to the interpretation of a settlement agreement and whether Goodman should be
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`sanctioned. On February 25, 2016, the court ordered the parties to attend mediation while this case
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`was stayed pending interpartes review ofthe ‘3 15 Patent at the United States Patent and Trademark
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`Office (“USPTO”). Dkt. 117; see 35 U.S.C. § 311 (noting that a person who does not own a patent
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`may file a petition with the USPTO for inter partes review of the patent). The parties were unable
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`1 The court also addresses a pending motion for costs (Dkt. 121) and a motion to strike a
`relatin to the motion for costs Dkt. 129 , both of which are also currentl
`endin , at the
`re 1
`8
`Y P
`8
`P Y
`conclusion of this order.
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`SMART EXHIBIT 1018-Page 1
`SMART EXHIBIT 1018-Page 1
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 2 of 9
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`to agree to a mediator, and the court appointed the Honorable T. John Ward to mediate. Dkts. 119,
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`123. On June 8, 2016, Ward filed an alternative dispute resolution memorandum indicating that the
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`case had settled. Dkt. 132. On June 20, 2016, Goodman filed a memorandum advising that the
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`parties had settled. Dkt. 134. He attached a settlement term sheet listing the following terms:
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`Goodman shall dismiss all legal claims with prejudice;
`1.
`Goodman shall stipulate that all accused products do not
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`infringe his U.S. Patent No. 6,243,315;
`3.
`Goodman shall grant to Smart Modular a fully paid up, non-
`terrninable, non-royalty bearing, perpetual license to the ‘3 15 patent;
`4.
`Smart Modular shall terminate its Inter Partes Review of the
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`‘3 15 patent;
`5.
`Smart Modular shall terminate its Inter Partes Review of the
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`‘3 15 Patent;
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`Goodman shall obtain Smart Modular’s approval of the form
`6.
`of Goodman’s dismissal and stipulation before Goodman files such
`dismissal and stipulation. Smart Modular shall not unreasonably
`withhold its approval.
`7.
`the parties shall bear their own costs, including attorney fees;
`and
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`this term sheet and any agreement between the parties relating
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`to this litigation or the ‘3 15 patent shall be NON-CONFIDENTIAL.
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`Dkt. 134 (emphasis added). The settlement term sheet also states:
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`THE PARTIES AGREE AND STIPULATE THAT THE
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`DISTRICT COURT SHALL ENFORCE THIS TERM SHEET
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`AS A SETTLEMENT AGREEMENT.
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`Id.
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`After signing this settlement term sheet, the parties were unable to agree to the terms of a
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`formal settlement agreement under paragraph 6. Dkts. 136, 139. Goodman contends that Smart
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`unreasonably refused to agree to the documents he proposed, in violation of paragraph 6. Dkt. 139.
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`Smart contends that the license to which they agreed should be a license that includes all ofthe rights
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`enumerated in 35 U.S.C. § 271 and that Goodman’s proposed settlement agreement narrows the
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`license to exclude the ability to import or have the licensed product imported into the United States.
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`SMART EXHIBIT 1018-Page 2
`SMART EXHIBIT 1018-Page 2
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 3 of 9
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`Dkt. 136. Smart argues that this is not a reasonable interpretation of the term “license” as used in
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`the settlement term sheet. Id.
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`Smart also takes issue with Goodman’s interpretation of the term “accused products” as it
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`is used in paragraph 2. Dkt. 136. Goodman asserts that the term “accused products” does not
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`include the DDR2, DDR3, and DDR4 products discussed in his complaint. Dkt. 139. Goodman
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`contends that his direct infringement claims are limited to the testing ofmemory products DDR2,
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`DDR3, and DDR4 and not the products themselves. Id. Goodman asserts that “[t]here are no Smart
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`products accused of infringing on the ‘3 15 Patent.”2 Dkt. 139 (citing Goodman’s response to
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`Interrogatory No. 18).
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`Finally, Smart disagrees with limitations Goodman seeks to place on the meaning ofthe term
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`“infringe” in paragraph 2. Dkt. 136. Goodman contends the term “infringe” as used in paragraph
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`2 means only direct infringement under 3 5 U. S .C. § 271 (a), not the other types of infringement listed
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`in § 271. Smart argues that “infringe” includes all types of infringement listed in the statute.
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`Dkt. 136.
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`A.
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`Legal Standard
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`A district court has the “inherent power to recognize, encourage, and when necessary enforce
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`settlement agreements reached by the parties.” Del Basque v. AT&TAdvert., L.P. , 441 F. App’x 258,
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`260 (5th Cir. 2011) (quoting Bell v. Schexnayder, 36 F.3d 447, 449 (5th Cir.l994)). Moreover, in
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`this case, the settlement term sheet expressly gave the court the power to enforce the agreement. See
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`Dkt. 134. When considering the Validity of a settlement agreement in a case involving federal law,
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`such as this patent case, the court applies federal law. See Mid-S. Towing Co. v. Har- Win, Inc. , 733
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`F.2d 386, 389 (5th Cir. 1984) (“Questions regarding the enforceability or Validity of [settlement]
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`2 Goodman admitted during the hearing that paragraph 2 of the settlement term sheet has
`absolutely no meaning since, under his definition, there are no “accused products,” and stated he that
`he only agreed to the stipulation because it had no meaning.
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`3
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`SMART EXHIBIT 1018-Page 3
`SMART EXHIBIT 1018-Page 3
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 4 of 9
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`agreements are determined by federal law—at least where the substantive rights and liabilities ofthe
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`parties derive from federal law.”). Under federal law, a settlement agreement is a contract. Lopez
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`v. Kempthorne,No. CIV.A. H-07-1534, 2010 WL 4639046, at *4 (S.D. Tex. Nov. 5, 2010) (Harmon,
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`J.). “The federal law of contracts ‘uses the core principles of the common law of contracts that are
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`in force in most states.’” Id. (quoting Smith v. United States, 328 F.3d 760, 767 n.8 (5th Cir. 2003)
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`(per curiam)). Because “the federal common law of release is largely undeveloped and federal
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`contract law is largely indistinguishable from general contract principles under state common law,”
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`the court may rely on federal cases, state contract law cases, and other treatises to the extent it finds
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`them persuasive. In re Deepwater Horizon, 786 F.3d 344, 354-55 (5th Cir. 2015).
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`The primary goal of contract construction is to give effect to the parties’ intent as reflected
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`in the terms of the contract. Tanner v. Nationwide Mut. Fire Ins. Co., 289 S.W.3d 828,831 (Tex.
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`2009). The contract must be read as a whole, and effect must be given to all parts if possible. State
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`Farm Lloyds v. Page, 315 S.W.3d 525, 527 (Tex. 2010). Courts must “examine and consider the
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`entire writing in an effort to harmonize and give effect to all the provisions of the contract so that
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`none will be rendered meaningless.” Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983).
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`Unambiguous language must be enforced as it is written. Don ’s Bldg. Supply v. One Beacon Ins.,
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`267 S.W.3d 20, 23 (Tex. 2008). Language is ambiguous only if it is susceptible to more than one
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`reasonable interpretation.
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`Id. Language is not ambiguous merely because the parties interpret it
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`differently. Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006). Whether a particular
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`provision or the interaction among multiple provisions creates an ambiguity is always a question of
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`law, and ambiguity must be determined by the four corners of the document without reference to
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`parole evidence. Page, 315 S.W.3d at 527; see also Texas v. Am. Tobacco Co., 463 F.3d 399, 407
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`(5th Cir. 2006) (“Courts interpreting unambiguous contracts are confined to the four comers of the
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`document, and carmot look to extrinsic evidence to create an ambiguity.”). “Only where a contract
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`is first determined to be ambiguous may the courts consider the parties’ interpretation and admit
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`4
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`SMART EXHIBIT 1018-Page 4
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`extraneous evidence to determine the true meaning of the instrument.” Nat ’l Union Fire Ins. Co.
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`ofPittsburgh, Pa.. v. CBIIndus., Inc., 907 S.W.2d 517, 520 (Tex. 1995).
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`B.
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`“License”
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`During the hearing, both parties agreed that the settlement term sheet should be enforced as
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`a settlement agreement. Goodman also agreed on the record that “license” as used in the settlement
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`term sheet and eventual settlement documents, includes the right to “make, have made, use, sell,
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`offer-to-sell, import, or have imported into the United States any and all inventions claimed in the
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`‘3 15 Patent.” Smart stated that it would agree to Goodman’s proposed license, which tracks the text
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`of the settlement term sheet, since Goodman agreed to the meaning of “license” proposed by Smart
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`on the record. Because the parties have reached an agreement on the record regarding this issue,
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`Goodman’s motion to compel and Smart’s motion to enforce, to the extent they request the court to
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`rule on the disputes centering around the meaning of “license,” are DENIED AS MOOT.
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`C.
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`“Accused Products” and “Infringe”
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`The parties were unable to resolve their dispute relating to paragraph 2 ofthe settlement term
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`sheet during the hearing. Goodman contends that paragraph 2’s reference to “accused products”
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`does not include Smart’s DDR2, DDR3, or DDR4 products and that the term “infringe” as used in
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`that paragraph relates only to infringement under 35 U.S.C. § 271(a). Smart contends that
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`Goodman’s understanding of these terms is not reasonable.
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`The court agrees with Smart that Goodman’ s interpretation ofparagraph 2 is not reasonable.
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`The second amended complaint starts out by indicating that the case was filed pursuant to 35 U.S.C.
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`§§ 271 and 281. Dkt. 18 at 2. The ‘3 15 Patent is for a “COMPUTER MEMORY SYSTEM WITH
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`A LOW POWER MODE.” Id. 1] 16. Paragraph 11 of the second amended complaint states that
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`“Smart Modular sells and offers for sale at its web site memory modules DDR2, DDR3, DDR4 for
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`use in this Judicial District for infringing the ‘315 Patent. There are no other reasonable non-
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`infringing uses for the aforementioned memory modules.” Dkt. 18 1] 11. The complaint further
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`5
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`SMART EXHIBIT 1018-Page 5
`SMART EXHIBIT 1018-Page 5
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`states that the DDR2 and DDR3 are “direct infringers” of the ‘3 15 Patent “after the Smart Modular
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`DDR2 and/or DDR3 is incorporated into an operational system.” Id. 11 19. The second amended
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`complaint contains a one-count charge of direct patent infringement, stating that Smart “directly
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`infringes Claim 1 of the ‘3 15 Patent at its facilities located in Newark, California and possibly other
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`locations in the U.S.A. during the development and/or testing ofany ofthe memory products DDR2,
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`DDR3, and/or DDR4, and such infringement is essential for Smart Modular to sell reliable
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`products.” Id. 11 23.
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`Clearly, the DDR2, DDR3, and DDR4 are the “accused products,” as Goodman’s own
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`complaint indicates the only reasonable use ofthese three products is a use that directly infringes on
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`the ‘3 15 Patent and his entire lawsuit is about how these products, when used, infringe on the patent.
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`Moreover, if the court did not interpret the provision “accused products” in paragraph 2 to
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`incorporate the products discussed in the second amended complaint, then the entire paragraph
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`would be meaningless, and contracts should be construed to give meaning to all terms. The fact that
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`Goodman admits that he wanted the term to be meaningless is parole evidence not relevant to the
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`court’s interpretation of the plain and unambiguous meaning of the document.
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`Goodman additionally indicates that his interpretation of the term “infringe” includes only
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`direct infringement under 35 U.S.C. § 271(a), not the indirect types of infringement listed in the
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`other subsections of the statute. Smart interprets “infringe” as including all types of infringement
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`listed in 35 U.S.C. § 271. The court finds that the only reasonable construction in this context is that
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`the term “infringe” encompasses all ofthe types of infringement outlined in 35 U.S.C. § 271, which
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`is entitled “Infringement of Patent.” The statute outlines multiple ways one may infringe a patent
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`or be an infringer. See 35 U.S.C. § 271. Goodman’s construction improperly limits the term to only
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`one type of infringement. Because (1) the only reasonable interpretation of “accused products”
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`includes the DDR2, DDR3, and/or DDR4, and (2) “infringe” in this context includes all of the
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`SMART EXHIBIT 1018-Page 6
`SMART EXHIBIT 1018-Page 6
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 7 of 9
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`subsections of § 271, Smart’s motion to enforce, as it relates to paragraph 2 of the settlement term
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`sheet, is GRANTED.
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`H. REQUEST FOR SANCTIONS
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`Smart urges the court to sanction Goodman for his “dilatory and unreasonable tactics that
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`have vexatiously multiplied these proceedings.” Dkt. 146; see also Dkt. 136. Smart asserts that
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`Goodman is “maintaining unreasonable positions and filing urmecessary documents in an attempt
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`to extend this litigation and extort Smart.”3 Dkt. 146.
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`The court has the inherent power to sanction an attorney. See Chambers v. NASCO, Inc. , 501
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`U.S. 32, 44-45, 111 S. Ct. 2123 (1991); Chaves v. M/VMedz'na Star, 47 F.3d 153, 156 (5th Cir.
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`1995). This power, however, “must be exercised with restraint and discretion.” Chambers, 501 U.S.
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`at 44. The U.S. Supreme Court has acknowledged that sanctions are often appropriate in
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`circumstances in which an attorney has, for instance, been willfully disobedient to a court order or
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`when the attorney has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Id. at 45-
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`46. “In order to impose sanctions against an attorney under its inherent power, a court must make
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`a specific finding that the attorney acted in ‘bad faith.’” Chaves, 47 F.3d at 156. “When a party’s
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`deplorable conduct is not effectively sanctionable pursuant to an existing rule or statute, it is
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`appropriate for a district court to rely on its inherent power to impose sanctions .
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`.
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`. .’ A court must,
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`of course, exercise caution in invoking its inherent power, and it must comply with the mandates of
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`due process, both in determining that the requisite bad faith exists and in assessing fees. ”’ Carroll
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`v. Jaques Admiralty Law Firm, P. C., 110 F.3d 290, 292-93 (5th Cir. 1997) (citations omitted).
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`3 The court notes that Smart has previously requested costs as sanctions for Goodman’s
`alleged dilatory and unreasonable tactics, but analyzes only the instant request for sanctions relating
`to Goodman’ s conduct subsequent to the settlement negotiations. The court understands that Smart’ s
`previous request for sanctions for Goodman’s counsel’s overall conduct during the discovery phase
`of this case (see Dkt. 121) is no longer at issue due to the settlement term sheet’s paragraph
`indicating that the parties would each bear their own costs. See Dkt. 134 11 7.
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`7
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`SMART EXHIBIT 1018-Page 7
`SMART EXHIBIT 1018-Page 7
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 8 of 9
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`The court finds that while Goodman’s counsel’s positions with regard to the settlement were
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`not entirely reasonable, there is not enough evidence of improper behavior for the court to make a
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`finding of bad faith. The request for sanctions is therefore DENIED.
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`HI. CONCLUSION
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`The court finds that the settlement term sheet is a binding settlement agreement. The parties
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`have agreed to use the current phrasing of paragraph 3 of the settlement term sheet in light of
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`Goodman’s stipulation during the hearing. Thus, Smart’s motion to enforce the settlement
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`(Dkt. 136) is DENIED AS MOOT to the extent it seeks to modify the language ofparagraph 3 ofthe
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`settlement term sheet. Within ten (10) days of the date of this order, Smart and Goodman shall
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`execute the license agreement attached as Exhibit C to the Declaration ofDavid Fink that is attached
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`to docket entry 139 (Goodman’s proposed license agreement). This license, together with this order
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`and Goodman’s stipulation on the record, enforces paragraph 3 of the settlement term sheet.
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`Smart’s motion to enforce (Dkt. 136) is otherwise GRANTED. Within ten (10) days of the
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`date ofthis memorandum opinion and order, Goodman is ORDERED to sign and file with the court
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`the stipulation and proposed order contained at docket entry 137 (Smart’s stipulation and proposed
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`order). This stipulation and proposed order enforces paragraph 2 of the settlement term sheet in
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`accordance with the reasoning in this memorandum opinion and order.
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`Smart and Goodman shall file a joint petition to terminate the Inter Partes Review of the
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`‘3 15 Patent, as agreed in paragraph 5 of the settlement term sheet, one business day after Goodman
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`conveys the license and files the stipulation ofnoninfiingement and the court enters the stipulation.
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`Each party shall bear its own costs, including attorneys’ fees, in accordance with paragraph
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`7 of the settlement term sheet.
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`Because each party agreed to bear its own costs, Smart’s pending motion for costs (Dkt. 121)
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`is DENIED AS MOOT.
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`SMART EXHIBIT 1018-Page 8
`SMART EXHIBIT 1018-Page 8
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`Case 4:14—cv—01380 Document 156 Filed in TXSD on 08/30/16 Page 9 of 9
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`The paragraphs of the settlement term sheet dealing with dismissal and forms of dismissal
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`and the stipulations (paragraphs 1, 5 , 6) are no longer relevant, as all ofthe claims and counterclaims
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`in this case are hereby DISMISSED WITH PREJUDICE in accordance with the parties’ settlement
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`agreement.
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`Finally, Goodman’s pending motions to strike two of Smart’s replies (Dkts. 129, 147) are
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`DENIED AS MOOT, Smart’s request for sanctions (Dkts. 136, 146) is DENIED, and Goodman’s
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`motion to compel Smart to accept his proposed settlement documents (Dkt. 139) is DENIED.
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`Signed at Houston, Texas on August 30,
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`SMART EXHIBIT 1018-Page 9
`SMART EXHIBIT 1018-Page 9
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`
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`From:
`To:
`Subject:
`Date:
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`DCECF_LiveDB@txs.uscourts.gov
`DC_Notices@txs.uscourts.gov
`Activity in Case 4:14-cv-01380 Goodman v. Smart Modular Technologies Inc Memorandum and Order
`Tuesday, August 30, 2016 9:36:25 AM
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`U.S. District Court
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`SOUTHERN DISTRICT OF TEXAS
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`Notice of Electronic Filing
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`The following transaction was entered on 8/30/2016 at 11:34 AM CDT and filed on 8/30/2016
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`Case Name:
`Case Number:
`Filer:
`Document Number: 156
`
`Goodman v. Smart Modular Technologies Inc
`4:14-cv-01380
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`Docket Text:
`AMENDED MEMORANDUM OPINION AND ORDER GRANTING IN PART,
` DENYING IN PART [136] MOTION to Enforce Settlement Agreement, DENYING
` AS MOOT [121] MOTION for Costs, DENYING [139] First MOTION to Compel
` Defendant to accept documents to end litigation, DENYING AS MOOT [147]
` MOTION to Strike [145] Reply in Support of Motion TO ENFORCE SETTLEMENT
` AND COSTS, DENYING AS MOOT [129] MOTION to Strike [121] MOTION for
` Costs UNDER RULE 16, DENYING [146] REQUEST for Sanctions.(Signed by
` Judge Gray H Miller) Parties notified.(rkonieczny, 4)
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`4:14-cv-01380 Notice has been electronically mailed to:
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`Christopher C. Carnaval ccarnaval@kslaw.com
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`David Fink texascowboy6@gmail.com
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`Michael F. Heafey rgowins@kslaw.com, mheafey@kslaw.com
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`Michael Steven McCoy mmccoy@am-iplaw.com
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`4:14-cv-01380 Notice has not been electronically mailed to:
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`Scott Edward Woloson
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`The following document(s) are associated with this transaction:
`
`SMART EXHIBIT 1018-Page 10
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`Document description:Main Document
`Original filename:n/a
`Electronic document Stamp:
`[STAMP dcecfStamp_ID=1045387613 [Date=8/30/2016] [FileNumber=24357008-
`0] [3b17160dd8e77825f5cb534e3e0ed436dd62882b1352e58af2f4043422e6511afe
`aac66616a9fdce54caa535b149e3143900cb2f6239fbe8fcfda6920a10aadc]]
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`SMART EXHIBIT 1018-Page 11