Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 1 of 8
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`THE HON. JAMES L. ROBART
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF WASHINGTON
`AT SEATTLE
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`PHILIPS NORTH AMERICA LLC, a
`Delaware Company; KONINKLIJKE
`PHILIPS N.V., a Company of the
`Netherlands; and PHILIPS INDIA, LTD.,
`an Indian Company,
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`Plaintiffs,
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`vs.
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`SUMMIT IMAGING INC., a Washington
`Corporation; LAWRENCE R NGUYEN, an
`individual; and DOES 1-10, inclusive,
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`Civil Action No.: 2:19-cv-01745
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`DEFENDANTS’ RESPONSE TO
`COURT’S SHOW CAUSE ORDER
`REGARDING SCHEDULING
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`Defendants.
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 2 of 8
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`On November 23, 2020, the Court granted the motion filed by Defendants Summit
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`Imaging Inc. and Lawrence R. Nguyen (together “Summit”) for leave to amend their answer and
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`affirmative defenses. As part of the order granting Summit’s motion (the “Order”), the Court also
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`directed the parties “to meet and confer and then show cause regarding whether the parties can
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`prepare the antitrust counterclaims for trial under the current trial schedule.” See Order (Dkt.
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`#77), at 4. Finally, the Court lifted the stay on discovery concerning Summit’s counterclaims and
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`notified Philips that it expects Philips to respond to discovery promptly now that the stay has
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`been lifted. Order at 4 & n.1.
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`Since the Court issued the Order, Summit filed its First Amended Answer, Affirmative
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`Defenses and Counterclaims (Dkt. #84). As part of this new pleading, Summit has re-pleaded its
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`First and Second Counterclaims for violation of the Sherman Act in response to the Court’s
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`previous order granting Summit leave to amend those claims based on an essential facility
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`theory. Order Granting in Part and Denying in Part Plaintiffs’ Motion to Dismiss Counterclaims
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`(“Order on Counterclaims”) (Dkt. #73), at 18. The amended pleading also contains the existing
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`Third Counterclaim for copyright misuse on which the Court denied Philips’ motion to dismiss.
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`Id. at 21.
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`The newly pleaded First and Second Counterclaims (the “Sherman Act Claims”) are
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`conditional. Specifically, the Sherman Act Claims are conditional on Philips’ succeeding in
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`establishing that Summit’s Adepto software is unlawful. See Counterclaims ¶¶ 27-29. Summit
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`alleges that if Philips’ claims concerning Adepto succeed, Philips’ Diagnostic Software will be
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`an essential facility needed to compete in the market for service of Philips Ultrasound Machines.
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`Counterclaims ¶ 45. The Third Counterclaim for copyright misuse, by contrast, is not
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`conditional. See Counterclaims ¶¶ 62-75.
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`I.
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`The Parties Agree that Summit’s Sherman Act Claims Should Be Bifurcated
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`The parties met and conferred on December 9, pursuant to the stipulation regarding dates
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`(Dkt. # 79), and agreed that Summit’s conditional Sherman Act claims should be bifurcated and
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`those claims stayed until after the outcome of Philips’ claims. Because the Sherman Act Claims
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`1
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 3 of 8
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`are conditional, the parties agree that it is most efficient to defer the trial of those claims and
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`associated pre-trial dates until after the currently scheduled trial concludes.
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`Getting the Sherman Act Claims ready for trial in seven months, to be presented to a jury
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`by July 19, 2021, would be a Herculean task, even if these claims were the only ones at issue
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`between the parties, which they are not. As other courts have noted, “antitrust cases, by their
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`nature, are highly complex.” See, e.g., Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96,
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`122 (2d Cir. 2005). And because the Sherman Act Claims are conditional on Philips’ prevailing,
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`all of the work getting them ready for trial would be for naught if Summit defeats Philips’ claims.
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`In the interest of judicial economy, and to mitigate large and potentially unnecessary legal
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`expenses by both parties, bifurcation of the Sherman Act Claims makes sense.
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`II.
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`Summit’s Copyright Misuse Claim and Defense Should Be Tried With Philips’
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`Claims.
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`During the meet and confer, the parties disagreed as to whether Summit’s Third
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`Counterclaim for copyright misuse, which is not conditional, and its companion affirmative
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`defense (together the “Copyright Misuse Claim”) should also be bifurcated. Although this issue
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`is outside the scope of the Court’s show cause order, which asked the parties about the ability to
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`“prepare the antitrust counterclaims for trial,” Philips has taken the position that the Copyright
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`Misuse Claim should also be bifurcated with the Sherman Act Claims. Summit disagrees.
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`The Copyright Misuse Claim presents a different situation from the Sherman Act Claims.
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`First, the Copyright Misuse Claim is narrower in scope than the Sherman Act Claims, and there
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`is a substantial overlap in fact issues between Copyright Misuse and Philips’ copyright-related
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`claims, which supports trying them together. Second, because Summit asserts the Copyright
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`Misuse Claim as a defense to Philips’ claims to be tried in July, as a matter of fundamental
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`fairness, Summit should be allowed to assert Copyright Misuse in the same trial. Finally,
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`discovery related to the affirmative defense of Copyright Misuse was not stayed, such that the
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`parties should be able to prepare this issue for trial by July. For these reasons, Summit proposes
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`that the Copyright Misuse Claim move forward and be presented as part of the July trial.
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`2
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 4 of 8
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`A.
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`Summit’s Copyright Misuse Claim is Narrow in Scope and Has Significant
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`Factual Overlap with Philips’ Copyright-Based Claims
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`Copyright misuse is an equitable defense that “forbids a copyright holder from securing
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`an exclusive right or limited monopoly not granted by the Copyright Office.” See A&M Records,
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`Inc. v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir. 2001) (internal cites omitted). Copyright
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`misuse thus prevents “copyright holders from leveraging their limited monopoly to allow them
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`control of areas outside the monopoly.” Id. Accordingly, copyright misuse “extends to any
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`situation implicating ‘the public policy embodied in the grant of a copyright.’” See Disney
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`Enters. v. Redbox Automated Retail, LLC, No. CV 17-08655, 2018 U.S. Dist. LEXIS 69103,
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`*17-18 (C.D. Cal. Feb. 20, 2018) (quoting Omega S.A. v. Costco Wholesale Corp., 776 F.3d 692,
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`699 (9th Cir. 2015)).
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`Summit’s Copyright Misuse Claim is focused on how “Philips improperly uses its
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`claimed copyrights in the Philips Diagnostic Software to exclude competition in the market for
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`repair and maintenance services of Philips Ultrasound Machines . . . .” Counterclaims ¶ 67.
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`Summit alleges that Philips does this in two types of ways: (1) through the “enforcement or
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`threatened enforcement of Philips Copyrights against Summit and other competitors,” and (2)
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`“by refusing to license the copyrights covering the Philips Diagnostic Software” to Summit and
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`other competitors. Id. ¶¶ 67, 68. Accordingly, the scope of these claims is narrower than the
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`scope of Summit’s Sherman Act Claims. The more narrow focus of the Copyright Misuse Claim
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`is further shown in the available remedies of the two claims. As this Court has noted, the remedy
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`for a successful copyright misuse claim is limited to an order precluding enforcement of the
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`copyright while the misuse is occurring, whereas a successful antitrust claim can result in “far
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`greater” remedies, including treble damages. See Order on Counterclaims (Dkt. #73) at 20, n.6.
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`In addition, Philips’ copyrights are already at issue in this litigation as a result of Philips’
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`DMCA and copyright infringement claims. The Court and the jury will thus already be
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`considering the use of these copyrights in the July trial. Although Summit’s Copyright Misuse
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`Claim is based on Philips’ anticompetitive behavior, such that there will be some overlap with
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`3
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 5 of 8
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`factual matters in the Sherman Act Claims, the core of copyright misuse asks the Court and the
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`jury to consider the question of whether Philips has overextended its copyrights to exclude
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`competition in the market for service of Philips Ultrasound Machines. This question is an
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`extension of the issues that will be argued as part of Philips’ copyright-related claims in Philips’
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`case-in-chief. A jury that is already considering Philips’ copyright infringement and DMCA
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`claims would be in the best position to resolve any factual disputes involving the misuse of those
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`same copyrights. Because the Copyright Misuse Claim is so related to Philips’ copyright and
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`DMCA claims, bifurcating the former from the latter would not result in judicial economy as
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`many of the same issues involving Philips’ copyrights and their enforcement would be relevant
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`in both proceedings. See King Cnty. v. Travelers Indem. Co., 2015 U.S. Dist. LEXIS 107401, *5,
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`15 (W.D. Wash. Aug. 14, 2015) (denying bifurcation request because moving party failed to
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`show bifurcation would promote judicial economy).
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`Postponing the trial of the Copyright Misuse Claim would also be fundamentally unfair to
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`Summit. Because the claim constitutes an affirmative defense to Philips’ copyright-based claims,
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`the jury hearing Philips’ case cannot render a verdict finding Summit liable on those claims
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`without also considering whether Philips’ copyright misuse bars such claims. As the Court
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`recognized, “[a] successful copyright misuse defense precludes a copyright owner from
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`enforcing the copyright during periods of misuse.” Order on Counterclaims (Dkt. #73) at 19
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`(citing Practice Mgmt. Info. Corp. v. Am. Med. Ass’n, 121 F.3d 516, 520 (9th Cir. 1997).
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`B.
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`Only Limited Additional Discovery From Philips Is Needed for the Copyright
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`Misuse Claim
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`Summit only requires limited additional discovery from Philips if the Copyright Misuse
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`Claim is tried in July. For example, Summit is awaiting discovery from Philips concerning its
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`plans and strategies for competing with independent service organizations (“ISOs”) in the market
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`for repair of Philips ultrasound machines. Such discovery is relevant to Philips’ intent to exclude
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`ISOs from the market by, for example, refusing to license access to its Diagnostic Software to
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`ISOs. Discovery concerning the repair market and Philips’ plans and strategies for competing
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`4
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 6 of 8
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`with ISOs in that market is necessary for Summit to make its case to rebut the presumption that
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`Philips may refuse to license its copyrighted software to others. A&M Records, 239 F.3d at 1027
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`n. 8 (noting that “a unilateral refusal to license a copyright may constitute wrongful exclusionary
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`conduct giving rise to a claim of misuse, but assume that the ‘desire to exclude others … is a
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`presumptively valid business justification for any immediate harm to consumers’”) (citing Image
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`Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1218 (9th Cir. 1997)).
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`In June, Summit served a number of discovery requests on Philips seeking information
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`relevant to the Copyright Misuse Claim. These requests consist of the following: Requests for
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`Production 69-71, 73-74, 81, 90-91, 96-101, and Interrogatories 23-24 (“Copyright Misuse
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`Discovery”). See Ex. A and Ex. B, respectively. The Copyright Misuse Discovery covers basic
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`information about the market for repair of Philips Ultrasound Machines including market share
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`(RFP 69-71), Philips’ competitors in that market (RFP 73), Philips’ plans and strategy for
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`competing in that market (RFP 74), the competitive threat posed by ISOs in the market (RFP 96)
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`and the identity of persons at Philips knowledgeable regarding these matters (Interr. 23-24). The
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`Copyright Misuse Discovery also covers Philips’ enforcement efforts concerning its copyrights
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`in software for Philips Ultrasound Machines (RFP 90-91) and to what extent, if any, Philips has
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`granted access to its Diagnostic Software to ISOs (RFP 97-101). However, Philips has taken the
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`position that most of these requests were subject to the Court’s stay and thus has failed to
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`produce responsive documents.1 Summit has received no documents in response to these
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`requests even after the Court advised Philips to “respond to discovery promptly now that the stay
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`has been lifted.” Order at 4, n.1.
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`C.
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`Potential Inefficiencies Caused by Philips’ Proposal
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`Philips’ proposal to bifurcate the Copyright Misuse Claim may result in an additional
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`inefficiency. In particular, during the meet and confer, counsel for Philips confirmed their plan to
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`1 Among the Copyright Misuse Discovery, Philips has produced partially responsive documents only in response to
`Requests for Production 90 & 91 concerning Philips’ enforcement of its copyrights and Requests for Production 97-
`101 relating to the provision of access to ISOs. Philips responses to these requests remain incomplete.
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`5
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 7 of 8
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`file a motion to dismiss Summit’s re-pled Sherman Act Claims. To the extent this motion
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`succeeds, bifurcating all the counterclaims would then result in the Copyright Misuse Claim
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`being the sole issue at the later proceeding. This is not efficient. Because the briefing alone on
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`any as-yet filed motion to dismiss would likely extend into February, it would be too late at the
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`point a decision is issued to roll the Copyright Misuse Claim back into Philips’ case-in-chief
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`should the antitrust counterclaims be dismissed. In this case, it would be more efficient to
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`continue with discovery on the Copyright Misuse Claim and have those issues presented during
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`the July trial.
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`III. Defendants’ Proposals in Response to Order to Show Cause
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`First, Summit proposes that all matters concerning the Sherman Act Claims, including
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`Philips’ duty to respond to those claims and discovery relevant exclusively to such claims, be
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`stayed pending resolution of Philips’ claims against Summit.
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`Second, Summit proposes that Philips be ordered to fully respond with all responsive
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`documents and information requested in the Copyright Misuse Discovery. Further, because of the
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`stay, Philips has not produced any ESI for the Copyright Misuse Discovery. When the parties
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`initiated ESI discovery, Philips did not include any custodians from its business group
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`responsible for Philips’ ultrasound repair business who would be knowledgeable about the
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`market for those services, or competitors to or competitive strategy for Philips within that
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`market. Summit proposes that the parties work towards identifying 3 additional custodians and 5
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`search terms per custodian directed towards ESI wihin the scope of Copyright Misuse Discovery.
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`Finally, if Philips is directed to fully and promptly respond to the Copyright Misuse
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`Discovery (including the ESI search), Summit proposes that the current deadlines for expert
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`reports, end of discovery, and dispositive motions apply to the Copyright Misuse Claim.
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`//
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`//
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`//
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`//
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`6
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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`Case 2:19-cv-01745-JLR Document 89 Filed 12/11/20 Page 8 of 8
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`DATED this 11th day of December, 2020.
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`Respectfully submitted:
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` /s/Marc C. Levy
`E. Russell Tarleton, WSBA No. 17006
`Marc C. Levy, WSBA No. 19203
`Jeffrey E. Danley, WSBA No. 52747
`Thomas A. Shewmake, WSBA No. 50765
`SEED IP LAW GROUP LLP
`701 Fifth Ave., Suite 5400
`Seattle, WA 98104
`Telephone: 206-622-4900
`Facsimile: 206-682-6031
`RussT@seedip.com
`MarcL@seedip.com
`JeffD@seedip.com
`TomShewmake@seedip.com
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`Attorneys for Defendants
`Summit Imaging Inc. and
`Lawrence R. Nguyen
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`7707363_1
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`DEFENDANTS’ RESPONSE TO COURT’S SHOW CAUSE
`ORDER REGARDING SCHEDULING
`Case No. 2:19-cv-01745
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`7
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`SEED INTELLECTUAL PROPERTY LAW GROUP LLP
`701 FIFTH AVENUE, SUITE 5400
`SEATTLE, WASHINGTON 98104-7092
`(206) 622-4900
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