Proportionality requirements of FRCP 26(b)(2)(C) apply at initial disclosures stage under local patent rules

Drone Technologies, Inc. v. Parrot S.A., Nos. 2015-1892 and 2015-1955 (Fed. Cir. Sept. 29, 2016)

The patentee sued for infringement of two patents related to remote control devices. The district court issued two discovery orders, then entered a default judgment against the alleged infringer for failure to comply with those discovery orders. The district court also awarded the patentee damages and attorney fees pursuant to 35 U.S.C. § 285 and Rule 37 of the Federal Rules of Civil Procedure (FRCP). The alleged infringer appealed, arguing that the district court abused its discretion in its discovery orders and sanction of default judgment.

The parties disputed whether the alleged infringer should be required to produce all source code used in its allegedly infringing products at the initial disclosures stage under the local patent rules of the Western District of Pennsylvania and, in particular, Local Patent Rule 3.1 (LPR 3.1)—which requires production of “source code, specifications, schematics, flow charts, artwork, formulas, drawings, or other documentation…sufficient to show” the operation of the accused products. After the alleged infringer made some, but not all, source code available, the patentee filed a motion to compel production of source code, which the district court granted. Unsatisfied with the alleged infringer’s offer to “make [additional source code] available for inspection” as provided in LPR 3.1, the patentee moved again to compel the alleged infringer to produce the on-board source code. The district court granted this second motion to compel. While the alleged infringer sought review of this second order, the district court sanctioned the alleged infringer for failure to comply with the discovery orders by entering a default judgment of infringement and awarding damages and attorney fees.

The Federal Circuit vacated the district court’s rulings, both the discovery orders and the default judgment, for abuse of discretion. The Federal Circuit reasoned that, in reaching the discovery orders, the district court failed to even consider whether the alleged infringer had met the “sufficient to show” standard under the LPR 3.1. The district court also overlooked the “make available for inspection and copying” language of the local rules in ordering actual production of source code, even though the alleged infringer had offered to make the code available. Lastly, the district court erred in failing to consider the alleged infringer’s production under the proportionality requirements of FRCP 26(b)(2)(C).