Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 1 of 12
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`Civil Action No. 14-CV-9661 (ALC)(SN)
`
`RUSSELL SLIFER,
`
`Plaintiff,
`
`v.
`
`CANTOR TECHNOLOGY, L.P.,
`
`Defendant.
`
`MEMORANDUM OF LAW IN SUPPORT OF
`CANTOR TECHNOLOGY, L.P.’S RULE 72(a) OBJECTION TO THE
`OCTOBER 13, 2016 DISCOVERY RULING OF MAGISTRATE SARAH NETBURN
`
`Michael S. Popok, Deputy General Counsel
`David A. Paul, Assistant General Counsel
`110 East 59th Street, 7th Floor
`New York, New York 10022
`(212) 610-3578 (MSP)
`(212) 610-2298 (DAP)
`Attorneys for Defendant Cantor Technology, L.P.
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 2 of 12
`
`PRELIMINARY STATEMENT
`
`The parties participated in a discovery hearing on October 13, 2016. While no written
`
`order issued, the Magistrate Judge issued a verbal order requiring Cantor to produce certain
`
`documents and to make Cantor’s Chief Technology Officer available for a Rule 30(b)(6)
`
`deposition by October 31, 2016. The ordered discovery, however, essentially endorses an
`
`impermissibly speculative and improper damages theory, which Cantor has already sought
`
`permission to preclude through a motion for summary judgment. As part of that discovery, for
`
`example, Judge Netburn ordered Cantor’s Chief Technology Officer to testify not only about
`
`Cantor’s products and technology, but also to compare Cantor’s products to the patents-at-issue
`
`and to provide opinions as to whether Cantor’s technology falls within the scope of the patent
`
`claims. Such discovery has no bearing on the breach of contract at-issue in the Complaint, but
`
`seeks improper expert opinions regarding patent
`
`infringement and damages from patent
`
`infringement. The October 13, 2016 verbal order should be reversed, or at a minimum, reversed-
`
`in-part.
`
`Specifically, on October 4, 2016, Cantor sought the Court’s leave to file a motion for
`
`summary judgment precluding Slifer from pursuing a speculative damages theory divorced from
`
`the language of the Agreement and premised on unsupported patent infringement theories.
`
`Cantor’s motion will demonstrate that Slifer should be limited to the recovery spelled out in the
`
`Agreement, and is thus precluded from recovering under other speculative, non-contract-based
`
`theories. The discovery ordered by Judge Netburn is only relevant to damages theories premised
`
`on underlying patent ownership and infringement. Should summary judgment be granted, the
`
`ordered discovery will not be relevant to any issue remaining in this case. Cantor objects to the
`
`October 13 discovery order in light of its pending request to file a summary judgment motion.
`
`Accordingly, Cantor requests that the discovery ordered be stayed pending resolution of Cantor’s
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 3 of 12
`
`summary judgment motion, and, should that motion be granted, requests that the order be
`
`reversed in its entirety.
`
`In addition, to the extent the October 13 order requires Cantor’s Chief Technology
`
`Officer to opine on the meaning, scope, and application of the patents-in-issue, it should further
`
`be reversed. Such testimony is not appropriate in the instant case and should not be provided by a
`
`Cantor fact witnesses.
`
`Defendant Cantor Technology, L.P. (“Cantor” or “Defendant”), pursuant to 28 U.S.C. §
`
`636(b)(1)(A) and Rule 72(a) of the Federal Rules of Civil Procedure, hereby objects to
`
`Magistrate Judge Netburn’s October 13, 2016 Discovery Order (the “Order”).1 Accordingly, and
`
`for the reasons set forth below, Cantor’s objection to the Order should be sustained.
`
`BACKGROUND
`
`As previously briefed, Cantor and Slifer executed a Patent Assignment Agreement (the
`
`“Agreement”) on August 29, 2008. (Ex. 1) The Parties have previously addressed the formation
`
`of the Agreement in question and the terms of that Agreement. (Dkt. No. 22.) In relevant part,
`
`the Agreement expressly limited the maximum amount of Royalties that could ever possibly be
`
`paid to Slifer under the Agreement to $250,000. (Ex. 1 at ¶ 3(b), (d).) Paragraph 3(b) defines the
`
`Maximum Amount payable under the Agreement, stating that “Cantor shall pay Slifer royalties
`
`(“Royalties”), not to exceed two hundred fifty thousand dollars ($250,000) (the “Maximum
`
`Amount”) in the aggregate, in the amount of 10% of any Net Income.” (Ex. 1 at ¶ 3(b)
`
`(emphasis added).) Paragraph 3(d) refers to this Maximum Amount again
`
`than one hundred thousand dollars
`If Seller has been paid less
`($100,000.00) during the time period from the Effective Date to sixty months
`after the Effective Date, Cantor shall, in Cantor's sole and exclusive discretion,
`
`1 The transcript from the hearing held before the Magistrate Judge on October 13, 2016 is
`not yet available. Cantor makes this application before the transcript is available in light of the
`tight timeframe set by the Magistrate Judge.
`
`-2-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 4 of 12
`
`either (i) assign back to Slifer all of Cantor's right, title and interest in the Patent
`Rights; or (ii) pay Minimum Royalty Payments each year beginning at the end of
`sixty months from the Effective Date of this Agreement (but for the avoidance of
`doubt in no event will more than the Maximum Amount in the aggregate ever
`be paid to Seller). Minimum Royalty Payments means $50,000.00 per year
`provided the Patent Rights have not been invalidated, rendered unenforceable, or
`rendered incapable of generating Net Income, and Minimum Royalty Payments
`means $0 otherwise.
`
`(Ex. 1 at ¶ 3(b) (emphasis added).)
`
`Slifer acknowledged that $250,000 was the Maximum Amount due under the Agreement,
`
`stating in the Complaint that “[f]ailure to generate at least $50,000 in Royalties would require
`
`Cantor to make a choice: either make $250,000 in additional payments—the Maximum Amount,
`
`as defined by paragraph 3(b) —or simply ‘assign back’ the Patents to Slifer.” (Complaint at ¶
`
`18.) In its Request for Relief, Slifer demanded “[c]ompensatory damages in the amount of
`
`$250,000.00, representing the Minimum Royalty Payments due on August 29 of 2013, 2014,
`
`2015, 2016, and 2017 under Paragraph 3(d) of the Agreement.”
`
`The Agreement further granted Cantor the option of assigning back the patents to Slifer.
`
`(Ex. 1 at ¶ 3(d).) But the language of the Agreement made clear that the choice regarding
`
`assignment was “at Cantor’s sole and exclusive discretion.” (Id. (“Cantor shall, in Cantor's sole
`
`and exclusive discretion, either (i) assign back to Slifer all of Cantor’s right, title and interest in
`
`the Patent Rights”) (emphasis added).) Slifer repeatedly confirmed that the choice to assign back
`
`the patent rights remained solely with Cantor (Complaint at ¶¶ 16, 18-19.)
`
`Despite the clear language of the Agreement, Slifer maintains that he is entitled to
`
`millions of dollars in damages under speculative and unsubstantiated patent damages theories.
`
`Under those theories, Slifer has sought discovery related to Cantor’s revenues, costs, and the
`
`like, as well as information pertaining to whether Cantor’s technology and products practice the
`
`patent claims. This discovery is the subject of the October 13, 2016 discovery order. This
`
`-3-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 5 of 12
`
`discovery is only relevant to Slifer’s non-contract-based theories.
`
`If Slifer is precluded from
`
`pursuing these impermissibly speculative theories, the ordered discovery will be moot.
`
`LEGAL STANDARDS
`
`Rule 72(a) of the Federal Rules of Civil Procedure permits parties to “serve and file
`
`objections” to a nondispositive order of a Magistrate Judge. The District Judge, to whom such
`
`objections are made, “must consider timely objections and modify or set aside any part of the
`
`order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); JSC Foreign Econ.
`
`Ass’n Technostroyexport v. Int’l Dev. & Trade Servs., Inc., 220 F.R.D. 235, 237 (S.D.N.Y. 2004)
`
`(“The issue raised by the defendants Objections is whether the Magistrate Judge’s orders . . .
`
`were clearly erroneous or contrary to law.”). An order is clearly erroneous “when the reviewing
`
`court is firmly convinced the lower court decided an issue in error.” Catskill Dev., L.L.C. v. Park
`
`Place Entm’t Corp., 206 F.R.D. 78, 86 (S.D.N.Y. 2002); see also In re Comverse Tech., Inc. Sec.
`
`Litig., 06 Civ. 1875, 2007 WL 680779, at *2 (E.D.N.Y. Mar. 2, 2007) (“A magistrate judge’s
`
`findings may be considered clearly erroneous where on the entire evidence, the [district court] is
`
`left with the definite and firm conviction that a mistake has been committed”) (internal quotation
`
`marks omitted). “An order may be deemed contrary to law when it fails to apply or misapplies
`
`relevant statutes, case law or rules of procedure.” Catskill Dev., 206 F.R.D. at 86 (internal
`
`quotation marks omitted). The District Judge conducts a de novo review of the order. Fed. R.
`
`Civ. P. 72(c).
`
`ARGUMENT
`
`The discovery ordered by Judge Netburn is related solely to Slifer’s claims for damages
`
`based on speculative, non-contract-based theories. But, as Cantor will demonstrate on summary
`
`judgment, Slifer is not entitled to any such recovery. Cantor respectfully requests it be permitted
`
`to pursue summary judgment on the grounds that the maximum recoverable amount in this
`
`-4-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 6 of 12
`
`litigation is the Maximum Amount defined in the Agreement—$250,000—and that recovery is
`
`limited to damages under breach of contract. Under the Agreement, Slifer retained no interest in
`
`the patents and, for example, can never be damaged by any devaluation of the patent. Should
`
`summary judgment be granted, the discovery ordered by Judge Netburn on October 13, 2016
`
`would be irrelevant to the remaining issues in this case. Accordingly, Cantor requests that this
`
`Court stay the ordered discovery until resolution of Cantor’s summary judgment motion and,
`
`should summary judgment be granted in Cantor’s favor, that the discovery order be reversed in
`
`its entirety. Should Cantor’s motion for summary judgment be denied, Cantor objects to the
`
`discovery order to the extent that it requires Cantor’s Chief Technology Officer to provide expert
`
`opinions and testimony related to the scope of the patents-at-issue.
`
`I. The Ordered Discovery Should Be Considered in Light of, and Pursuant to,
`Cantor’s Motion for Summary Judgment
`
`a. During Summary Judgment, Cantor Will Demonstrate that the Agreement
`Limits Recovery to Breach of Contract for the Defined Maximum Amount
`
`Although the parties dispute the meaning of Paragraph 3(d), they do not contest the
`
`meaning of paragraph 3(b). Paragraph 3(b) caps the maximum amount of money owed to Slifer
`
`under the Agreement at $250,000. (Ex. 1 at ¶ 3(b).) This cap is reiterated in paragraph 3(d),
`
`stating that “for the avoidance of doubt in no event will more than the Maximum Amount in the
`
`Aggregate ever be paid to seller.” (Id. at ¶ 3(d).) Thus, under the Agreement, the Maximum
`
`Amount ever to be paid to Slifer is $250,000.
`
`Slifer does not dispute this point. In the Complaint, Slifer acknowledged the $250,000
`
`limit, citing paragraph 3(b) and requesting compensatory damages equaling that amount.
`
`(Complaint at ¶ 18, Request for Relief.) Slifer further agreed that “[p]aragraph 3(b) of the
`
`Agreement required Cantor to pay Slifer a maximum amount of $250,000 in Royalties derived
`
`from Revenues generated from the Patent Rights if infringers were identified and/or licenses sold
`
`-5-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 7 of 12
`
`and Revenues were obtained.” (Dkt. No. 30 at Response to Fact 21.) Accordingly, under the
`
`undisputed language of the contract, the Maximum Amount that Slifer ever could have received
`
`was $250,000.
`
`Slifer, however, now seeks damages far exceeding that $250,000 amount. Slifer contends
`
`that damages may reach into the millions of dollars under an improper
`
`request
`
`for
`
`“[c]ompensatory damages for the loss of use and the diminution in value of the Patents during
`
`the period from August 29, 2013 to the date of assignment” (Complaint at Request for Relief
`
`(b)). This damages demand, however, is contrary to the unambiguous language of the contract
`
`and the undisputed facts.
`
`In the Agreement, Slifer assigned all “right, title, and interest” to the patents-in-question
`
`to Cantor on August 29, 2008. (Ex. A to Agreement.) “An assignment of a patent, or patent
`
`application, is the transfer to another of a party’s entire ownership interest or a percentage of that
`
`party’s ownership interest in the patent or application. In order for an assignment to take place,
`
`the transfer to another must include the entirety of the bundle of rights that is associated with the
`
`ownership interest, i.e., all of the bundle of rights that are inherent in the right, title and interest
`
`in the patent or patent application.” MPEP § 301. “An assignment of patent rights operates to
`
`transfer title to the patent, while a license leaves title with the patent owner.” Minco, Inc. v.
`
`Combustion Engineering, Inc., 95 F.3d 1109, 1116 (Fed. Cir. 1996). With the transfer of title,
`
`Slifer retained no interest in the patents. (Ex. 1.) He could not sell or license the patents to
`
`another party unless and until Cantor reassigned those rights back to him. Cantor has not done
`
`so, has no current plans to do so, and more importantly, is under no obligation to do so.
`
`Paragraph 3(d) of the agreement gave Cantor the option of “assign[ing] back to Slifer all
`
`of Cantor’s right,
`
`title and interest
`
`in the Patent right” at “Cantor’s sole and exclusive
`
`discretion.” (Ex. 1 at ¶ 3(d) (emphasis added).) Slifer has no right under the Agreement to take
`
`-6-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 8 of 12
`
`back what he assigned. Cantor retained “sole and exclusive discretion” as to whether or not those
`
`rights would be assigned back to Slifer. (Id.) Slifer agreed with this interpretation of paragraph
`
`3(d) in the Complaint, stating that “[i]f after five years Slifer had not been paid $100,000 (i.e. the
`
`sum of the $50,000 initial payment plus at least $50,000 in Royalties), Cantor must either return
`
`the Patents to Slifer or pay Minimum Royalty Payments of $250,000.” (Complaint at ¶ 16
`
`(emphasis added).) Slifer further emphasized that the decision as to whether or not the patents
`
`would be assigned back to Slifer belonged to Cantor: “The consequences of satisfying the
`
`conditions to trigger Paragraph 3(d) created a strong financial incentive for Cantor to generate
`
`Royalties for Slifer during the initial sixty-month period. Failure to generate at least $50,000 in
`
`Royalties would require Cantor to make a choice: either make $250,000 in additional
`
`payments…or simply ‘assign back’ the Patents to Slifer. By expressly granting this choice to
`
`Cantor, Slifer ensured under the terms of Agreement that he would be fairly compensated for the
`
`Patents if Cantor considered them to be valuable.” (Complaint at ¶¶ 18-19 (emphasis added); see
`
`also id. at ¶ 19 (“Cantor could simply choose the ‘assign back’ option”).) The language of the
`
`Agreement is unambiguous regarding Cantor’s retention of rights. “No ambiguity exists when
`
`contract language has ‘a definite and precise meaning, unattended by danger of misconception in
`
`the purport of the [Agreement] itself, and concerning which there is no reasonable basis for a
`
`difference of opinion.’” Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7
`
`F.3d 1091, 1095 (2d Cir. 1993) (quoting Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351, 355
`
`(1978)).
`
`Cantor chose to retain possession of the assigned patents and is the only party that may
`
`license, sell, or otherwise contract away the rights to the patents-at-issue. Thus, Slifer has not
`
`suffered, and indeed cannot suffer, any damages due to any alleged “diminution in value” of the
`
`patents. Accordingly, the only damages theory available to Slifer is for breach of contract and
`
`-7-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 9 of 12
`
`that award is capped at $250,000. Slifer’s entire cause of action is premised on Cantor’s alleged
`
`breach of contract, and in particular, that Cantor failed to make the payments required in
`
`Paragraph 3(b). While that remains a triable issue in this case, the Agreement spells out a remedy
`
`in the event of such an occurrence. Paragraph 3(d) is an express provision in the Agreement that
`
`caps Slifer’s recovery at $250,000 in the event that Cantor is found to have failed to make
`
`sufficient payment under Paragraph 3(b). As Cantor will demonstrate during summary judgment,
`
`Slifer agreed to this provision in 2008, it is clear on its face, and Slifer cannot unilaterally strike
`
`it from the Agreement now.
`
`II. The October 13th Discovery Order Should Be Reversed in light of Cantor’s Motion
`for Summary Judgment and Stayed until Resolution of that Motion
`
`Slifer’s damages-related discovery requests relate exclusively to a baseless and
`
`speculative damages theory wherein the patents are retroactively assigned back to him and
`
`compensation is awarded for the alleged diminution of value of those patents. The Court ordered
`
`discovery is only relevant to Slifer’s retroactive-assignment theory, which is the subject of
`
`Cantor’s summary judgment motion.
`
`The discovery ordered on October 13, 2016 will be time and resource consuming to
`
`produce. Cantor should not be required to produce this discovery in the next two weeks when the
`
`need for such discovery will be mooted if Cantor’s motion for summary judgment is granted.
`
`Cantor thus requests that
`
`the ordered discovery be stayed pending resolution of Cantor’s
`
`summary judgment motion to avoid placing the undue and excessive burden of producing
`
`irrelevant materials based on an impermissible damages theory. Cantor further requests that the
`
`order be reversed in its entirety should summary judgment be granted.
`
`III.The October 13th Discovery Order Also Errs in Ordering a Rule 30(b)(6) Fact
`Witness to Provide Expert Testimony
`
`-8-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 10 of 12
`
`As part of the ordered discovery, Cantor is required to make its Chief Technology Officer
`
`available for a Rule 30(b)(6) deposition. Judge Netburn ordered that the witness be prepared to
`
`testify about Cantor’s technology and products, but also that he be prepared to testify about
`
`whether that technology falls within the scope of the patents and why. Such testimony, however,
`
`is not fact testimony, but rather expert opinion, and is further not proper in the instant case.
`
`Cantor thus objects to the discovery order and requests that the order be revised should summary
`
`judgment not be granted.
`
`Judge Netburn has ordered Cantor’s Chief Technology Officer to perform an analysis on
`
`Cantor’s products that is equivalent to an infringement analysis in a patent infringement case,
`
`i.e., comparing products to each and every limitation in a patent claim to determine whether
`
`those products fall within the scope of the claims. “The test for patent infringement requires
`
`both proper interpretation of the claim scope and proper comparison of the claims with the
`
`[product or device].” Abtox, Inc. v. Exitron Corp., 122 F.3d 1019, 1023 (Fed. Cir. 1997), opinion
`
`amended on reh'g, 131 F.3d 1009 (Fed. Cir. 1997). The determination of patent infringement
`
`requires a two-step analysis. First, the district court, as a matter of law, must interpret the claims
`
`of the patent without regard to the products-at-issue, i.e., the Court makes a legal determination
`
`of the meaning of the claims and the scope of protection they afford. Second, as a matter of fact,
`
`the construed claims are applied to the products-at-issue to determine whether every element or
`
`limitation of the claim is present exactly or by a legal equivalent in the accused product.
`
`Markman v. Westview Instruments, Inc., 52 F.3d 967, 979, (Fed. Cir. 1995), aff'd, 517 U.S. 370
`
`(1996).
`
`The Rule 30(b)(6) testimony ordered by Judge Netburn requires the same two-step
`
`analysis described above. But this Court has not performed any claim construction analysis or
`
`determined the scope of the claims and Slifer has not put forth any expert reports on validity and
`
`-9-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 11 of 12
`
`infringement. Thus, it is impossible for a witness to compare Cantor’s products to unconstrued
`
`claims of indeterminate scope or to rebut any theories of infringement or validity. Moreover, this
`
`type of testimony should not be proffered by a fact witness on behalf of Cantor as those are not
`
`facts in Cantor’s possession. Cantor has not performed such an analysis in the past and the
`
`ordered discovery would thus require the fact witness to provide expert opinion. Judge Netburn’s
`
`order is clearly erroneous regardless of the outcome of summary judgment. Accordingly, to the
`
`extent the Court determines that additional discovery is required; Cantor respectfully requests
`
`that the order be revised on this ground.
`
`-10-
`
`

`

`Case 1:14-cv-09661-ALC-SN Document 79 Filed 10/17/16 Page 12 of 12
`
`CONCLUSION
`
`For all of the foregoing reasons, Cantor’s objections should be sustained and the Order
`
`stayed and overruled. In the alternative, the Order should be revised such that Cantor’s Rule
`
`30(b)(6) witness is not required to provide expert testimony comparing Cantor’s products to the
`
`claims of the patents-at-issue.
`
`Dated: New York, New York
`October 17, 2016
`
`Respectfully submitted,
`
`/s/ David A. Paul
`Michael S. Popok, Deputy General Counsel
`David A. Paul, Assistant General Counsel
`110 East 59th Street, 7th Floor
`New York, New York 10022
`(212) 610-3578 (MSP)
`(212) 610-2298 (DAP)
`Attorneys for Defendant Cantor Technology, L.P.
`
`-11-
`
`