Case 2:15-cv-01915-JRG Document 149 Filed 01/25/17 Page 1 of 57 PageID #: 4550
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
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`Case No. 2:15-cv-1915-JRG
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`IRIS CONNEX, LLC,
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`Plaintiff,
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`v.
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`DELL, INC.,
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`Defendant.
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`MEMORANDUM OPINION AND FINAL JUDGMENT
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`Case 2:15-cv-01915-JRG Document 149 Filed 01/25/17 Page 2 of 57 PageID #: 4551
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`I.
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`INTRODUCTION
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`Plaintiff Iris Connex filed suit against eighteen manufacturers of smartphones and tablets,
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`claiming each infringed the Plaintiff’s only asset, U.S. Patent No. 6,177,950, which is entitled
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`“Multifunctional portable telephone.” This type of litigation often ends before it begins. Early
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`disposition typically results from a settlement between the parties before there is any appearance
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`by counsel in open court. Often the first and last filing requiring the Court’s attention is the
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`submission of an agreed order of dismissal. This reality affords the Court limited opportunities
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`to provide oversight as to this part of its docket. However, this case took an unexpected turn of
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`events which made it stand out.
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`Early in this case, Dell filed a motion to dismiss arguing that Plaintiff Iris Connex’s
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`infringement allegations were completely implausible. As is the Court’s typical practice (and
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`unrelated to Dell’s motion), this case was consolidated with the other cases serially filed by Iris
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`Connex.1 After consolidation, most of the other defendants echoed Dell’s argument for dismissal.
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`Specifically, the parties argued that the fixed cameras in the accused smartphones and tablets could
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`not be considered a single “multi-position . . . reading head,” as required by the Plaintiff’s patent
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`claims.
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`Through the process of conducting an early review of these motions to dismiss, the Court
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`concluded that the entire dispute would turn on the Court’s construction of a single disputed term:
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`“multi-position . . . reading head.” The Court also concluded that resolving that dispute would
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`efficiently resolve the entire series of eighteen cases. Accordingly, the Court ordered expedited
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`1 The Smith-Leahy America Invents Act requires separate suits to be filed. Multiple suits by a common plaintiff are
`often filed in sequence and are spoken of as being “serially filed.” This Court and many of its sister courts routinely
`consolidate such cases for more efficient case management knowing that each case will ultimately be set for a
`separate trial on its own merits.
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`claim construction on this targeted term.2 After appropriate claim construction briefing and oral
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`argument, the Court applied established claim construction principles and determined that a
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`“multi-position” reading head must be “physically moveable” in accordance with the patent
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`specification. The Court then, sua sponte, converted the pending motions to dismiss into motions
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`for summary judgment and allowed additional briefing. Next the Court entered summary
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`judgment of non-infringement in favor of all Defendants and against Iris Connex. This was based
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`on the conclusion that no reasonable juror could conclude that a fixed camera was “physically
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`moveable” or equivalent to a physically moveable camera.
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`Two weeks later, Dell filed a motion for attorney fees under 35 U.S.C. § 285. Section 285
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`provides that the Court may, in “exceptional” cases, award attorney fees to the prevailing party.
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`Dell argued that Iris Connex’s claim construction position was unsupportable, that its infringement
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`position was not plausible, and that its litigation was primarily settlement driven. Moreover, Dell
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`presented evidence that strongly implied that Iris Connex was an intentionally empty shell
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`company and, as a consequence, had no capacity to pay such fees even if the case were ultimately
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`declared to be exceptional. (Dkt. No. 25.)
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`The Court, having been presented with a prima facie showing of entitlement to attorney
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`fees and objective indicia of Plaintiff’s shell corporation status, ordered further discovery into the
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`extended identity of Iris Connex. Ordinarily, the Court does not scrutinize litigants’ business
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`decisions or their chosen structures. Courts and litigants often have limited resources, and such
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`scrutiny often fails to further the interests of judicial economy. However, the Court is mindful of
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`2 This is typically referred to as a “mini-Markman” and can be a valuable case management tool in the right
`circumstances.
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`its continuing duty to insure that statutes are carried out for their intended purpose and that
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`ultimately justice is served. As the Court stated at a status conference held shortly after Dell filed
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`its fees motion, “the entire thrust of Section 285 is to deter, and [the Court has] real concerns that
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`this entity is so structured that it would effectively avoid any deterrence by the simple granting of
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`the motion, without more.” (Dkt. No. 40 at 12:22–25.)
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`Given these circumstances, the Court found such post-judgment discovery to be
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`appropriate. As the post-judgment discovery progressed, it became obvious that Iris Connex was
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`not simply a non-practicing entity seeking to vindicate its patent rights—albeit with an
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`exceptionally bad infringement case. Rather, as explained hereinafter, Iris Connex is the first
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`level of two shell corporations which were intended to shield the real actor, Mr. Brian Yates, from
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`personal liability. The Court is persuaded that Mr. Yates and those in active concert with him
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`exploited the corporate form to operate largely in secret and to insulate the true party in interest
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`from the risk associated with dubious infringement suits—that risk being fee shifting under Section
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`285.
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`Turning a blind eye to this type of conduct would run counter to the Court’s larger duty to
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`“do justice” and countenance an accelerating misuse of our judicial system, which occurs when
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`the resolution of dubious or nonsensical claims stands in the way of resolving bona fide disputes
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`between ordinary litigants.
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`II.
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`BACKGROUND
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`The Court believes an overview of the various parties, their relationships, and the facts of
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`the case is helpful at this juncture. Unless otherwise stated, the following section constitutes
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`specific findings of fact by the Court:
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`A.
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`The Parties
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`Iris Connex, LLC
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`Iris Connex, LLC (“Iris Connex”) is a Texas limited liability company with its stated
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`principal office at 211 East Tyler Street, Suite 600-A, Longview, Texas. (Dkt. No. 1 at ¶ 3) (“Suite
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`600-A”). Iris Connex purports to own by assignment United States Patent No. 6,177,950 (“the
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`’950 patent”) entitled “Multifunctional portable telephone,” (Dkt. No. 1 at ¶ 9), and it holds the
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`’950 patent as its only asset. Iris Connex is wholly owned by Q Patents, Inc. (Dkt. No. 33.)
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`Mr. Nicolas Labbit
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`Mr. Labbit is a 31-year-old Texas lawyer residing in Longview, Texas. He became
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`licensed to practice law in 2012. He is the designated Manager of Iris Connex as shown by the
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`Texas Secretary of State’s Office.
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`Q Patents, Inc.
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`Q Patents, Inc. (“Q Patents”) is a California corporation located at 35 Hugus Alley, Suite
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`210, Pasadena, California 91103. (Yates at 48:13–22.)3 Q Patents is the sole member, 100
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`percent owner, and corporate parent of Iris Connex. Q Patents is a holding company for other
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`patent assertion entities. (Yates at 24:12–15.) The President and sole shareholder of Q Patents is
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`Mr. Brian L. Yates.
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`3 Citations to the November 1, 2016 deposition of Mr. Brian Yates (Dkt. No. 97-1) are cited as “Yates,” and citations
`to the November 2, 2016 depositions of Mr. Nicolas Labbit (Dkt. No. 97-2) and Mr. Charles Tadlock (Dkt. No. 97-
`8) are cited similarly. Citations to the declarations of Mr. Brian Yates (Dkt. No. 128) are cited as “Yates Decl.” and
`citations to the declarations of Mr. Nicolas Labbit (Dkt. No. 129) and Mr. Charles Tadlock (Dkt. No. 122) are cited
`similarly. Citations to the January 12, 2017 hearing transcript (Dkt. No. 141) are cited as “Hearing.”
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`Mr. Brian Yates
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`Mr. Yates is a California lawyer residing in Pasadena, California. He actively practiced
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`in the area of intellectual property law for over 20 years. He is President and sole shareholder of
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`Q Patents. (Yates at 10:6–8, 70:11–14.)
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`Mr. Charles Tadlock and the Tadlock Law Firm
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`Charles Craig Tadlock, a Texas lawyer, is the Managing Partner of the Tadlock Law Firm
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`based in Plano, Texas. Mr. Tadlock is an established trial lawyer with over 20 years of
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`experience. From the beginning of this suit until November 28, 2016, Mr. Tadlock and the
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`Tadlock Law Firm represented Iris Connex against Dell.
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`Original Defendants
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`Defendants are manufacturers of consumer electronics, including smartphones and/or
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`tablets with two or more fixed cameras. Of the eighteen original Defendants to this lawsuit, only
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`Dell, Inc. (“Dell”) remains before the Court. Pursuant to joint stipulations with Iris Connex,
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`former Defendants Acer America Corp.; Alcatel-Lucent USA, Inc.; Apple Inc.; Asus Computer
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`International; Blackberry Corporation; Fujitsu America, Inc.; Hewlett-Packard Company; HTC
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`America, Inc.; Huawei Device USA Inc.; Lenovo (United States) Inc. and Motorola Mobility LLC;
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`LG Electronics U.S.A., Inc.; Microsoft Corporation; Panasonic Corporation of North America;
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`Samsung Electronics America,
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`Inc.; Sharp Electronics Corporation; Sony Mobile
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`Communications (USA), Inc.; and Toshiba America Information Systems, Inc. have each been
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`dismissed with prejudice. As a part thereof, they have each agreed to forego all claims against
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`Iris Connex for attorney fees, expenses, sanctions, and costs. Many of these Defendants were
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`affirmatively compensated by Mr. Yates to secure such dismissals after the entry of summary
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`judgment, but before formally asserting their own Section 285 motions. Such compensation from
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`Mr. Yates (or entities controlled by Mr. Yates) included some or all of the following: direct cash
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`payments, free licenses to the patent-in-suit, free licenses to unrelated patents held by other entities
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`controlled by Mr. Yates, and covenants not to sue. (See Dkt. No. 130-1 (Summary of Iris Connex
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`LLC Settlement Agreements).)
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`B.
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`U.S. Patent No. 6,177,950
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`Iris Connex allegedly acquired the ’950 patent by assignment on November 11, 2015 from
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`AVT Audio Visual Telecommunications (“AVT”). (Id.) The ’950 patent relates to a personal
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`communication device that includes a number of elements. Figure 1A of the ’950 patent
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`illustrates an exemplary embodiment of the “Multiphone.”
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`In this lawsuit, Iris Connex asserted Claim 1 and claims depending from Claim 1 to establish
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`infringement by making, using, selling, or offering for sale various smartphones and tablets
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`containing a front-facing and rear-facing camera. Claim 1 of the ’950 patent reads:
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`A personal communication device, comprising:
`a display for displaying data and video signals;
`a loudspeaker for generating an audible signal;
`a microphone for receiving an audio signal;
`a keypad for entering data;
`a telecommunications interface for receiving and transmitting information; and
`an internal multi-position and multi-function reading head for producing an image signal
`when in a first position using a first lensing and for reading for image conversion using
`a second lensing when in a second position.
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`(Dkt. No. 1-1 at 23) (emphasis added).
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`C.
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`Litigation History
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`Iris Connex’s Complaint
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`On November 30, 2015, Iris Connex filed its Complaint against Dell and concurrently filed
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`serial actions against other manufacturers of smartphones and tablets containing fixed rear-facing
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`and fixed front-facing cameras. These cases collectively reflect a single effort by Iris Connex to
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`recover from multiple Defendants regarding their alleged infringement of the ’950 patent “by
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`making, using, selling, or offering for sale various smartphones and tablets containing a front-
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`facing and rear-facing camera.”
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`By letter dated January 20, 2016, Dell’s attorneys notified Iris Connex and its counsel of
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`the implausibility of these allegations and urged Iris Connex to withdraw its Complaint. (Dkt. No.
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`97-10.) Dell pointed out that its tablets simply do not have a camera with the essential claim
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`elements of the ’950 Patent and that Iris Connex did not have a reasonable basis for maintaining
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`this suit. (Id.) Iris Connex continued to act as though such letter had never been sent. In fact,
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`on March 2, 2016, Iris Connex offered Dell a settlement and non-exclusive license to the ’950
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`Patent for a one-time lump-sum of $80,000. (Dkt. No. 122-10.)
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`On March 8, 2016, Dell filed a motion to dismiss under Federal Rule of Civil Procedure
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`12(b)(6) stating that Iris Connex’s allegations were implausible. Specifically, Dell argued that
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`the two fixed-cameras in its products—“tablets with a front-facing camera and a rear-facing
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`camera”—could not plausibly infringe a claim directed to a personal communication device having
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`a “multi-position and multi-function reading head with first and second positions” as claimed in
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`the ʼ950 Patent. Dell argued that the plain language of the claim limitation required that at least
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`one reading head be capable of being oriented into “a first position” and “a second position,”
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`thereby excluding its products which had only fixed, non-moveable cameras. On March 23, 2016,
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`as it often does for case management purposes, the Court consolidated this case with the cases
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`which had been serially filed against the other Defendants. Between April 4, 2016 and April 25,
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`2016, most of the Defendants filed similar motions to dismiss, each urging dismissal of the
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`Complaint on the same grounds.
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`On April 15, 2016, Iris Connex served its infringement contentions on Defendants. In
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`response, Dell sent a letter to counsel for Iris Connex alleging that it intended to seek sanctions
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`under Rule 11 for what it believed to be an objectively baseless lawsuit. Dell stated that if Iris
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`Connex did not dismiss its Complaint by May 9, 2016 it would seek Rule 11 sanctions against Iris
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`Connex and its counsel.
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`The Court, by conducting an early review of these motions to dismiss, became aware that
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`each turned on the construction of the last element of Claim 1 of the ’950 patent. Accordingly,
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`on May 25, 2016, the Court sua sponte entered an Order setting an early and targeted claim
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`construction in this case on July 20, 2016 which was limited to the disputed critical term. Iris
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`Connex v. Acer, et al., Case No. 2:15-cv-1909, Dkt. No. 176 (E.D. Tex.) (“Acer Case”); see also
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`Wordcheck Tech, LLC v. Alt-N Techs., Ltd., 2012 WL 975725, at *2 (E.D. Tex. Jan. 11, 2012)
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`(opining that a “mini-Markman” is appropriate early in a case where “construction of a very narrow
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`set of terms could resolve the case as to most, if not all, parties.”); Uniloc USA, Inc. v. Inmagine
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`Corp., LLC, 2013 WL 3871360, at *5 (E.D. Tex. July 24, 2013) (“The Court utilizes the mini-
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`Markman proceeding to address terms that, if construed, are case dispositive.”).
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`During the resulting briefing, the parties submitted various outside materials which went
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`beyond the pleadings. The Court deemed these materials to be probative and relevant to the issues
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`before the Court. Therefore, pursuant to Federal Rule of Civil Procedure 12(d), the Court
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`converted the then-pending motions to dismiss into motions for summary judgment under Rule
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`56, see Trinity Marine Prods., Inc. v. United States, 812 F.3d 481, 487 (5th Cir. 2016), and gave
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`notice to the parties of the same at the claim construction hearing. (See Dkt. No. 231 at 71:6–22.)
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`The Court instructed the parties to submit the relevant materials accompanied by a brief of up to
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`ten pages. (See id. at 72:7–22; Dkt. No. 229.). The Court later allowed the parties to file responses
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`to address issues raised by the opposing parties. (See Dkt. No. 238.)
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`Summary Judgment of Non-Infringement
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`On September 2, 2016, the Court construed the claims of the ’950 patent and granted
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`summary judgment of non-infringement against Iris Connex and in favor of each Defendant. (Dkt.
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`No. 21) (the “Summary Judgment Order”). As the Court stated, the “cases demonstrate, [that]
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`early claim construction on a limited set of disputed terms followed by entry of summary judgment
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`is appropriate if a superficial understanding of the accused products makes it clear that a single
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`limitation is obviously absent from the accused products and that full blown discovery could not
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`lead a reasonable jury to any other conclusion.” (Summary Judgment Order at 39.)
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`Such was the case here. Regarding claim construction, the Court construed the disputed
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`phrase “an internal multi-position and multi-function reading head” to mean “a single internal
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`multi-function reading head that is physically moveable.” Then, having determined that the
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`asserted claims all required “a single internal multi-function reading head that is physically
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`moveable where the reading head has a single sensor,” the Court turned to the question of summary
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`judgment, i.e., whether a reasonable jury could find that the Accused Products contained such,
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`either literally or through the doctrine of equivalents. “There can be no infringement as a matter
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`of law if a claim limitation is totally missing from the accused device.” London v. Carson Pirie
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`Scott & Co., 946 F.2d 1534, 1538 (Fed. Cir. 1991). It was clear from the parties’ submissions
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`that each camera in the accused devices was fixed. Further, the Court held that Iris Connex’s
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`doctrine of equivalents argument failed for two independent reasons: (1) the argument was
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`unavailable as a matter of law due to prosecution history estoppel and (2) the alleged equivalent
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`structure in the accused device, a multi-camera/software-toggling system, was the “fundamental
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`opposite” of the claimed single multi-function and multi-positional reading head. As a result, the
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`Court concluded that neither infringement position had any merit. The Court then entered
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`summary judgment in favor of all Defendants.
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`Dell’s Motion To Declare This Case Exceptional
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`On September 16, 2016, Dell filed its Motion to Find the Case Exceptional and Award
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`Fees seeking attorney fees and sanctions from Iris Connex and its counsel pursuant to 35 U.S.C.
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`§ 285, 28 U.S.C. § 1927, Federal Rule of Civil Procedure 11, and the Court’s inherent authority.
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`(Dkt. No. 25, “Dell’s Section 285 Motion”.) Dell argues that fees and sanctions are appropriate
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`against Iris Connex and its counsel because, in spite of being placed on notice, Iris Connex
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`persisted in prosecuting an objectively unreasonable case. (Id. at 7–8.) Dell further argues that
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`Iris Connex’s real purpose in filing this litigation was to procure settlements, in amounts less than
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`the defense costs that Dell and other Defendants would incur over a period of only a few months.
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`(Id. at 8.)
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`In light of serious allegations raised in Dell’s Section 285 Motion as to Iris Connex’s true
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`identity, the Court ordered a telephonic status conference. (See Dkt. No. 40.) As a result, the
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`Court ordered that Dell conduct targeted post-judgment discovery concerning the extended identity
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`of Iris Connex to identify the ultimate party at interest acting as the Plaintiff. At the conclusion
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`of this telephonic conference, the parties were instructed to meet-and-confer and then submit by
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`October 7, 2016 a jointly proposed discovery order for the Court to consider in this regard.
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`The Court now pauses its narrative to emphasize that such post-judgment discovery is rare,
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`but justified by the facts of this case. The Court did not order this discovery because Iris Connex
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`is a non-practicing entity. Dell’s Motion also asserted that Mr. Labbit, the manager of Iris Connex
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`and a recently minted lawyer, was “the only person identified or associated with Iris Connex” and
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`managed many other non-practicing entities from the same office as Iris Connex. (Dkt. No. 25 at
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`2–3.) Also, Iris Connex, which was formed less than two months before filing this suit, did not
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`disclose a corporate parent in its Rule 7.1 corporate disclosure statement, (Dkt. No. 3), and it did
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`not disclose in its initial disclosures any person or entity directly associated with Iris Connex other
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`than Mr. Labbit. (Dkt. No. 17-11.) Those disclosures required Iris Connex to identify all persons
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`“having knowledge of relevant facts, a brief statement of each identified person’s connection with
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`the case, and a brief, fair summary of the substance of the information known by any such person.”
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`(Id.; Acer Case, Dkt. No. 136). In fact, the only such persons disclosed by Plaintiff were Mr.
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`Labbit, the inventor Mr. Garry Robb, and the two prosecuting attorneys for the patent-in-suit.
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`Simply put, it appeared to the Court that there must be a real but hidden party in interest. These
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`troubling allegations supported the unusual step of ordering targeted post-judgment discovery in
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`this case.
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`Iris Connex And Its Undisclosed Corporate Parent File For
`Bankruptcy In California
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`What unfolded shortly after the Court ordered post-judgment discovery quickly confirmed
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`the Court’s concerns. On October 6, 2016, Q Patents filed a petition for bankruptcy under Chapter
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`11 in the Central District of California. (See Dkt. No. 1, 2:16-bk-23244 (C.D. Cal.).) Then, just
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`twenty-five minutes after Q Patents filed for bankruptcy, Iris Connex filed for Chapter 11
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`bankruptcy in the same district, declaring that a bankruptcy case concerning its affiliate, general
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`partner, or partnership was pending in that District. As a part thereof and for the first time, Iris
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`Connex represented that it was a wholly owned subsidiary of Q Patents. (See Dkt. No. 1, 2:16-bk-
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`23249 (C.D. Cal.).) After the close of business on October 6, 2016, Iris Connex filed a
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`supplemental Rule 7.1 Disclosure in this Court, changing by 180 degrees its previous
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`representation that it did not have a parent corporation. The supplemental disclosure provided that
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`“all of the membership interests in Iris Connex are held by Q Patents, Inc., a California
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`corporation.” Compare Dkt. No. 3 (September 2, 2015 Corporate Disclosure Statement):
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`with Dkt No. 33 (October 6, 2016 Corporate Disclosure Statement):
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`Rather than meet-and-confer with Dell concerning a schedule for the targeted discovery as
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`ordered, Iris Connex ran to the bankruptcy court in California and immediately served this Court
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`with a notice entitled “Suggestion of Bankruptcy” asserting that pursuant to 11 U.S.C. § 362(a),
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`all proceedings against Iris Connex (including the post-judgment discovery ordered only days
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`before by this Court) were automatically stayed. This Court disagreed. (Dkt. No. 36.) Having
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`considered the applicable statute and relevant authorities, the Court concluded that its pending
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`matters were not proceedings “against the debtor” as contemplated by the statute. 11 U.S.C.
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`§ 362(a). Perhaps more importantly, the Court retains jurisdiction to police misconduct before
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`the Court under 11 U.S.C. § 362(b)(4). The Court also recognized that it has the inherent
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`authority to protect the integrity of the judicial process. It was apparent that “Iris Connex’s only
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`stated justification for seeking bankruptcy protection was entirely contingent on the outcome of
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`the very proceedings it sought to stay.” (Dkt. No. 36 at 8.) The Court ordered Dell to proceed with
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`the post-judgment discovery it had specified.
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`One week later, Iris Connex filed a motion seeking a 45-day stay to allow it to obtain
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`substitute counsel. According to Iris Connex, under the agreement for legal services, the Tadlock
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`Law Firm did not agree to handle fee-shifting motions. Further, the motion mistakenly asserted
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`(with no cited legal authority) that continued representation of Iris Connex by the Tadlock Law
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`Firm in this matter required approval of the Bankruptcy Court in California. This motion was
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`denied. (Dkt. No. 48.) Next, Iris Connex filed a Motion to Withdraw the Tadlock Firm as its
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`counsel. Such motion did not name or propose substitute counsel, which would have effectively
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`left Iris Connex in a pro se posture. This too was denied. (Id.) Then, Iris Connex filed an
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`“emergency motion” for a protective order to prevent Dell from taking the depositions of Mr.
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`Yates, Mr. Tadlock, and Mr. Labbit until Iris Connex obtained substitute counsel free of conflicts.
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`(Dkt. No. 46 at 1.) This also was denied. (Dkt. No. 48.)
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`On October 26, 2016, the day after the Court denied all three of these late-breaking
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`motions, Iris Connex moved to dismiss its California bankruptcy case. Interestingly, this Motion
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`noted that neither Iris Connex nor Q Patents would be filing their respective Schedules of Assets
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`and Liabilities or their Statements of Financial Affairs with the Bankruptcy Court—even though
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`those items were then past due. The Bankruptcy Court dismissed the Chapter 11 case on October
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`27, 2016.
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`Post-Discovery Motions
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`On November 28, 2016, Dell notified the Court that it had completed discovery concerning
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`the extended identity of Iris Connex, and it requested leave to supplement its Section 285 Motion.
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`(Dkt. No. 59.) Dell also sought relief from the extensive confidentiality designations and
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`privilege assertions made by deponents Brian Yates, Nicolas Labbit, and Craig Tadlock during
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`such discovery. (Dkt. No. 60.)
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`On December 6, 2016, the Court lifted its earlier stay in the consolidated member cases
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`and granted Dell leave to supplement its initial brief. (Dkt. No. 74.) Lifting the stay opened the
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`way for the other Defendants to join Dell in seeking fee-shifting under Section 285. The Court
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`had earlier stayed these separate but similarly situated Defendants to insure there would be no
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`duplication of effort or compounding of expenses in the post-judgment discovery process. In
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`addition, the Court prescribed a briefing schedule for all parties but ordered that all additional
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`briefing be submitted under seal pending the Court’s consideration of Dell’s Motion for Relief
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`From Confidentiality. (Dkt. No. 74.)4 Importantly, the Court (pursuant to Federal Rule of Civil
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`Procedure 19 and the Court’s inherent power) formally joined Q Patents, Mr. Yates, Mr. Labbit,
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`and Mr. Tadlock as parties to this case to insure each a full opportunity to respond, to contest
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`liability for any sanction or fee award, and to otherwise receive due process. (Id. at 1–2.)
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`D.
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`The Court’s Hearing
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`On January 12, 2017, the Court held a hearing on these post-judgment matters. All parties
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`appeared by counsel and Messrs. Yates, Labbit, and Tadlock appeared in person. Each of these
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`three presented live testimony. The post-judgment discovery and such hearing established the
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`following additional facts:
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`1.
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`2.
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`3.
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`Iris Connex was formed and authorized to do business as a Texas limited liability
`company on October 13, 2015. (Dkt. No. 97-4 at 9.)
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`Iris Connex has no assets except for the ’950 patent and it holds no working capital.
`(Yates 25:11–19, 55:2–7.)
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`Iris Connex has no employees. (Yates 29:5–7.)
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`4 The Court’s Order concerning such motion will be entered contemporaneously with this Memorandum Opinion and
`Final Judgment.
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`4.
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`5.
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`6.
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`7.
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`8.
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`9.
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`Iris Connex was formed for the sole purpose of enforcing its lone asset. (Yates
`60:7–8.)
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`The regulations governing Iris Connex called for a $1,000 capital contribution from
`Q Patents as well as a $100,000 line of credit from Q Patents for the benefit of Iris
`Connex. Q Patents is the sole obligor on the line of credit. The initial $1,000
`capital contribution from Q Patents was used to pay for the formation of Iris Connex
`with the Texas Secretary of State. (See Dkt. No. 129-2.) (Iris Connex’s Regulations)
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`Iris Connex paid no cash value for the ’950 patent. (Dkt. No. 128-2 at 4.) AVT,
`the assignor, reserved a right to 50 percent of all the profits realized by monetizing
`the ’950 patent. AVT also retained a right to reacquire the ’950 patent, unless Iris
`Connex produced and paid at least $500,000 under the terms of the agreement to
`AVT within 24 months of the assignment. (See id.; Yates at 15:1–9.)
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`Iris Connex did not have a bank account until April 2016, seven months after its
`formation and more than five months after filing this lawsuit. (Labbit at 54:2–13.)
`Once a bank account was finally opened in the name of Iris Connex, its total cash
`balance consisted of $100.00 deposited from Mr. Labbit’s personal funds. (Labbit
`at 55:19-56:1.)
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`Iris Connex pays no rent, (Labbit at 22:22–23:10), and shares its office with 15 to
`20 other entities owned directly or indirectly by Brian Yates. (Labbit at 12:3–8.)
`Iris Connex has no furniture or other physical assets at this location. (Labbit at
`26:7–15.) There is no sign for Suite 600-A displayed on any door in the building
`identifying Iris Connex as an occupant. (See Dkt. No. 17-2.)
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`Q Patents pays the debts of Iris Connex, including the expenses associated with
`forming Iris Connex and its litigation fees, under a line of credit. (Yates at 51:22–
`56:7; Labbit at 84:14–17.) Q Patents ultimately paid the Tadlock Law Firm to
`represent Iris Connex in this litigation. (Yates at 52:2–9.)
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`10. Mr. Tadlock did not know about Q Patents when he filed the original Rule 7.1
`disclosure. (Hearing at 46:5–7.) Mr. Labbit did. (Hearing at 60:4–6.)
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`11.
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`12.
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`13.
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`At present, Q Patents is a holding company for four currently operating patent
`assertion entities, two of which are managed by Mr. Labbit and two of which are
`managed by Lloyd Kraus, another attorney in Tyler, Texas. (See Yates at 26:8–
`27:9.) The assets of the other subsidiary companies held by Q Patents are “fairly
`fluid.” (Yates at 154:4–11.)
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`Q Patents had, as of November 1, 2016, less than $10,000 in its bank account.
`(Yates 24:25–25:10.)
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`All of Iris Connex’s net profits and losses for any fiscal year are wholly allocated
`to Q Patents. (Dkt. No. 97-4 at 25.)
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`14. When Q Patents has insufficient cash on hand to pay its obligations, or those of Iris
`Connex, Mr. Brian Yates injects his own money into the company or pays their
`bills directly. (Yates at 59:17–61:8.)
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`Entities owned directly or indirectly by Mr. Yates, many of which show Mr. Labbit
`as the Manager and which share the same mailing address as Iris Connex, have filed
`multiple patent infringement lawsuits in Eastern District of Texas. These entities
`have also failed to disclose their corporate pa