Backertop Licensing LLC v. Canary Connect, Inc.

107 F.4th 1335
Court of Appeals for the Federal Circuit·Decided July 16, 2024·No. 23-2367·Published·Cited by 2 cases

Opinion

United States Court of Appeals for the Federal Circuit

BACKERTOP LICENSING LLC,

Plaintiff-Appellant

LORI LAPRAY, Movant-Appellant

v.

CANARY CONNECT, INC.,

Defendant

-------------------------------------------------

BACKERTOP LICENSING LLC,

Plaintiff-Appellant

LORI LAPRAY, Movant-Appellant

v.

AUGUST HOME, INC.,

Defendant

2023-2367, 2023-2368, 2024-1016, 2024-1017

Appeals from the United States District Court for the District of Delaware in Nos. 1:22-cv-00572-CFC, 1:22-cv- 00573-CFC, Chief Judge Colm F. Connolly.

2 BACKERTOP LICENSING LLC v. CANARY CONNECT, INC.

Decided: July 16, 2024

DAVID L. FINGER, Finger & Slanina LLC, Wilmington, DE, argued for plaintiff-appellant and movant-appellant.

W. DAVID MAXWELL, Hogan Lovells US LLP, Washington , DC, argued for amicus curiae W. David Maxwell. Also represented by PAGET CAROLINE BARRANCO, ABBY WALTER GRAY.

Before PROST, HUGHES, and STOLL, Circuit Judges.

HUGHES, Circuit Judge.

Backertop Licensing LLC and Lori LaPray appeal the U.S. District Court of Delaware’s sua sponte order requiring Ms. LaPray to appear in-person before the District Court for testimony regarding potential fraud on the court, as well as the District Court’s order of monetary sanctions against Ms. LaPray for subsequently failing to appear. Because these orders were within the District Court’s inherent authority and were not abuses of discretion, we affirm the District Court.

I

A

Over the past year and a half, the Chief Judge of the District of Delaware has identified potential attorney and party misconduct in dozens of related patent cases. See, e.g., Nimitz Techs. LLC v. CNET Media, Inc., No. 21-1247, 2022 WL 17338396, at *10–12 (D. Del. Nov. 30, 2020); Backertop Licensing LLC v. Canary Connect, Inc., No. 22- 572 (D. Del. Apr. 28, 2022); Backertop Licensing LLC v. August Home, Inc., No. 22-573 (D. Del. Apr. 28, 2022). The plaintiffs in these cases are limited liability companies (plaintiff LLCs) that seem to be associated with IP Edge, a patent monetization firm, and Mavexar, an affiliated consulting shop. See, e.g., Nimitz, 2022 WL 17338396, at *10–

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12. In the District Court’s detailed memorandum, it found that IP Edge and Mavexar appear to have created all of the plaintiff LLCs; recruited outside individuals to serve as their sole owners; assigned patents to the plaintiff LLCs for little or no consideration; retained the rights to the majority of royalties and settlement proceeds; and reported a complete assignment to the United States Patent and Trademark Office (PTO)—all without disclosing IP Edge’s ongoing rights in any patent-related proceedings. See id. at *16–25. The District Court found that IP Edge and Mavexar then directed infringement litigation asserting those patents—including overseeing the attorneys and agreeing to settlements—with seemingly little to no input from the plaintiff LLCs’ owners. Id. at *18–25.

The District Court developed concerns that this arrangement may conceal from the court the real parties in interest: IP Edge and Mavexar. Id. at *26; see also Fed. R. Civ. P. 17(a)(1) (“An action must be prosecuted in the name of the real party in interest.”). The District Court was also concerned whether “those real parties in interest perpetrated a fraud on the court by fraudulently conveying to a shell LLC [the patents] and filing a fictitious patent assignment with the PTO designed to shield those parties from potential liability they would otherwise face in asserting [the patents] in litigation.” Nimitz, 2022 WL 17338396, at *26. Further, the District Court noted that the plaintiff LLCs and their counsel may have violated local disclosure rules by failing to disclose IP Edge’s or Mavexar’s funding for the litigation. Id. Finally, the District Court explained that plaintiff LLCs’ attorneys may have violated the Rules of Professional Conduct by filing, settling, and dismissing litigation at the direction of Mavexar, a non-legal consulting firm, without the informed consent of the plaintiff LLCs’ owners. Id. at *13–18.

In November 2022, the District Court held evidentiary hearings to gather more information about its concerns regarding the conduct of the parties. J.A. 1–2. After the hearings , the District Court ordered the plaintiff LLCs and 4 BACKERTOP LICENSING LLC v. CANARY CONNECT, INC.

their counsel to provide documents that indicated that patents had been transferred to shell LLCs. Id. One of the plaintiff LLCs challenged these inquiries in a petition for mandamus to this court. In re Nimitz Techs. LLC, No. 23- 103, 2022 WL 17494845, at *1 (Fed. Cir. Dec. 8, 2022). We denied the petition, confirming that the District Court has inherent authority to seek information related to the conduct of the parties. Id. at *2–3 (the District Court’s concerns “[a]ll are related to potential legal issues in the case, subject to the ‘principle of party presentation’ . . . or to aspects of proper practice before the court, over which district courts have a range of authority preserved by the Federal Rules of Civil Procedure” (citing Fed. R. Civ. P. 83(b); Chambers v. NASCO, Inc., 501 U.S. 32 (1991))).

B

The cases involving Backertop Licensing LLC (Backertop ), and the orders that are the subject of this appeal, are part of the District Court’s inquiry. Ms. LaPray is the sole owner of Backertop. In 2022, Backertop filed at least twelve patent infringement cases in federal district courts in California, Colorado, New York, Texas, and Delaware. See J.A. 14, 21 (collecting cases). Ms. LaPray is also the managing member of six other LLCs that have filed at least ninety-seven patent infringement cases in federal district courts. See J.A. 17–20 (collecting cases as of July 2023). In the Backertop cases, the District Court identified the same pattern of potential misconduct seen in the other IP Edgelinked and Mavexar-linked cases.

In March 2023, after this court denied the mandamus petition challenging the production orders in In re Nimitz, the District Court ordered Backertop, Ms. LaPray, and their attorneys to produce documents and communications relating to the District Court’s concerns regarding fraud on the court. See J.A. 125–29; see also J.A. 3 (explaining that the District Court refrained from issuing the document production order in Backertop while the In re Nimitz mandamus petition was pending). The District Court also ordered

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Ms. LaPray to submit a declaration identifying “any and all assets owned by Backertop.” J.A. 129.

In response, on April 3, 2023, Backertop moved to set aside the document production order, arguing that it was overly broad, sought privileged information, and exceeded the District Court’s jurisdiction. See J.A. 4–5. Several weeks later, pursuant to Fed. R. Civ. P. 41(a)(1)(A)(ii), Backertop filed a joint stipulation of dismissal. J.A. 130. Four days later, Backertop’s local counsel, Jimmy Chong, filed a motion to withdraw as counsel, explaining that he “[was] unable to effectively communicate with [Backertop] in a manner consistent with good attorney-client relations .” J.A. 6. Backertop opposed his motion to withdraw. Id. The same day, Backertop’s other attorney, Ronald Burns, emailed the District Court seeking to withdraw as counsel. Id. Mr. Burns sent an email to the court, instead of filing on the docket, “due to the fact that [he could not] get a response from [his] local counsel,” Mr. Chong. Id. Mr. Burns explained that he had “started a new job” and “[could not] represent the plaintiff any longer.” Id.

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Backertop Licensing LLC v. Canary Connect, Inc., 107 F.4th 1335 (Fed. Cir. 2024).

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