Vringo Inc., the patent monetization company that had a $30.5 million jury award reversed by a federal appellate court on Aug. 15, may have a chance for “very serious money” and “enormous punitive damages” in a breach of contract lawsuit against Chinese telecommunications company ZTE Corp.
That’s the view expressed by Judge Lewis Kaplan of the U.S. District Court in Manhattan during a July 24 hearing with counsel for Vringo and ZTE. Kaplan was a partner with the law firm of Paul Weiss Rifkind Wharton and Garrison from 1977 until he joined the bench in 1994.
“For all I know, injunction or no injunction, you’re going to get a judgment against them for damages for very serious money and conceivably enormous punitive damages,” Judge Kaplan told Vringo counsel Karl Geercken, a partner with the law firm of Alston Bird. “Certainly, punitive damages, putting aside the contract tort controversy, would seem entirely possible on these facts.”
The breach of contract lawsuit was filed by New York-based Vringo against ZTE in the federal court in Manhattan on July 2.
Vringo also is involved in patent infringement lawsuits against Shenzhen, China-based ZTE in multiple jurisdictions including the U.K., Germany, France, Spain, India and Australia. ZTE also filed an antitrust lawsuit against Vringo in China.
The infringement suits concern a number of patents for mobile communication systems, which Vringo purchased from Nokia Corp. for $22 million in 2012.
The breach of contract complaint charges that ZTE and its ZTE USA subsidiary based in Richardson, Texas, breached a non-disclosure agreement they reached with Vringo in December 2013 in connection with world-wide patent infringement litigation brought by Vringo.
The NDA placed strict restrictions on the use of confidential settlement information exchanged between the parties.
Despite the NDA, ZTE filed information about the settlement discussions as part of an antitrust lawsuit it brought against Vringo in Shenzhen Intermediate People’s Court.
According to the complaint, “In violation of the NDA, ZTE included Vringo’s entire presentation as an exhibit to the Chinese complaint. ZTE also included the amount of Vringo’s settlement offer in the Chinese complaint.”
In the complaint, Vringo is seeking to enforce its contract rights in the NDA by obtaining a temporary restraining order to mitigate the harm that Vringo claims to have suffered.
Moreover, Vringo wants Judge Kaplan to order ZTE to withdraw its antitrust suit with the offending material covered by the NDA. The company has said ZTE can refile the antitrust suit without the offending material. In addition, Vringo is seeking preliminary and permanent injunctions against ZTE.
Vringo believes that it has been irreparably harmed by ZTE’s violation of the NDA and deserves damages. The company says its interests have been compromised because adversaries in other patent infringement cases haven been given a window on its licensing and litigation strategies.
During a July 24 hearing, Judge Kaplan seemed to side with Vringo when after Geercken noted that ZTE was seeking a judgement declaring its rights under the NDA.
“They may very well get it,” Judge Kaplan said. “They may not be too happy with it, but they may get it.”
While Judge Kaplan said he was “sympathetic” to Vringo’s argument, he told Geercken “your client took a huge risk, and if they weren’t wise to the risk, they should have been, and that is, that there might prove to be no real way to enforce the agreement.”
After gently chastising ZTE counsel Paul Straus, of the law firm of King & Spalding, for not responding to emails and being late to the conference, Judge Kaplan proceeded to lay into ZTE’s arguments.
First, Straus questioned the sufficiency of the harm Vringo claimed ZTE’s violation of the NDA caused it, saying the U.S. Supreme Court has ruled that the moving party has to show that irreparable harm is imminent and probable and not just possible.
“It is sufficient for it to be likely,’” Judge Kaplan said. “‘Risk of it’ doesn’t do, or at least ‘possibility’ doesn’t do, but likely has been the standard for 350 years.”
Straus tried to make the argument that being held in violation of antitrust laws in China cannot be the harm Vringo is claiming.
“But that doesn’t cut it either,” Judge Kaplan said. Vringo “made a deal with your client and your client welched. It’s that simple. Think Pennzoil v. Texaco.”
The Pennzoil v. Texaco case stemmed from Pennzoil Co.’s agreement to acquire Getty Oil Co. in 1984, and Texaco’s attempt to scuttle the deal and acquire Getty for itself. Pennzoil sued Texaco in Texas state court and Texaco brought a suit in federal court in the Southern District of New York. Eventually, the U.S. Supreme Court ruled that a federal circuit court erred in getting involved in a state case.
A Texas jury had awarded Pennzoil $10.5 billion in compensatory and punitive damages. After the jury award was upheld in the Texas Court of Appeals, Texaco filed for bankruptcy and eventually settled for $3 billion.
Judge Kaplan added moments later that the “question on this motion that you’re raising is whether I should say that this clause is unenforceable even though it’s clear as a bell and even though your client knew exactly what it was doing when it signed it and welched on it weeks later.”
“The thing is, the more I think about it, the more troubled I am by your client’s cavalier behavior here,” Judge Kaplan said. “And the more cavalier the behavior is, the more likely it seems to me that there’s going to be more cavalier behavior. I made that point when I issued the TRO. And then I see this remarkable declaration you submitted from Mr. Zhou Wang.”
Wang’s declaration was made regarding legal filings Vringo asked ZTE for permission to file before the European Commission, which Wang and ZTE claim sought to include the information contained in the NDA, though that turned out not to be true.
“Then Mr. Zhou, under penalty of perjury says, without waiting for ZTE to reply, Vringo filed a response to the European Commission using information from the same meeting that Vringo now seeks to stop ZTE from using. That’s what he said, right, under penalty of perjury. Do you want to withdraw that statement now? It’s inaccurate isn’t it?”
Straus allowed that it “appeared to be inaccurate.”
“I’ll tell you the way it looks to me,” Judge Kaplan said. “You folks leapt to a conclusion. I don’t know who personally, we may get there. And then either Mr. Zhou on his own hook, which I doubt but it’s possible, decided to swear that the conclusion that he or somebody else had jumped to was the fact without actually knowing at all or somebody drafted an affidavit for him to sign.”
Judge Kaplan went on to characterize ZTE’s argument as follows: “Your client’s position before me is, all we understand the NDA says is, we can’t disclose any of this information to any judicial body, whatever it says exactly, but that’s the substance, but it doesn’t really mean that; or, if it means that, it’s not enforceable because you can’t stop anybody from going and complaining and providing evidence to a court or official body.”
“So in your view, it’s perfectly okay for your client to submit confidential information as a plaintiff against Vringo because public policy prohibits any other result, but it’s a violation of the NDA to submit the same kind of information to the European Commission to defend against a competition complaint by your client against them.”
Finally, Judge Kaplan urged the two sides to reach a settlement.
“Now, if your respective clients have any sense, they will settle this because I can see them spending a vast amount of money here and doing it in a very short period of time and maybe winding up with a result that doesn’t make anybody entirely happy and just contributes to the greater wealth of the legal profession that used to be much nearer and dearer to my heart than it is now, but there it is.”
ZTE officials couldn’t be reached for comment. Vringo officials declined to comment.
Alston Bird’s Geercken, and King & Spalding’s Straus, couldn’t be reached for comment.
To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at email@example.com.