Vringo Inc. (VRNG), the patent licensing company locked in a multi-jurisdiction infringement war with ZTE Corp., may be able to convince Judge Lewis Kaplan of the U.S. District Court in Manhattan to rule in its favor based on ZTE’s unreasonable delay tactics and award significant damages and even exceptional case fees.

Shenzhen, China-based ZTE has already told Judge Kaplan it won’t comply with an order for its Chief Counsel Guo Xiaoming to appear in New York for a deposition by attorneys for New York based Vringo, because he fears being detained or arrested due to a criminal probe of alleged violations of Iran trade sanctions. The company told Judge Kaplan it will accept reasonable sanctions.

Judge Kaplan decided against issuing sanctions after ZTE’s response in order to give it more time to consider complying with the order, though he indicated he would consider a sanctions motion by Vringo.

Vringo has said it plans to seek case dispositive sanctions, which would mean Judge Kaplan decides the case in Vringo’s favor because of the unreasonable delay tactics. 

In the case, Vringo has accused ZTE of two breaches of a non-disclosure agreement, which contained confidential information on a settlement offer in connection with the two companies infringement disputes. 

Moreover, Vringo accused ZTE of breaching the NDA by providing it to Chinese antitrust regulators in order to persuade them to open an antitrust investigation and file an antitrust suit. 

The licensing company also has accused ZTE of orchestrating a scheme to use the media to highlight negative information about Vringo in order to hurt its stock price and weaken its position in the infringement dispute.

Judge Kaplan has already found that ZTE breached the NDA and indicated in a hearing last year that Vringo may be entitled to "significant" damages.

Earlier this week, Vringo attorneys asked Judge Kaplan for permission to file an extended 12-page brief for comprehensive sanctions based on the delay tactics and all the allegations.

Such discovery delay tactics are unusual in patent infringement disputes, according to Retired Chief Judge James Holderman, who previously sat on the U.S. District Court in Chicago.

“It’s rare,” Judge Holderman said in an interview. “All judges dislike any litigation tactics that are solely for delay. Individual judges can become frustrated with either side.”

Sanctions are decided on a case by case basis if the judge feels a litigant is abusing the process.

“I understand their frustration,” he said.

When judges are confronted with such abusive tactics they can impose sanctions, he said.

For example a judge can set a deadline date by order and if the party fails to comply the party is in contempt. The judge can then order a civil fine for contempt every day they have not complied with the order.”

Judge Holderman said that during his thirty years on the federal bench, when a litigant improperly delayed the turnover of information, he sometimes was required to issue orders that doubled the imposed fine every day until the recalcitrant litigant complied.

“Usually such orders got the contemptuous party’s attention after a week,” he said. Such sanctions “can be big,” he said.

To be sure, the sanctions also have to be commensurate with the delay tactics.

“Case dispositive sanctions are very rare but are permissible. It has to be a total failure, not just a delay.”

ZTE’s statement to Judge Kaplan that it won’t comply with the order and will accept reasonable sanctions would seem to fall into the failure category.

In such instances, judges also may declare a case exceptional and under 35 U.S.C. Section 285 and award exceptional case fees, citing the Supreme Court’s ruling last year in Octane Fitness v ICON Health & Fitness.

The fees are borne by the unreasonable party and are awarded to the abused party, he said.

“Judge Kaplan is an outstanding district court judge. He’s a reasonable and patient person. In the past, he’s sanctioned government agencies for improper conduct.”

Chief Judge Holderman may be referring to Judge Kaplan’s decision in October 2007 to dismiss tax fraud charges against 13 former KPMG employees, ruling that he had no alternative because the government had strong-armed KPMG into not paying the legal fees of defendants and had violated their rights.

“District judges always want to be circumspect and to not let any frustration they have seep into their decisions,” Chief Judge Holderman said.

In his order denying ZTE’s request for the court to allow Guo to be deposed outside the U.S., Judge Kaplan suggested some displeasure if not outright frustration.

“ZTE obviously instructed its lead U.S. counsel in this litigation (King & Spalding) to seek to avoid Mr. Guo being deposed at all—or, if that could not be prevented, to ensure that any deposition of him take place outside this country. Yet it litigated two motions to compel in this Court on those very issues without ever once informing the Court of the criminal investigation or of its concerns with respect to Mr. Guo coming to this country. It thus put both the Court and its adversary to considerable burden for reasons that never were disclosed.

Two King & Spalding attorneys — partners Robert Perry and Paul Straus — also are facing sanctions. Perry, Straus and associate David Joffee also have asked to withdraw from the case.

“In light of ZTE’s lack of candor and its stalling and game playing with respect to the Guo deposition in the months prior to the present, ZTE has no claim on the favorable exercise of the Court’s discretion.”

Sanctions would come at an opportune time for Vringo. Earlier this month, the company posted a second quarter net loss of $8.5 million, or 9 cents a share, compared with $10.05 million, or 12 cents a share, a year earlier. The company ended the quarter with cash and cash equivalents of $22.3 million.

Kevin Rivette, a managing director of 3LP Advisors, has said that if Vringo gets significant damages from ZTE in this case it should be able to refill its coffers to continue to pursue its multi-jurisdictional infringement campaign.
Officials of Vringo declined comment. ZTE officials couldn’t be reached for comment.

Karl Geercken, a partner with Alston & Bird, who represents Vringo, declined to comment.

Jeff Butler, a partner with Clifford Chance U.S., who represents ZTE, couldn’t be reached for comment.

—To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at dan@thepatentinvestor.com