California Verdicts

Plaintiff(s):

SanDisk Corporation

Plaintiff Attorney(s):

David W. Hansen;
Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates;
Palo Alto,
CA,
for
SanDisk Corporation ■ Allen J. Ruby;
Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates;
Palo Alto,
CA,
for
SanDisk Corporation ■ James P. Schaefer;
Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates;
Palo Alto,
CA,
for
SanDisk Corporation

Plaintiff Expert(s):

John Hansen;
C.P.A.;
Accounting (Forensic);
San Francisco,
CA called by
David W. Hansen, Allen J. Ruby

Defendant(s):

PNY Technologies, Inc.

Defense Attorney(s):

Daniel B. Asimow;
Arnold & Porter, LLP;
San Francisco,
CA,
for
PNY Technologies, Inc. ■ Amy L. Bomse;
Arnold & Porter, LLP;
San Francisco,
CA,
for
PNY Technologies, Inc. ■ Ira M. Gottlieb;
McCarter & English, LLP;
Newark,
NJ,
for
PNY Technologies, Inc.

Defendant Expert(s):

Christian Tregillis;
Accounting (Forensic);
Los Angeles,
CA called by
Daniel B. Asimow, Amy L. Bomse, Ira M. Gottlieb

In 2008, plaintiff SanDisk Corp., a publicly traded multinational corporation, based in Milpitas, that specializes in flash storage solutions, entered into a patent agreement with PNY Technologies Inc., an American manufacturer of flash memory cards and other computer peripherals. SanDisk initially sued PNY, and 24 other companies, in Wisconsin federal court and the U.S. International Trade Commission, alleging PNY infringed SanDisk’s flash memory cards and USB drives. PNY ultimately entered into the 2008 flash-memory patent licensing agreement, allowing it to sell USB drives and flash memory cards as SanDisk licensed products. However, PNY allegedly failed to make royalty payments to SanDisk. In 2011, SanDisk brought an action against PNY in Santa Clara Superior Court, alleging that PNY breached the flash-memory patent licensing agreement. SanDisk alleged that PNY failed to pay all royalties owed, as per the patent licensing agreement, and that PNY prevented good-faith attempts to engage in the dispute resolution process set forth in the agreement. PNY claimed that the patent licensing agreement was unenforceable due to SanDisk’s fraud, failure to perform its obligations under the agreement, failure to employ an independent auditor, and violation of the patent exhaustion doctrine. PNY also disputed the scope of the patent licensing agreement and the amount of damages. After SanDisk brought the state court case, PNY filed suit against SanDisk in the Northern District of California in 2012, alleging antitrust violations and seeking declaratory relief concerning patent misuse. PNY alleged that the patent licensing agreement constituted an unlawful tying arrangement and was part of a scheme to monopolize the flash-memory technology and products markets. In October 2012, Judge Yvonne Gonzalez Rogers denied SanDisk’s motion to dismiss the federal complaint.

In the state court action, SanDisk sought recovery of $42 million in unpaid royalties, plus interest. PNY’s counsel argued that PNY did not owe SanDisk any royalties because the patent licensing agreement was unlawful. (Similarly, in the federal action, PNY sought a declaration that the patent licensing agreement was unlawful. It also sought treble damages for SanDisk’s alleged unlawful monopolization of the flash-memory technology and product markets.)

The jury ruled in favor of SanDisk and determined that SanDisk’s damages totaled $28.5 million, including $25.4 million in past damages and $3.1 million in future damages. On a special verdict form, the jury ruled in SanDisk’s favor on PNY’s claims of fraud, failure to perform, and scope of license, but found in PNY’s favor on its patent exhaustion and auditor independence claims. However, the jury further found that SanDisk had corrected the auditor independence issue by proposing another third-party accounting firm.

Judge:

Beth McGowen

Trial Length:

5
 weeks

Trial Deliberations:

1
 days

Jury Vote:

9-3 in favor of SanDisk on breach of contract; 9-3 in favor of SanDisk on fraud; 11-1 in favor of PNY on patent exhaustion; 11-1 in favor of PNY on independence of the auditor

Jury Composition:

5 male/ 7 female

Post Trial:

On post-trial motions, Judge Beth McGowen set aside the jury’s finding on PNY’s patent-exhaustion claim. She also awarded SanDisk $4.3 million in post-judgment interest. In September 2014, the parties agreed to settle both the state and federal actions.

This report is based on information that was provided by plaintiff’s and defense counsel.