Tuesday, September 15, 2015
Court of Appeal Revives $50 Million Attorney Malpractice Action
By a MetNews Staff Writer
The Court of Appeal for this district has ordered reinstatement of a $50 million-plus legal malpractice action in which a Pasadena technology company contends that lawyers representing it in negotiations with Microsoft negligently secured its unwary acceptance of an out-of-the-ordinary licensing agreement depriving it of royalties it should have received.
The opinion, by Justice Elizabeth Grimes of Div. Eight, reverses a judgment of nonsuit granted by Los Angeles Superior Court Judge Joseph R. Kalin, terminating the action by Metamorfyx, LLC. She said the jurist erred in barring any meaningful testimony by the plaintiff’s expert on damages, thus depriving it of the opportunity to prove its case.
An expert witness, Grimes declared Friday in an unpublished opinion, may base an opinion on reliable hearsay.
Metamorfyx will get a new trial in its action against the Law Firm of Vanek, Vickers & Masini; Joseph Vanek, a principal in that firm; the Law Offices of Eugene M. Cummings, P.C., and Cummings, as an individual; and attorney Brian Cardoza. The two law firms are based in Chicago and Cardoza, a California lawyer, works for Southern California Edison in Rosemead.
The owners of Metamorfyx, Robert Granadino and Hernan Camacho, in the 1990s developed, and gained patents on, an ergonomic keyboard, to reduce chances of a PC-user acquiring carpal tunnel syndrome from repetitive keystroking. Several manufacturers put such keyboards on the market, in disregard of the patents.
“The biggest infringer,” Grimes noted, “was Microsoft.”
Although Microsoft challenged the breadth of the first two of three patents (gained in 1994 and 1996), the Patent Office affirmed its original determinations.
Actions against the manufacturers were brought, or threatened, and virtually all—including Microsoft—agreed to pay Metamorfyx royalties. However, the 1997 agreement with Microsoft, which provided for $1 to Metamorfyx in connection with the sale of “royalty bearing keyboards,” defined that term narrowly.
About $700,000 was paid in royalties. However, Microsoft proceeded to sell nearly 28 million ergonomic keyboards without paying royalties, and Metamorfyx made a demand for moneys it insisted were due it.
Pursuant to a provision in the licensing agreement, the dispute was arbitrated. Metamorfyx lost.
The arbitrators found:
“The License Agreement does not provide, as many licenses do, that royalties are due if the products would infringe any claims of the licensed patents.”
Under the contract, the arbitrators determined, payment of a royalty was due only upon sale of a keyboard with “legs pivotally attached to the keyboard for elevating the wrist support,” and not on every keyboard utilizing a feature covered by the patents.
Granadino and Camacho insisted they knew nothing of this limitation. They and their company sued the lawyers, alleging their conduct fell below the normal standard of care.
Statement of Damages
In the plaintiffs’ Sept. 10, 2013 statement of damages, this is alleged, with respect to the negotiations with Microsoft:
“Due to the Defendants’ negligence, Plaintiffs have incurred general damages in the amount of $27,897,669 on this claim. Pre-Judgment interest amounts to $22,199,880, for a total of $50,097,549.”
The amount of general damages claimed was derived from data bared by Microsoft in connection with the arbitration. The data related to sales of keyboards between 2006 and 2009.
Combined with other claims, including anticipated post-2009 sales extrapolated from 2006-2009 data, it was declared that there was a “grand total of $59,553,610” in monies owed Metamorfyx.
Attorney fees to the prevailing party are also at stake.
At trial, there was testimony that licensing agreements normally provide for royalties where any feature of the manufactured product is covered by the licensor’s patent. That, however, was not enough; Metamorfyx’s prospects of victory were doomed when Kalin ruled that testimony of the plaintiffs’ expert on damages would be circumscribed.
No witness from Microsoft had laid a foundation by identifying the data as having been derived from a business record, the judge noted, concluding that it was inadmissible hearsay.
The expert could testify, Kalin declared, but not as to any calculations based on data provided by Microsoft. His core calculation was, however, based on $1 times the number of 2006-2009 sales which Microsoft reported.
“The trial court prejudicially erred, because an expert may base an opinion on reliable hearsay, and we discern no basis for finding the Microsoft sales data was unreliable….
“It was undisputed that Microsoft’s outside counsel produced the sales data to plaintiffs’ counsel…for use in the arbitration between Metamorfyx and Microsoft. Plaintiffs provided defense counsel and the court with a copy of an email stream between Microsoft’s counsel and plaintiffs’ counsel, along with hundreds of pages of data marked ‘confidential’ bearing Microsoft Bates numbers. We have examined this evidence and can detect no reason to find it is unreliable. Moreover, defendants have never claimed the email or the sales data are not authentic.”
The opinion upholds Kalin’s grant of a nonsuit as to Granadino and Camacho because they had vested all of their rights to the patents in Metamorfyx, and had no independent standing.
Justice Madeleine Flier concurred. Acting Presiding Justice Laurence D. Rubin wrote: “I concur with the judgment,” and did not proceed to explain his unwillingness to sign Grimes’ opinion.
The case is Metamorfyx, LLC v. Vanek, Vickers & Masini, B252798.
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