O'MALLEY, Circuit Judge.
KI Ventures, LLC ("KI") brought suit against Fry's Electronics, Inc. and CTA Digital, Inc. (collectively, "CTA") in the United States District Court for the Southern District of Texas, alleging infringement of the claims in U.S. Patent No. 5,569,019 ("the '019 patent"). The district court dismissed the case with prejudice "[u]nder rule 11 of the Federal Rules of Civil Procedure and the inherent power of this court." Final Dismissal at 1, KI Ventures, LLC v. Fry's Elecs., Inc. ("Dismissal Order"), No. 4:13-cv-1407 (S.D. Tex. Nov. 18, 2013), ECF No. 43. Because we conclude that the district court abused its discretion in dismissing this case with prejudice, we vacate the district court's dismissal and remand for further proceedings consistent with this opinion.
On May 5, 2013, KI sued CTA, alleging infringement of certain claims in the '019 patent. The '019 patent, titled "Weapon Shaped Virtual Reality Character Controller," discloses a video game controller that is shaped like a gun. At the initial conference on August 12, 2013, the district court discussed the patentability and scope of the claims in the '019 patent, but carefully avoided the actual language of the claims.
Transcript of Initial Conference at 9, 14, KI Ventures, LLC v. Fry's Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Aug. 12, 2013). The district court might have wanted to avoid the language of the patent because it had not yet had a chance to review the patent. Id. at 2 ("Okay. Just want to make sure. What is it that KI has made that is patentable? I mean, I know you have a patent, but what is it? I didn't read the whole thing."). Despite not reviewing the whole patent, however, the district court still expressed doubts about the patentability of the '019 patent, focusing on the figures instead of the language of the patent.
Id. at 3-5.
At the end of the initial conference, the district court ordered KI to "do one of those infamous charts," explaining that "[w]hat I need is something that is clear, brief, and precise that means what KI thinks the claims it thinks are infringed mean." Id. at 17, 19. The district court issued a formal "Order on Claim Construction," ordering KI to "clearly and precisely construe its claims against [CTA]." Order on Claim Construction at 1, KI Ventures, LLC v. Fry's Elecs., Inc. ("Order on Claim Construction"), No. 4:13-cv-1407 (S.D. Tex. Aug. 18, 2013), ECF No. 17.
KI complied with the court's order by serving its proposed claim constructions on CTA. CTA objected, complaining to the district court that "[t]here is no portion construing the claims against the five accused products." Status Report at 1, KI Ventures, LLC v. Fry's Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Aug. 28, 2013), ECF No. 18. On August 30, 2013, the district court sided with CTA by issuing an "Order on Confusion." The new order stated that "[KI] must give [CTA] an amended claim construction that explains how their products infringe its patents." Order on Confusion at 1, KI Ventures, LLC v. Fry's Elecs., Inc. ("Order on Confusion"), No. 4:13-cv-1407 (S.D. Tex. Aug. 30, 2013), ECF No. 21 (emphasis added).
KI complied with the court's order by serving its preliminary infringement contentions on September 9, 2013. In its preliminary infringement contentions, KI provided annotated pictures of each accused device with numbered arrows pointing to different parts.
The district court again sided with CTA, finding KI's preliminary infringement contentions deficient. On September 12, 2013, the district court issued an "Order on Infringement," which stated:
Order on Infringement at 1, KI Ventures, LLC v. Fry's Elecs., Inc. ("Order on Infringement"), No. 4:13-cv-1407 (S.D. Tex. Sep. 12, 2013), ECF No. 26.
Although KI supplemented its preliminary infringement contentions on September 16, 2013, it did not provide a description beyond "Reference Numeral #[X]" for some claim limitations. KI also added "Plaintiff relies on the doctrine of equivalents for this element" to some claim limitations. E.g., Joint Appendix ("J.A.") 221. CTA again insisted that KI's contentions were insufficient. The district court ordered a show cause hearing where "KI Ventures must appear and explain why its case should not be dismissed for refusing to obey the court's order— despite a second opportunity—and for generally not complying with the rudiments of presenting claims." Order to Show Cause at 1, KI Ventures, LLC v. Fry's Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Oct. 10, 2013), ECF No. 32.
At the November 15, 2013 show cause hearing, the district court focused, not on the sufficiency of KI's infringement contentions, but on the validity of the '019 patent.
Transcript of Show Cause Hearing at 30, 33, 43, KI Ventures, LLC v. Fry's Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Aug. 12, 2013). As it did in the initial conference, the district court refused to discuss the actual language of the '019 patent.
Id. at 13-14, 17, 39-40, 46.
For the show cause hearing, KI also submitted video exhibits to further clarify its infringement contentions. In each video, someone would read an asserted claim limitation, and another person would manipulate the part of the accused device that corresponded to that limitation. The district court, however, did not find the video helpful. Id. at 7 ("I did watch it. I did not find it particularly useful.").
At the end of the show cause hearing, the district court stated that it still had "no idea how [it] would rule on the merits." The court, however, dismissed the case "for recalcitrant non-compliance with Court orders." Id. at 52. The court expounded: "The case is dismissed for—I can't quote the rule—but both under Rule 11, second as an inherent power of mine to—I know there's no Rule 11 motion but it will justify under Rule 11 my inherent power to manage a case and have its orders complied with." Id. at 53.
After the hearing, the district court dismissed the case with prejudice "[u]nder rule 11 of the Federal Rules of Civil Procedure and the inherent power of this court." Dismissal Order at 1. KI timely appealed this dismissal. We have jurisdiction under 28 U.S.C. 1295(a)(1) (2012).
The district court stated that it was dismissing the case under Rule 11 and its inherent powers based on KI's "recalcitrant non-compliance with Court orders." Transcript of Show Cause Hearing at 52. Although Rule 11 sanctions may be appropriate if KI had submitted a document to the court for an improper purpose, Rule 11 is not used to sanction non-compliance with court orders. See Fed. R. Civ. P. 11(b). Because a court cannot impose Rule 11 sanctions for non-compliance with court orders, we find that it was an abuse of discretion for the district court to dismiss the case under Rule 11. While CTA contends dismissal under Rule 11 was appropriate because KI's failure to flesh out its infringement contentions in a manner that CTA found adequate is indicative of inadequate pre-suit investigation or that KI's allegations were not warranted by existing law or the relevant facts, the district court never made any such findings. Indeed, the district court neither ordered a show cause hearing on those grounds, discussed them at the hearing that was held, nor made a finding that Rule 11 was violated in those ways. CTA cannot justify Rule 11 sanctions now on grounds not supported by the trial record.
Turning to the court's inherent powers, we recognize that district courts have the inherent power to manage their own docket, including the power to dismiss a case. See, e.g., Roadway Exp., Inc. v. Piper, 447 U.S. 752, 765 (1980) (acknowledging a court's inherent power to dismiss a case for failure to prosecute). Dismissing a case with prejudice is a harsh sanction, however, and the Fifth Circuit has held that such sanctions should be confined to "bad faith or willful abuse of the judicial process." Wood-son v. Surgitek, Inc., 57 F.3d 1406, 1417 (5th Cir. 1995). In this case, we conclude that the district court abused its discretion in dismissing KI's claims with prejudice at this stage in the litigation. See Chambers v. NASCO, Inc., 501 U.S. 32, 55 (1991) (reviewing a district court's use of its inherent powers for abuse of discretion).
First, KI did not violate multiple court orders as the district court and CTA contend. See Transcript of Show Cause Hearing at 52 ("And I told it wasn't and you made another one and I told you it wasn't and you made another one and — four orders, counsel, to do a fundamental patent litigation problem. That is inexcusable." (emphasis added)). The court's first order, titled "Order on Claim Construction," can only reasonably be interpreted as an order to serve claim construction positions, not infringement contentions. See Order on Claim Construction at 1 ("By August 26, 2013, [KI] may clearly and precisely construe its claims against [CTA].").
When the district court changed its order to require infringement contentions, KI timely served its preliminary contentions. KI's infringement contentions identified the parts of each accused device that KI alleged for each limitation by using pictures of the accused devices. Furthermore, at the show cause hearing, the supposed fourth order that addressed infringement contentions, KI did not have a fair chance to explain its infringement contentions because the district court refused to let KI refer to the language of the claims. See Show Cause Hearing, at 13-14, 17, 39-40, 46. Instead, the district court focused on the validity of the patent, which was not yet even at issue. See id. at 30, 33, 43.
The only order with which KI did not comply was the court's order to produce "[a] chart with text that precisely explains how each part of the product infringes the patent, not naked assertions like `Reference numeral # 1.'" Order on Infringement at 1. And, KI's failure to follow the precise strictures of the court's order was only partial. Indeed, CTA does not even contend it did not understand KI's infringement contentions as of that point in time; it only contends that KI's chart was technically noncompliant with what the court ordered.
We also think that KI's conduct was not so "recalcitrant" as to warrant dismissal in this case. Although KI admittedly failed to comply with part of one court order, they continually tried to clarify their infringement contentions, through pictures, words, and even videos. For example, in preparation for the show cause hearing, KI produced videos that clearly mapped parts and uses of each accused device to specific claim limitations. The purpose of the preliminary infringement contentions is to inform CTA of KI's infringement positions. KI accomplished this purposed. Although KI did not use words to describe the part of the product it accuses for every limitation, it did provide annotated pictures with arrows that clearly point to the accused parts for every claim limitation. The videos produced for the show cause hearing even more clearly indicate the part and use of the accused device KI alleges for each limitation.
We realize that CTA thinks that KI's claim construction positions are incorrect and unsupported by the written description, making KI's infringement contentions baseless. But disagreement with KI's interpretation of its claims does not make KI's infringement contentions insufficient. Rather than challenging CTA's claim constructions on the merits or filing a motion for summary judgment, CTA implied that it did not understand KI's contentions. After KI served its contentions, which CTA admits now it understood, CTA filed with the court a "Response to Plaintiff's Infringement Contentions" in which it disingenuously stated that "Plaintiff is still hiding its infringement contentions." KI Ventures, LLC v. Fry's Elecs., Inc., No. 4:13-cv-1407, at 1 (S.D. Tex. Oct. 7, 2013), ECF No. 29. And CTA repeatedly told the court that KI had failed to comply with "three" court orders, even though the court titled its first order "Order on Claim Construction" and CTA was, itself, unsure of whether that order required infringement contentions. Id.; Notice of Status Report Regarding an Order on Claim Construction, KI Ventures, LLC v. Fry's Elecs., Inc., No. 4:13-cv-1407 (S.D. Tex. Aug. 28, 2013), ECF No. 18. CTA's disingenuous statements to the court regarding the sufficiency of KI's contentions and the number of orders likely confused the court, stimulating the premature dismissal of this case.
Because KI only disobeyed one court order, in part, and because KI's preliminary infringement contentions are sufficient to convey its position at this early stage in the litigation, the district court abused its discretion in using its inherent powers to dismiss this case. On remand, because CTA understands KI's literal infringement contentions, the district court should not require KI to further amend its contentions to continue with this case. The district court should proceed with claim construction, discovery, and normal motions practice. Although the district court need not follow the exact procedure laid out in the Rules of Practice for Patent Cases in the Southern District of Texas, using the well-known terminology would probably help avoid future "Order[s] on Confusion." Order on Confusion at 1. Furthermore, KI must be allowed to refer to the language of the patent—especially the claim language—in future filings and hearings on claim construction, infringement, and invalidity. For better or worse, these issues are entirely dependent on the language used in the patent, the claims, and the prosecution history, not pictures or "simple English." Show Cause Hearing, at 5.
We do agree with CTA and the district court, however, that KI's doctrine of equivalents ("DOE") contentions are currently insufficient. Although KI should be allowed to amend its DOE contentions during discovery, if the district court thinks it is proper, it may allow CTA to file an early motion for summary judgment on KI's DOE claims.
For the foregoing reasons, we vacate the district court's order dismissing this case with prejudice, and remand the case for proceedings consistent with this opinion.
