Pop Top Corp v. Rakuten Kobo Inc.

Background

In March 2022, the court awarded Rakuten Kobo Inc. $274,721.43 in attorneys’ fees under the Patent Act and ordered Pop Top Corp. to pay within 30 days. Pop Top did not pay any part of the award. Kobo then moved to amend the judgment to add Pop Top’s principal, Rohit Chandra, as a judgment debtor; to hold Pop Top and Chandra in civil contempt; and to assign Chandra’s patents in partial satisfaction of the fee award. Kobo also filed an administrative motion concerning whether materials designated by another party should be sealed.

The underlying case involved Pop Top’s claim that Kobo’s eReader software infringed U.S. Patent No. 7,966,623. The court granted summary judgment of non-infringement, and the Federal Circuit affirmed. The court later awarded Kobo attorneys’ fees, and the Federal Circuit affirmed that award.

Because adding Chandra as a new judgment debtor would have a dispositive effect on him, and Chandra declined magistrate-judge jurisdiction, the court issued a report and recommendation and reassigned the case to a district judge for final disposition.

Motion to Amend the Judgment

Under Federal Rule of Civil Procedure 69(a) and California law, a court may add a judgment debtor after judgment when the moving party proves by a preponderance of the evidence that the proposed debtor is the original debtor’s alter ego and controlled the earlier litigation, giving the proposed debtor an opportunity to litigate.

The court concluded that Kobo presented ample, uncontroverted evidence that Chandra was Pop Top’s alter ego. Chandra was Pop Top’s sole shareholder, officer, and director and had complete decision-making authority. Pop Top’s registered business address was Chandra’s personal residence. Pop Top had no business or revenue apart from serving as a vehicle to monetize Chandra’s patents, and Chandra was its sole employee.

The court also found evidence of commingled assets. Chandra was the only authorized signatory on Pop Top’s bank accounts, transferred money between his personal accounts and Pop Top’s accounts, and used funds in Pop Top’s accounts for meals, gasoline, and other expenses. The evidence also showed that Chandra transferred most of a $25,000 investment from Pop Top’s account to his personal account.

The court found that Pop Top did not observe corporate formalities: it had not held formal corporate meetings, had no corporate minutes or resolutions, and maintained no accounting records beyond bank statements and tax returns. The court also found inadequate capitalization. Pop Top had insufficient revenue to pay Chandra wages, and Chandra claimed that Pop Top owed him deferred wages and money under a purported loan.

The court determined that treating Pop Top as the only liable party would produce an inequitable result because Pop Top appeared significantly undercapitalized and had little or no assets, leaving Kobo unable to collect the fee award. The court also found that Chandra controlled the earlier litigation: he was Pop Top’s sole decision-maker, personally assigned the patent to Pop Top shortly before the lawsuit, retained counsel for himself and Pop Top, communicated with Pop Top’s counsel, reviewed pleadings, and had authority over the litigation. The court concluded that adding Chandra to the judgment would satisfy due-process requirements.

The court therefore recommended that Kobo’s motion to amend the judgment to add Rohit Chandra as a judgment debtor be granted.

Civil Contempt

Kobo sought to hold Pop Top and Chandra in civil contempt for failing to pay the $274,721.43 fee award. Because the court recommended adding Chandra to the judgment, it recommended that Kobo’s contempt motion be denied without prejudice as moot.

Motion to Assign Patents

Kobo asked the court to order the assignment of Chandra’s patents in partial satisfaction of the fee award. Chandra owned 24 patents and pending applications, 14 of which were active. Two patents had been assigned to Pop Top, while the remaining patents were held in Chandra’s name. Kobo presented evidence that separating the patents could reduce their market value.

The court recommended that the patent-assignment motion be denied without prejudice as premature. If Chandra were added as a judgment debtor and Kobo could not collect the full fee award from him, Kobo could later pursue assignment of his patents.

Sealing Motion

Kobo asked to seal Chandra’s deposition transcript, its exhibits, and references to the transcript, based on confidentiality designations by Pop Top. Chandra responded that the materials contained sensitive personal, financial, banking, intellectual-property, and business information.

The court held that Chandra’s response did not satisfy the required compelling-reasons standard for sealing judicial records and did not comply with the requirement to consider narrower alternatives, such as redaction. The court nevertheless found compelling reasons to redact sensitive financial information, including bank-account numbers. It ordered Pop Top’s counsel to file a redacted version of Exhibit 21, a set of Wells Fargo bank statements, with all but the last four digits of account numbers redacted.

The court otherwise denied the sealing request and ordered Kobo to file unredacted versions of its motion, the deposition transcript, and the exhibits, except for Exhibit 21. The administrative sealing motion was therefore granted in part and denied in part.

Disposition

The court recommended granting Kobo’s motion to amend the judgment to add Rohit Chandra as a judgment debtor; denying Kobo’s motion to hold Pop Top and Chandra in civil contempt without prejudice as moot; and denying Kobo’s motion to assign Chandra’s patents without prejudice. The court granted in part and denied in part Kobo’s administrative motion concerning sealing. The report and recommendation stated that objections could be filed within 14 days after service.