UNITED STATES DISTRICT COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION DOCKET NO. 3:10-cv-00439-FDW-DCK LENDINGTREE, LLC, a Delaware limited ) ) liability company, ) ) Plaintiff, ) ) vs. ) ) ZILLOW, INC., a Washington corporation; ) NEXTAG, INC., a Delaware corporation; and ) ADCHEMY, INC., a Delaware corporation, ) ) Defendants. )
THIS MATTER is before the Court on the issue of whether the equitable defenses of laches should apply in this case to bar the recovery of any pre-filing damages for infringement that NexTag might owe LendingTree and whether LendingTree should be equitably estopped from obtaining any relief on its infringement claims against NexTag.1 In addition to conducting a separate bench trial on this issue, the Court also considered evidence on laches and equitable estoppel concurrently with the jury trial on infringement, invalidity, and damages. The Court has thoroughly reviewed the evidence, arguments (including those made on summary judgment), and the record in this case. Accordingly, this matter is ripe for decision. For the reasons stated herein and on the record, the Court finds that the doctrine of laches and equitable estoppel should apply to LendingTree’s claims against Defendant NexTag in this case. FINDINGS OF FACT – LACHES 1
The Court notes that a jury has already determined that NexTag did not infringe LendingTree’s patents-in-suit. (Doc. No. 565). The jury also found LendingTree’s patents to be invalid. Id. Nevertheless, in light of the possibility of an appeal in this matter on the jury’s verdict, the Court is compelled to rule on the laches and equitable estoppel defenses raised by NexTag.
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LendingTree sued NexTag for infringement of U.S. Patent No. 6,611,816 on September 8, 2010.
All parties agree that the Laches Critical Date is September 8, 2004.
LendingTree documents evidence top-to-bottom corporate knowledge of NexTag’s accused system well before the Laches Critical Date. These documents begin at least as early as May 2003 and run throughout the pre-Critical Date period, including documents and correspondence sent and received by nearly every corporate executive within LendingTree’s organizational structure.
These corporate executives included, among
others, LendingTree’s Founder and Chief Executive Officer Doug Lebda (DX1302), its Chief Operating Officer Tom Reddin (DX1308), its Chief Marketing Officer Bob Harris (DX1308), its General Counsel Bob Flemma (DX1293), its Assistant General Counsel charged with intellectual property enforcement, Debra Ashley (DX1293), six Senior Vice Presidents (DX1287, DX1293, DX1294, DX1299, DX1302), nine Vice Presidents (DX1277, DX1284, DX1287, DX1288, DX1294, DX1296, DX1299), seven Senior Directors and various other managers and directors within nearly all divisions of LendingTree. See generally DX1269-DX1333. 4.
LendingTree’s own customers repeatedly sent detailed information about the accused NexTag service and website, including NexTag presentations and advertisements, and nextag.com screen shots prior to the Laches Critical Date. See, e.g., DX1269, DX1278, DX1284, DX1287, DX1322, DX1330, DX1270, DX1279, DX1288, DX1291, DX1311 and DX1317.
For example, on May 5, 2003, LendingTree received – from a LendingTree customer – 2
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NexTag’s “Mortgage Lead Program” presentation, which NexTag had pitched to LendingTree’s customer.
This presentation includes website screenshots of NexTag’s
Mortgage Lead System and “selection criteria” (property location, etc.). DX1279. 6.
Similarly, on August 12, 2003 LendingTree received – from a LendingTree customer – NexTag’s “Mortgage Overview” presentation to Prime, a “residential mortgage lender.” DX1278. This document included NexTag’s email sales pitch to Prime, stating “Unlike LendingTree, we do not charge any setup or back-end closing costs. We generate four–five times more unique user traffic than Lending Tree or GetSmart . . . .” This presentation also shows screens shots of the qualification form and the “selection criteria” (property location, etc.) (emphasis in original).
LendingTree’s clients informed LendingTree of NexTag’s system on numerous occasions, forwarding screenshots of the NexTag Mortgage Lead System to LendingTree employees. In one instance, high-ranking LendingTree executives, including Gary Silverstein and Jeff Lyons, noted on October 1, 2003 that “[a]lot [sic] of lenders said they purchased leads from NexTag.” DX1287.
On November 3, 2003, i.e. 10 months before the Laches Critical Date, Coldwell Banker forwarded to LendingTree a NexTag email wherein NexTag stated that “[w]e currently generate a few thousand mortgage leads a day . . . .” DX1293. These reports traveled throughout the LendingTree organizational structure. See, e.g., DX1293, DX1296 and DX1299.
By November 7, 2003, these reports reached Doug Lebda, the CEO of LendingTree, noting that “[s]ome bankers ... told me that mortgages were becoming a large part of [NexTag’s] 3
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business.”). DX1305. Lebda was informed that NexTag was selling mortgage leads to eTrade and Home Loan Center. Id. 10. LendingTree later purchased Home Loan Center in 2004. DX1500. 11. LendingTree actually tracked and studied NexTag’s mortgage lending website. LendingTree officials at the highest levels shared this information. See, e.g., DX1273, DX1274, DX1302, DX1303, DX1306, DX1309, DX1316, DX1320, DX1324. 12. Beginning in 2003, LendingTree believed NexTag offered a service “just like” LendingTree. See, e.g., DX1288, DX1308. 13. By September 22, 2003, in efforts to “ramp up [its] following of smaller competitors,” including NexTag, LendingTree initiated “a competition report,” which included a link to and copies of NexTag’s accused mortgage RFQ form. DX1284. 14. That same date, LendingTree executives passed around a link to NexTag’s Mortgage Lead System, noting “[n]ot sure if you knew [NexTag] sold leads directly.” DX1287. 15. Prior to the Critical Date, LendingTree personnel circulated links to, and screenshots of, NexTag’s Mortgage Lead System.
See, e.g., DX1269, DX1278, DX1284, DX1287,
DX1322, DX1330, DX1270, DX1279, DX1288, DX1291, DX1311 and DX1317. 16. On September 22, 2003, three LendingTree Vice Presidents exchanged emails containing a link to NexTag’s Mortgage Lead System. DX1284. 17. Links were also included in a LendingTree email sent on October 1, 2003. DX1287. 18. LendingTree’s General Counsel was made aware of NexTag’s Mortgage Lead System by October 27, 2003. DX1350. LendingTree personnel reported to the General Counsel that “[w]e may want to watch out for this company it appears they’re a pretty close rip-off of 4
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both of LT business models.” The same email chain noted that NexTag “ha[d] already borrowed our business model from the mortgage side – fill out one form and get matched with up to four lenders2.”
LendingTree’s General Counsel responded “o.k.” to the
suggestion of watching out for NexTag, while copying Debra A. Ashley, LendingTree’s Assistant General Counsel charged with intellectual property enforcement and Chris Cox, LendingTree’s Intellectual Property Program Coordinator.3 DX1350. 19. Within two months, i.e., on December 18, 2003, LendingTree created a so-called “Saint Lee Compliance Checklist” regarding the accused NexTag system. The checklist contained detailed information about the NexTag Mortgage Lead System, including a reference to the following attributes of the NexTag service: “applicants are referred to up to 4 lenders,” “Information will be disclosed to Lenders (participating banks, mortgage brokers, loan brokers, financial institutions, and in some cases aggregators),” “NexTag operates the site,” “[t]he site begins displaying the [Equal Housing Opportunity] logo on the first page of the loan request form,” along with a list of states in which NexTag was or was not licensed as a mortgage broker. DX1312. 20. Throughout the 2003-2004 timeframe, LendingTree continued to lose customers and market share to NexTag’s Mortgage Lead System. See, e.g., DX1270, DX1284, DX1285, DX1287, DX1294, DX1297, DX1300, DX1303, DX1305, DX1306, DX1309, DX1314, DX1319, DX1320, DX1323, DX1324, DX1327, DX1328, DX1332. 2
Mr. Lebda testified at trial that any competitor who allowed a lead to fill out a form and then would use that information on the form to match the lead with lenders infringed his patent. Trial Tr. 4318:13-4319:21. 3 LendingTree produced this document in response to Magistrate Judge Keesler’s Order Granting NexTag’s Motion to Compel Production of Documents Subject to Waiver of Privilege. The Order compelled LendingTree to produce documents showing: (i) when did LendingTree’s inside counsel advise LendingTree management or give LendingTree management reason to believe that NexTag’s allegedly infringing product existed; (ii) whether LendingTree employees supplied any information to LendingTree’s inside counsel relevant to that determination; (iii) the specifics of that information; and (iv) when it was supplied.
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21. For example, on August 26, 2003, a mortgage broker emailed LendingTree informing LendingTree that, due to LendingTree’s low mortgage lead volume, the mortgage broker was reassigning loan officers to handle NexTag mortgage leads. DX1281. 22. Similarly, on March 15, 2004, Flagstar Bank, a former LendingTree customer forwarded to LendingTree NexTag’s “Mortgage Overview” presentation. In its email to LendingTree, Flagstar stated, “As a consequence of the trail-off in refi leads from LendingTree . . . . I’d like to give this company [NexTag] a shot at providing us with an alternative.” DX1270. Flagstar included the agreement signed between NexTag and Flagstar for NexTag to serve as Flagstar’s mortgage lead provider. Id. This agreement showed, among other things, the lead criteria NexTag would use to determine leads to be sent to Flagstar. Id. 23. On July 28, 2004, Nationwide Lending, a mortgage broker and LendingTree customer, informed Mr. Lebda that NexTag “opened the flood gates” for mortgage leads. Mr. Lebda responded, stating that he would “refrain from commenting about how [NexTag] can turn up volume to allocate to certain lenders….” DX1327. 24. LendingTree’s internal emails conclusively demonstrate that LendingTree not only knew of NexTag’s Mortgage Lead System but also that LendingTree was investigating the details of that system and how it matched up with LendingTree’s own system. See, e.g., DX1273, DX1279, DX1284, DX1285, DX1306, DX1309 and DX1312. 25. For example, a May 19, 2004, internal email included “some info on how they [NexTag] work . . . They’re just like us.” DX1288 (emphasis added). 26. Various LendingTree personnel circulated screen shots of NexTag’s Mortgage Lead System, including, at least, emails sent February 12, 2004 (DX1322), March 15, 2004 6
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(DX1270), May 12, 2004 (DX1279), June 3, 2004 (DX1311 and DX1313), June 7, 2004 (DX1317), and June 29, 2004 (DX1319).
Personnel sending and receiving these
screenshots included LendingTree’s General Counsel, Assistant General Counsel, Chief Marketing Officer, two Senior Vice Presidents, as well as others. 27. On January 26, 2004, LendingTree compared NexTag’s “lender matching” services of providing “up to 4 lenders” to LendingTree’s own GetSmart service. DX1316. 28. By February 13, 2004, LendingTree personnel circulated internal emails attaching “competitive survey stuff,” including a document called “Mortgage Lead Landscape.” The competitive survey provided competitor details, including NexTag “Field/Filter Specifications” and pricing. DX1324. 29. Also in February 2004, LendingTree circulated a survey comparing LendingTree’s service with that of NexTag.
LendingTree’s competitive analysis identified consumer data
collected on nextag.com and identified the elements LendingTree later claimed were infringing, such as not collecting a Social Security Number, matching “up to 4 companies,” “ask for credit,” collecting “name, address, city, state, zip, area code, phone number, email address, borrower credit, borrower gross monthly income, borrower monthly debt, purpose of loan, amount requested, property type” and “filtering.” DX1320. 30. LendingTree’s internal June 3, 2004, email (i) noted that “NexTag are such a bunch of slime balls!” and (ii) identified the screenshots of the NexTag product as “just about an exact rip off of LendingTree.” DX1311, DX1313. 31. That same day, the “slime balls” email was forwarded to LendingTree’s General Counsel who arranged to meet with his Assistant General Counsel to discuss its contents. DX1355. 7
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32. Additionally, on June 29, 2004, LendingTree’s Chief Marketing Officer forwarded screenshots to the General Counsel, identifying NexTag as a “[m]ajor competitor” and asking if there was “anything we can do from a legal perspective?” DX1319. 33. As another example, DX1274, dated August 13, 2004, attached a comparison of services that discussed NexTag’s services. The comparison stated that “NexTag has some filtering capabilities,” and also indicated “NexTag . . . handles the transmission of data from NexTag to lending . . . .” Mr. Lebda was emailed a copy of this comparison of services in DX 1274 on August 13, 2004, but concedes that he did not see it at the time. 34. Home Loan Center (“HLC”) bought NexTag mortgage leads beginning in 2003. DX1264. 35. LendingTree’s HLC purchase diligence evidences knowledge of the accused service before the Laches Critical Date. 36. LendingTree and NexTag were doing business together prior to the Laches Critical Date. During the 2003-2004 period, LendingTree had an affiliate program through which website operators could link to LendingTree’s services. LendingTree’s affiliate program made identifying potential infringers somewhat difficult because a potential infringer might just be an affiliate using LendingTree’s system on the back-end (and thus not an infringer). Some affiliates used LendingTree as a behind-the-scenes back-engine. They would gather information and then pass that information behind-the-scenes to LendingTree. (March 12, 2014 a.m. Tr. at 4191:14-23; Feb. 21, 2014 a.m. Tr. at 1140:14-23.) 37. LendingTree invited NexTag to apply as a marketing affiliate for LendingTree’s mortgage and credit products on November 5, 2002. DX1018. The affiliate relationship came about because NexTag sent LendingTree a request for proposal to have a mortgage offering on 8
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NexTag’s website. (Feb. 20, 2014 a.m. Tr. at 847:10-848:4.) 38. LendingTree approved NexTag as a Super Affiliate two days later. DX1019. LendingTree expanded its relationship with NexTag on August 31, 2004, by having NexTag transmit real estate leads to a LendingTree subsidiary. 39. Under the agreement signed on August 31, 2004, NexTag agreed to “host certain specified web-based interview pages on behalf of LendingTree and deliver such completed interview pages to LendingTree” referring to nextag.com.
Exhibit A to the August 31, 2004,
Agreement includes screenshots of the accused service, including “click-through box” for consumers’ selection: “Match me with Lenders Now” which linked to NexTag’s mortgage inquiry form. LendingTree asserts these exact same forms collect information to satisfy the Patent’s “credit data” limitation.
Exhibit A to the August 31, 2004, Agreement also
includes additional nextag.com screenshots, including its mortgage tab: “Mortgages: Please select the type of mortgage loan.” 40. LendingTree acknowledges that it was conducting business with NexTag at least until 2010. 41. In 2003, NexTag implemented the accused system. Trial Tr. 1466:24-1467:9. 42. NexTag spent over a hundred million to advertise the business to attract “traffic” to the accused website to complete loan inquiry forms. Trial Tr. 1465:10-18. 43. The website was open and notorious, and accessible to anyone. Trial Tr. 1467:5-9. 44. The system’s general operation did not change during its seven-year operation. Trial Tr. 1565:7-13. 45. LendingTree emails from September 22, 2003, and October 1, 2003, each included a link to 9
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NexTag’s Mortgage Lead System on the website www.nextag.com. These links show that the accused product was open and notorious on the Internet prior to the Laches Critical Date. DX1284, DX1287. 46. LendingTree admits it knew of nextag.com and bought mortgage advertisements prior to the Laches Critical Date: LendingTree first became aware of the existence of NexTag’s website for advertising purposes in or around January 2004 …. ***** In addition, from January 2004 through January 2005 LendingTree LLC paid to place advertisements relating to mortgages on NexTag’s website. DX1345 at 41-43 (LendingTree First and Second Supplemental Responses to Interrogatory No. 7). 47. LendingTree admits it knew of www.nextag.com and bought mortgage advertisements prior to the Laches Critical Date. Over six years later, LendingTree used the same public information to prepare infringement contentions—“based entirely on its review and analysis of public information”—against NexTag’s service “that matched prospective borrowers with one or more lenders via the Internet.” DX1350; see also Trial Tr. 1155:15-17; 1278:13-1280:4 (Ashley Cross) 48. LendingTree’s duty to preserve evidence arose at least by October 6, 2004, when it admits it knew it had a claim. 49. LendingTree violated its duty to preserve evidence, failing to take any steps to preserve evidence until suit was filed in 2010. DX1345 at 106-08 (LendingTree Response to Interrogatory No. 24); Trial Tr. 2064:23-2065:2. 50. Mr. Lebda testified that no litigation holds were necessary because of LendingTree’s 10
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