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Douglas Panzer
March 13, 2015

Large Attorney’s Fees Award in Patent Case Threatens National Security

Posted By Douglas Panzer @ 12:14 pm
Filed under: Attorney's Fees,Litigation,Patent Litigation

You gotta hear this one!  In the ongoing saga of Kilopass v. Sidense, a patent infringement case in the Northern District of California.  Kilopass brought the suit alleging infringement of three patents, false advertising, disparagement, intentional interference…the kitchen sink.  Through several rounds of motions, the claims were all eventually dismissed and the dismissal affirmed by the Federal Circuit.  Sidense moved for its attorney’s fees, asking for over $5 million (and a bump to $9 million based on a contingency bonus clause in its fee agreement).

Arguing against the fee assessment, Kilopass actually filed a brief arguing that faced with such a large fee award, ”Kilopass (a) would go bankrupt, (b) it would no longer be able to fulfill contracts with defense contractors, (c) these contractors would not be able to find adequate substitutes, and (d) this would in some way – which Kilopass has failed to articulate – result in harm to our nation’s safety.” Yes, they really made that argument.  The fee award against them would be a threat to national security.  A hail Mary if ever there was one.

As the judge said…the court was not persuaded.  Fee award for $5.3 million.

PDF of the Order Here: Kilopass v Sidense Attorney’s Fees Order

April 30, 2014

Supreme Court Sets Stage for Potential Financial Doom of Patent Trolls

Patent litigation has been a hot and growing judicial and legislative topic for several years now.  On April 29, 2014, the Supreme Court delivered two opinions that may prove to define an inflection point leading to a downward trend in that recent growth.

The fervent attention to patent litigation has been due in large part to the growing number of patent infringement suits brought each year by those patent owners known as non-practicing entities (NPE’s) or more derisively as “patent trolls” (depending on your perspective).  These are entities or individuals who own patents and sue to enforce them, but do not actually produce a product or service based on the patent.  Supporters of such litigation point out that while small corporate or individual inventors may not have the resources to commercialize their patents, protecting those patents through litigation is the only way to properly compensate and incentivize inventive “little guys” who would otherwise be trampled by infringing, larger companies.  Critics respond that NPE litigation actually stifles innovation and economic growth by unfairly rewarding patent owners who have taken no financial risk — especially when the patents are of questionable substance.

Tuesday’s Supreme Court decision in Octane Fitness v. Icon Health, No. 12-1184 represents a major lowering of the standard for patent defendants to show the court that the plaintiff should pay the defendant’s attorney’s fees when the defendant wins.  The Patent Act allows for a grant of attorney’s fees in “exceptional cases.”  Prior to this decision, a prevailing defendant had to show that the suit was “objectively baseless” and brought in “subjectively bad faith” to prove exceptional case status.  These factors also had to be proved by “clear and convincing” evidence.  The court’s holding in Octane says that standard is too rigid and that a determination of exceptional case status should be within the court’s reasonable discretion.   Justice Sotomayor wrote:

An “exceptional” case, then, is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.

So the test for exceptional case status should now be that the case “stands out from others” based on the totality of the circumstances.  This is a major opening for a potential increase in fee awards.

On the same day, the Court also delivered its opinion in Highmark v. Allcare Health Management System, No. 12-1163.  This opinion states that when a lower court does award attorney’s fees, an appeals court should only overturn that award if it finds that the lower court decision represented an abuse of judicial discretion.  This standard is the standard most deferential to the trial court and means that (as interpreted by the Federal Circuit) appellate courts will only overturn fee awards when they find:

(1) the tribunal’s decision is clearly unreasonable, arbitrary, or fanciful; (2) the decision was based on an erroneous conclusion of law; (3) the tribunal’s findings are clearly erroneous; or (4) the record contains no evidence upon which the tribunal rationally could have based its decision.

(See Abrutyn v. Giovanniello, 15 F.3d 1048,1050-51, 29 U.S.P.Q.2d 1615, 1617 (Fed. Cir. 1994); W. Elec. Co. v. Piezo Tech., Inc., 860 F.2d 428, 430-31, 8 U.S.P.Q.2d 1853, 1855 (Fed. Cir. 1988); Heat & Control, Inc. v. Hester Indus., Inc., 785 F.2d 1017, 1022, 228 U.S.P.Q. 926, 930 (Fed. Cir.1986).)

In combination with the Octane decision, the Highmark case sets the stage for more findings of exceptional case status and a lower likelihood that such findings will be overturned on appeal.  Now we wait to see if this significantly affects the rate of NPE patent litigation.  Will the coffers of the NPE’s be cleaned out by the first loss?  Will investors in the litigation shy away from the increased risk?  Will defendants be emboldened to see cases through trial?  Stay tuned!

August 15, 2013

CAFC Case Update – Monolithic Power Systems v. O2 Micro: Bad Faith Not Required for Exceptional Case Finding Under 35 USC 285

Posted By Douglas Panzer @ 4:51 pm
Filed under: Attorney's Fees,Litigation,Patent Litigation,Patents

The Court of Appeals for the Federal Circuit, this week, published its decision in Monolithic Power Systems, Inc. v. O2 Micro Int’l, Ltd., ___ F.3d. ___ (Fed. Cir., August 13, 2013), clearly stating that an “exceptional case” finding under 35 USC §285 does not require a finding of “bad faith” or that the claim was “objectively baseless.”  The court viewed the totality of the circumstances surrounding patent owner and counter-claimant O2′s conduct in the litigation as well as O2′s litigation strategy in the present case and related litigation matters with defendant Monolithic and its customers.

The court upheld the district court’s sizeable fee award (over $8M), stating in relevant part:

We have observed that, as a general matter, many forms of misconduct can support a district court’s exceptional case finding, including inequitable conduct before the U.S. Patent and Trademark Office (“PTO”); litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit; or willful infringement. Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1380 (Fed. Cir. 2001) (citing Hoffmann-La Roche Inc. v. Invamed Inc., 213 F.3d 1359, 1365 (Fed. Cir. 2000)).

In its opinion, the district court cited Brooks Furniture for the exceptional case standard: “A case may be deemed exceptional when there has been some material inappropriate conduct related to the matter in litigation, such as…misconduct during litigation, vexatious or unjustified litigation,conduct that violates FED. R. CIV. P. 11, or like infractions”…[T]he district court also cited Taltech Ltd. v. Esquel Enterprises Ltd., 604 F.3d 1324, 1329 (Fed. Cir. 2010), to clarify that “[l]itigation misconduct and unprofessional behavior are relevant to the award of attorney fees, and may suffice to make a case exceptional.”

O2 Micro is incorrect in suggesting that findings of “bad faith” and “objectively baseless” litigation are always required in addition to a “litigation misconduct” finding for an exceptional case.   The district court applied the correct standard.

O2 Micro fails to appreciate the “well-established [rule] that litigation misconduct and unprofessional behavior may suffice, by themselves, to make a case exceptional under § 285.” MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907, 919 (Fed. Cir. 2012) (internal quotation marks omitted). Instead, O2 Micro’s arguments challenging the exceptional case determination hinge on its mistaken conviction that there must be an additional “bad faith” component…

[T]he district court’s findings of an overall vexatious litigation strategy and numerous instances of litigation misconduct are sufficient to support an exceptional case determination. The record provides ample grounds for the district court to find that O2 Micro had undertaken a vexatious litigation strategy. Having presided over a decade of litigation between O2 Micro and MPS, the district court witnessed several instances in which O2 Micro sued MPS customers in order to prompt MPS to file declaratory judgment actions with the court. In each previous case, O2 Micro withdrew its claims and granted Covenants not to sue after substantial litigation had taken place…wasting the parties’ and the court’s resources.

O2 Micro repeatedly misrepresented…[and] failed to conduct an investigation into the veracity of its representations…obfuscated [facts]…[and] filed three “baseless motions.”…[I]t “ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court.” Nilssen v. Osram Sylvania, Inc., 528 F.3d 1352, 1359 (Fed. Cir. 2008).

Monolithic, ___ F.3d ___, at 11-14 (emphasis added).

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