Alice Changed the Law; Patent Plaintiff Should have Reassessed its Claim

In Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., [2016-2442] (December 8, 2017), the Federal Circuit affirmed the district court’s award of fees on the grounds that following the Alice decision, patent owner’s claims were objectively without merit.

The district court awarded BBB its attorneys’ fees beginning from the date of the Alice decision, including fees incurred during the § 101 appeal. The district court determined that the case was exceptional
based solely on the weakness of IH’s post-Alice patent-eligibility arguments and the need to deter future “wasteful litigation” on similarly weak arguments.

The Federal Circuit, reviewing for abuse of discretion,  found that the district court acted within the scope of its discretion in finding the case to be exceptional based on the weakness of IH’s § 101 arguments and the need to deter similarly weak arguments in the future.  The Federal Circuit said that under Alice, the claims of the patent were manifestly
directed to an abstract idea, which the district court accurately described as “local processing of payments for remotely purchased goods.”  The
idea that a customer may pay for items ordered from a remote seller at a third-party’s local establishment is the type of fundamental business practice that, when implemented using generic computer technology, is not patent eligible under Alice. The Federal Circuit continued noting that under Alice’s second step, the only components disclosed
in the specification for implementing the asserted method claims are unambiguously described as “conventional.” These components do not supply an inventive concept.

The Federal Circuit held that Alice was a significant change in
the law as applied to the facts of this particular case, noting that prior to Alice, the state of the law for computer implemented business transaction inventions was less than clear.   While as a general matter
was and is sometimes difficult to analyze patent eligibility under the framework prescribed by the Supreme Court in Mayo, the Federal Circuit said there was no uncertainty or difficulty in applying the principles set out in Alice to reach the conclusion that the ’582 patent’s claims are ineligible. The Federal Circuit said that it was IH’s responsibility to reassess its case in view of new controlling law.

Because the district court did not abuse its discretion
in awarding attorney fees under § 285, the district court’s
decision was affirmed.

Federal Circuit to Rethink Whether an Applicant has to Pay the USPTO’s Lawyers

In Nantkwest, Inc. v. Matal, [2016-1794](August 31, 2017) the Federal Circuit sua sponte granted rehearing en banc of the panel decision discussed here on the issue of whether 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees?

Not part of this review is its most unfair aspect — that a successful applicant still must pay the USPTO’s “expenses” (whatever that means).

Federal Circuit: The Second Circuit Would Agree with the Third, Fourth, Fifth, Sixth, and Ninth Circuits that Octane Fitness Applies to Lanham Act Claims

In Romag Fasteners, Inc. v. Fossil, Inc., [2016-1115, 2016-1116, 2016-1842] (August 9, 2017), the Federal Circuit vacated and remanded the district court’s award of attorneys fees to Romag under 35 U.S.C. § 285 but not under the identically worded 15 U.S.C. § 1117(a).

Romag has successfully sued defendants for infringement of U.S. Patent
No. 5,722,126 and U.S. Trademark Reg. No. 2,095,367.  Under the Patent Act and the Lanham Act, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285; 15 U.S.C. § 1117(a).

Applying the Octane standard, the district court found that Romag was entitled to attorney’s fees under § 285 of the Patent Act because Fossil did not “withdraw [anticipation and obviousness] defenses with prejudice until
after trial,” and because Fossil’s “patent invalidity defense of indefiniteness bordered on frivolous.”  With respect to the Lanham Act, the district court applied the prevailing Second Circuit precedent with respect to 15 U.S.C. § 1117(a) that “allows recovery of a reasonable attorney’s fee only on evidence of fraud or bad faith.”

Before Octane, the Second Circuit allowed recovery of attorney’s fees under 15 U.S.C. § 1117(a) only if there was bad faith or willful infringement on the part of the defendants.  However the Federal Circuit found that there is intervening relevant Supreme Court authority which, we think, would lead the Second Circuit to follow other circuits which have held that the Octane standard applies to the Lanham Act.

The Federal Circuit noted that since Octane was decided, the Third, Fourth, Fifth, Sixth, and Ninth Circuits have all held that Octane applies to Lanham Act Cases as well, and that no circuit has specifically considered Octane and then declined to apply it to the Lanham Act. Thus the Federal Circuit concluded that the Second Circuit would hold that, in light of Octane, the Lanham Act should have the same standard for recovering attorney’s fees as the Patent Act.  Thus, the Federal Circuit vacated the denial of attorneys fees, and remanded the case.

On the issue of attorneys fees on the patent infringement claim, the Federal Circuit likewise vacated the award.  The Federal Circuit noted that a district court must consider the totality of circumstances, including the conduct of the prevailing party that is seeking attorney’s fees.  The Federal Circuit found that the district court erred in declining to consider, in connection with its totality of circumstances analysis, Romag’s earlier litigation misconduct. Romag’s misconduct cannot be disregarded on the theory that failure to award fees is equivalent to double-sanctioning Romag.  In fact the Federal Circuit said that the fact that Romag’s misconduct has already been sanctioned should be weighed more heavily, rather than be excluded, in the 35 U.S.C. § 285 analysis.

This Federal Circuit remanded the case to the district court to consider the Lanham Act and the Patent Act attorney’s fees and the claimed expert fees under the correct standard, free of the errors it identified.

The Sport of Kings: Federal Circuit Affirms $3.9 Million Fee Award for Two Week Trial on Patent Ownership

In AIA America, Inc. v. Avid Radiopharamaceuticals, [2016-2647] (August 10, 2017), the Federal Circuit affirmed the award of attorneys fees because (1) the Seventh Amendment right to a jury trial does not apply to
requests for attorney’s fees under § 285 of the Patent Act, (2) the district court did not err by making factual findings not foreclosed by the jury’s verdict on standing, and (3) AIA’s due process rights were not violated.

The Federal Circuit recounted an elaborate scheme perpetrated by plaintiff AIA and the purported sole inventor Mullan to appropriate for themselves inventions from Imperial College (Imperial) in London and the University of South Florida (USF).  The jury determined that USF did not knowingly and intentionally waive its ownership rights to the invention and that Hardy was a co-inventor. Based on the jury’s verdict, the district court found AIA lacked standing to assert the U.S. Patent Nos. 5,455,169 and 7,538,258, and entered judgment in favor of Avid.  Avid then sought attorneys fees for the case (in which in which twelve witnesses testified and over 200 exhibits were introduced) of $6,508,687.00, and was awarded of $3,943,317.70.

The most interesting aspect of the case is the Special Master’s Report which trimmed the attorneys fees ask from $6.5 to $3.9 million.  Highlights of which include:

  • Reducing by more than half non-attorney time of more than 900 hours at an average rate of $227/hour for docketing and updating case files.
  • Eliminating 300 hours of attorney time ($67,000) for collecting documents, which the Special Master found to be a clerical task.
  • Cutting in half the $35,000 charged by the firms Case Manager/Training Coordinator for communications with the litigation team
  • Cutting by 66% the $470,000 in attorney time for assisting with the preparation of documents.
  • Cutting by 2/3 the $730,000 for preparing three witnesses for their trial testimony, in view of what the Special Master thought was “piling on”
  • Cutting by 2/3 the $633,000 spent on a motion for summary judgement on which more than 12 attorneys billed time
  • Cutting in half the $308,000 spent on motions in limine
  • Cutting in half the $240,000 spent on preparing the pretrial memorandum and preparation for the pretrial hearing
  • Cutting the 654 hours spent preparing the Exhibit List and Witness list by $100,000
  • Cutting by 2/3 the $414,400.50 (846 hours) for preparing an expert witness who was not called at trial
  • Cutting by half the $1,098,654.50 billed for attendance at trial, finding that it difficult to understand the contribution of eight lawyers to the trial.
  • Cutting local counsels fees for merely attending the trial.

All in all, the Special Master reduced the fees requested by $2.9 million. This still resulted in the $3.9 million award affirmed by the Federal Circuit, proving once again that patent litigation is the sport of kings, and that if you have to ask “how much,” you probably can’t afford it.

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Weak Infringement Position Makes Troll-like Behavior Exceptional

In Adjustacam LLC v. Newegg, Inc., [2016-1882] (July 5, 2017) the Federal Circuit reversed the district courts decision not to award attorneys’ fees to defendant after plaintiff voluntarily dismissing its complaint after a Markman hearing.

AdjustaCam sued a large number of defendants for patent infringement, voluntarily dismissing most defendants early in the litigation.  The case against Newegg went through a Markman order and extended expert discovery.  However just before summary judgment briefing, AdjustaCam
voluntarily dismissed its infringement claims against
Newegg with prejudice. Newegg then filed a motion for
attorneys’ fees. The district court initially denied Newegg’s motion,
and Newegg appealed to Federal Circuit, which remanded in view of Octane Fitness.  On remand the district court again denied attorneys fees.

A district court abuses its discretion when its ruling rests on an erroneous legal conclusion or on a clearly erroneous assessment of the evidence.  The Federal Circuit held that the district court abused its discretion
by not awarding fees to Newegg for two independent reasons: (1) it failed to follow the Federal Circuit’s mandate on remand; and (2) its decision was based on “a clearly erroneous assessment of the evidence.”

As to the first reason, the Federal Circuit said that the district court erred by ignoring our mandate “to evaluate whether this case is ‘exceptional’ under the totality of the circumstances and a lower burden of proof”
in the first instance.  Instead of engaging in an independent analysis, the
district court adopted the previous judge’s factual findings wholesale, the Federal Circuit noting that the entirety of the court’s analysis based on those adopted fact-findings consists of three sentences. This wholesale reliance on the previous judge’s fact finding was
an abuse of discretion.

As to the second reason, the Federal Circuit found that the record developed over the past five years points to this case as standing out from others with respect to the substantive strength of AdjustaCam’s litigating position.  While the infringement claim may have been weak at the time of filing, after the district court’s Markman order, the lawsuit was baseless.  The Federal Circuit found that no reasonable factfinder could conclude that Newegg’s products infringe; therefore, AdjustaCam’s litigation position was baseless, and the district court’s conclusion otherwise was clearly erroneous.  The Federal Circuit further found that AdjustaCam litigated the case in an “unreasonable manner.”  The Federal Circuit also noted that AdjustaCam relied upon a supplemental declaration making new infringement arguments executed two years after the initial fees determination, although the Federal Circuit did not appear to consider that the standard for award of fees changed in the intervening two years.

The Federal Circuit concluded that the totality of the circumstances demonstrates other dubious behavior that, when considered collectively, warrants fees under § 285.

The Federal Circuit specifically commented on AdjustaCam’s damages model.  While asserting seemingly low damages against multiple defendants—or settling with defendants for less than the cost of litigation—does not necessarily make a case “exceptional” under § 285, asserting nuisance-value damages against many defendants, settled with them for widely varied royalty rates, and continuing to press baseless infringement
contentions well past an adverse Markman order and expert discovery as enough to tip the balance in favor of exceptionality.

A §145 Action May Not Be As Appealing as a Trip to the Federal Circuit

In Nantkwest, Inc. v. Matal, [2016-1794] (June 23, 2017), the Federal Circuit reversed the denial of attorneys fees to the USPTO in successfully defending civil action under 35 USC §145 brought by a patent applicant.  The statute provides that the applicant must pay “[a]ll of the expenses of the proceeding . . . regardless of the outcome.” The district court held that “expenses” did not include attorneys fees.

The Federal Circuit found that the ordinary meaning of “expenses” as defined in dictionaries and the Supreme Court’s interpretation of this term lend significant weight to the conclusion that when Congress used the phrase “all expenses,” it meant to include attorneys’ fees.  Accordingly, the Federal Circuit held “[a]ll expenses of the proceedings”
under § 145 includes the pro-rata share of the attorneys’ fees the USPTO incurred to defend applicant’s appeal.

The Federal Circuit remanded the case for the district court to enter an additional award of $78,592.50 in favor of the Director.

Although it may seem unfair that an applicant losing an appeal has to pay the Office’s cost in successfully defending the appeal of a rejection, as the Federal Circuit pointed out, this is how Congress chose to allocate the cost of an appeal to the district court.  What is unfair, however, is that this is how Congress chose to allocate the cost of an applicant’s successful appeal of an improper rejection as well.  Thus, an applicant faced with an improper rejection who brings an action under §145 and wins, is still on the hook for the Patent Office’s attorneys fees.  This unfair result alone might suggest that Congress did not intent to include attorneys’ fees in “expenses,” otherwise Congress is putting a high price on justice.

So why would an applicant chose to take a PTAB decision to district court, rather than appeal to the Federal Circuit?  The principal reason is that the PTAB may have pointed out an evidentiary defect in the applicant’s case.  If the applicant appeals to the Federal Circuit the record is fixed, and if the PTAB was correct about the defect, the Federal Circuit will simply affirm the PTAB.  However, in an action under §145 the applicant can introduce additional evidence, for example a declaration by the inventor, or by an expert, or perhaps even evidence of objective indicia of non-obviousness.  This could allow the applicant to obtain a patent, when an appeal would otherwise be futile.  Depending upon the importance of the invention, this might well be worth an additional $78,000 or so.

However is a §145 action the only way to obtain this result?  Perhaps not.  One might assume that if you do not appeal the PTAB decision that it becomes final and res judicata will prevent the application from ever getting the claims that the were the subject of the appeal. This would be a good reason to pursue the §145 action.  However, the underlying assumption may be wrong.  In In re Donohue, 226 USPQ 619 (Fed. Cir. 1985), the Federal Circuit held that the Patent Office should not apply res judicata where the applicant made a different record, for example by supplying a new affidavit or declaration:

Appellant has made a record different from that in Donohue I by submitting the Fields affidavit. This new record presents a new issue of patentability with respect to whether the previously sustained anticipation rejection can still be maintained. In view of this new issue, the PTO properly declined to make a formal res judicata rejection . . .

226 USPQ 621.  As long as Donohue remains good law, a patent applicant can file an RCE or even a continuation, supplement its records, and continue to prosecute claims whose rejection was affirmed by the PTAB (and not have to spend $80,000 on the the USPTO’s expenses in a §145 action.

It is still unfair that a successful applicant in a §145 action has to pay for the unsuccessful efforts of the USPTO in defending an improper rejection, but at least the applicant has an alternative route to continue to pursue the claims after an unsuccessful appeal to the PTAB.

Motivation to Enforce Patent Rights Does Not Make Case Exceptional

Checkpoint Systems, Inc. v, All-Tag Security S.A., [2016-1397] (June 5, 2017), the Federal Circuit reversed the award of attorneys fees.

Checkpoint sued under U.S. Patent No. 4,876,555 relates to improved anti-theft tags that are attached to merchandise.  After a jury trial, the patent was found not infringed, invalid, and unenforceable, and the court found the case to be “exceptional” because   Checkpoint’s expert witness based his infringement opinion on examination of imported tags that were manufactured by All–Tag in Switzerland, although the
accused tags were manufactured by All–Tag in Belgium.  The Federal Circuit reversed the attorney fee award because there was evidence that the Swiss products were made on the same machines and the Belgian products.  Certiorari was granted, and the case was remanded for further proceedings consistent with Octane Fitness and Highmark.  The district court agreed that Checkpoint’s claims were not frivolous, but nonetheless found the case to be exceptional, explaining: frivolousness is not required to find exceptionality under Section 285.  The district court’s determination was based upon three findings: (1) Checkpoint’s motivation in bringing the lawsuit, (2) inadequate pre-suit investigation, and (3) the failure of Checkpoint’s expert to inspect the correct accused product.

As the Checkpoints motivation, the Federal Circuit said that enforcement of the statutory right to exclude is not an “exceptional case” under §285.  While the Federal Circuit agreed that “motivation” to harass or burden an opponent may be relevant to an “exceptional
case” finding, “motivation to implement the statutory patent right by bringing suit based on a reasonable belief in infringement is not an
improper motive.”  The Federal Circuit found no evidence of harassment or abuse, and noted that Checkpoint’s claim survived summary judgment and a Daubert hearing.

The district court also found the expert’s failure to test an accused product supported the exceptional case finding and fee award.  The Federal Circuit noted that there no representation by All–Tag that the accused products were different from the tested products, and the district court did not so find.  Thus the failure to test the accused products did  not support an exceptional case ruling.

Denial of Attorneys’ Fees Reversed because District Court Conflated Rule and 35 USC 285

In Rothschild Connected Devices  Innovations, LLC v. Guardian Protection Services, Inc., [2016-2521] (June 5, 2017), the Federal Circuit reversed and remanded the determination that Appellee Rothschild Connected Devices Innovations, LLC had not engaged in conduct sufficient to make the litigation “exceptional.”

Rothschild’s sued ADS, alleging that ADS’s home security system infringes U.S. Patent No. 8,788,090.  ADS responded that the ’090 patent covers patent ineligible subject matter under 35 U.S.C. § 101, and that prior art anticipates claim 1 of the ’090 patent, an offered to settle if Rothschild paid ADS its attorneys fees and costs of $43,330.  When Rothschild rejected the offer, ADS next filed a motion for judgment on the pleadings, and sent Rothschild a “Safe Harbor Notice” pursuant to Federal Rule of Civil Procedure 11(c)(2).  In response, Rothschild voluntarily moved to dismiss its action, and ADS opposed the motion and filed a cross-motion for attorneys fees pursuant to § 285.

The District Court granted Rothschild’s Motion to Dismiss and denied ADS’s Cross-Motion for attorneys’ fees, finding that Rothschild did
not engage in conduct sufficient to make the action “exceptional”
under § 285, noting that Rothschild’s decision to voluntarily withdraw its
complaint within the safe harbor period is the type of reasonable conduct Rule 11 is designed to encourage.

The Federal Circuit found the denial of attorneys’ fees was an abuse of discretion.  The Federal Circuit found that the district court clearly erred by failing to consider Rothschild’s willful ignorance of the prior art.  The Federal Circuit further found that the district court misjudged Rothschild’s conduct in the other litigation is brought.  Finally the Federal Circuit found that the district court improperly conflated Rule 11 with 35 U.S.C. § 285.

The Federal Circuit remanded the case for further consideration of the attorneys’ fees reward by the district court.

 

In Determining Whether a Case “Stands Out,” It was Not Improper to Consider Patent Cases Generally

In Nova Chemicals Corp. (Canada) v. Dow Chemical Co., [2016-1576] (May 11, 2017), the Federal Circuit affirmed the district court’s determination that the case was “exceptional” under 35 USC 285, and the award of $2.5 million in attorneys’ fees.

After a patent infringement trial which resulted in a $61 million award to Dow, in a proceeding for supplemental damages, the patent was found to be invalid for indefiniteness.  After uncovering what it claimed was evidence of fraud on the part of Dow and its counsel, Nova filed an action for relief from the initial judgment. The district court dismissed the action, and Dow sought sanctions and attorneys fees under 35 USC 285.  The district agreed with Dow finding NOVA’s claims for relief “just didn’t stand
up” and were “not even plausible.”

The Federal Circuit found nothing exceptional in the mere fact that NOVA filed a separate action because that was the only option available to challenge the earlier judgment.  However,  the Federal Circuit found that the substantive strength of a NOVA’s position could, and did, independently support an exceptional-case determination.

Nova also argued that it was error to compare the case to all patent cases, pointing out with this baseline an action to set aside a prior judgment would always be exceptional because, by necessity,it would
“stand out” from the traditional patent infringement case.  The Federal Circuit decline to hold that the district court erred in comparing this case to other patent cases more generally.  The Federal Circuit found that any concern regarding the district court’s comparison was tempered by the fact that it did not hold that this case stood out merely because NOVA requested that a prior judgment be set aside.

 

 

Inventorship Claims That Took $8 Million to Defeat Were Not “Exceptional”

In University of Utah v. Max-Planck-Gesellschaft Zur Foerderung der Wissenschaften E.V., [2016-1336] (March 23, 2017), the Federal Circuit affirmed the district court’s finding that the case was not exceptional March 23, 2017, within the meaning of 35 U.S.C. § 285 and denying Max Planck’s motion for $8 million in attorney fees.

Dr. Thomas Tuschl and his colleagues published an article describing their various discoveries in the field of RNAi. Less than a month later,
Dr. Brenda Bass, of the University of Utah published a mini-review that summarized the state of RNAi research, focusing on Dr. Tuschl’s
article.  Dr. Tuschl read Dr. Bass’ minireview, recognized her hypothesis that 3’ overhangs may be relevant to RNAi, and tested that hypothesis, and made the claimed invention.

The University of Utah sued Max Plank claiming that its employee, Dr. Bass was a co-inventor.  The claim of joint inventorship turned on
alleged collaboration between Dr. Bass and the Tuschl that occurred over several conversations at various academic conferences.  The Federal Circuit listed a number of admissions during Dr. Bass’ deposition that directly contradicted the University of Utah’s allegations that Dr. Bass collaborated with the Tuschl II inventors. The Federal Circuit noted that the only supported allegation was that Dr. Bass and Dr. Tuschl met for dinner during a conference.

The district court reasoned that there was no evidence to support a finding of collaboration between Dr. Bass and Tuschl.  While Dr. Bass’ mini-review was integral to the Tuschl inventors’ research, the mini-review was in the public domain by the time Tuschl relied on it. The district court concluded that Tuschl’s reliance on the mini-review could not, on its own, support a finding of collaboration, and was not included to find that the discussions at an academic conference could constitute the collaboration needed to establish joint inventorship.

Max Planck sought eight million dollars in attorneys’ fees pursuant to 35 U.S.C. § 285, arguing that the case was “exceptional” because (1) in light of Dr. Bass’ deposition testimony, the University of Utah lacked any meaningful basis for filing its correction of inventorship suit; (2) the University of Utah’s delay in withdrawing its sole inventorship claim until the eve of summary judgment indicates that it knew its claim was meritless; and (3) the University of Utah’s claimed damages
were extortionately high.

The district court found that it was clear that Dr. Bass’ review played some role in the invention, rejecting the first grounds.  One the second point the district court actually credited the University for withdrawing its sole inventorship claim early.  On the last point the district court declined to find anything exceptional about the University of Utah’s position: “Although Utah may have been asking for pie in the sky, that does not differentiate this case from most patent cases.”

The Federal Circuit found that the district court provided a thorough explanation for why it did not find this case to be exceptional.  Noting that there is no precise Octane Fitness frame-work, the Federal Circuit said that the district court explained why the University of Utah’s position did not stand out from other patent cases, and Octane Fitness does not require anything more.  The Federal Circuit concluded:

The trial judge was in the best position to understand and weigh these issues. She had no obligation to write an opinion that reveals her assessment of every consideration. This court will not second guess her determination.

Although it played no role in the appeal, one has to wonder whether the $8 million in attorneys’ fees requested by Max Plank, which the district court called “jaw-dropping,” figured into the district court’s evaluation of the claim.  When the district court said that “it is not grossly unjust to require Max Planck to bear its own costs,”  was the court thinking that if it really took $8 million to defeat the University’s claims on Summary Judgment, were they really so exceptional?