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?

 

An Objectively Reasonable Case Can Still be Exceptional

In Bayer Cropscience AG v. Dow Agriscience LLC, [2015-1854] (March 17, 2017), the Federal Circuit affirmed affirmed the award of attorneys’ fees under 35 USC 285 to Dow, holding that the district court did not abuse its discretion in finding the case exceptional.

In its decision awarding attorney fees, the district judge found that Bayer’s arguments were “fallacious” because they were “implausible” and “made no business sense” in light of the facts surrounding the agreements and their negotiation.  The Federal Circuit noted the conflicting testimony of one of Bayer’s executives, and inconsistent emails to Bayer’s position that Dow was not licensed to commercially exploit Bayer’s genetically modified soybeans.

The Federal Circuit noted that abuse of discretion is a highly deferential standard.  It said that the district court applied the correct legal test under § 285, examining the totality of the circumstances to determine whether the case stood out from others. The Federal Circuit found that the district court’s opinion thoroughly demonstrated the totality-of-the circumstances approach, detailing the reasons why Bayer’s positions on the merits and litigation tactics coalesced in making this case, in its judgment, exceptional.

The Federal Circuit rejected the argument that Bayer had an objectively reasonable case on the merits, noting that Octane Fitness established that whether a party’s merits position was objectively reasonable is not dispositiveunder § 285. The Federal Circuit noted that the district court considered factors beyond the merits—including Bayer’s litigation conduct—and emphasized that Bayer’s conduct in litigating this case in the face of evidence that contradicted its contorted reading of the Agreement was objectively unreasonable.  In the words of the district court “Bayer marched onward with a view of its case that was not supported by its witnesses.”

The Federal Circuit  approved pre-suit diligence as a factor in the totality-of the-circumstance approach, and found that the district court did not abuse its discretion in concluding that Bayer failed to perform a diligent presuit investigation of its claims against Dow.  Rejecting Bayer’s other arguments, the Federal Circuit affirmed the district court.

Are All Troll Cases Exceptional?

In Iris Connex, LLC, v. Dell, Inc., [2:15-cv-1915-JRG] (January 25, 2016), district judge Gilstrap, after granting summary judgment to Dell, awarded attorneys fees, noting Dell’s arguments that Iris Connex’s claim construction position was unsupportable, that its infringement position was not plausible, that its litigation was primarily settlement driven; and Iris Connex was an intentionally empty shell company and, as a consequence, had no capacity to pay such fees even if the case were ultimately declared to be exceptional.

Judge Gilstrap took the extraordinary step of ordering further discovery into the extended identity of Iris Connex, because the court was concerned that the structure would effectively avoid any deterrence from an award of attorneys fees.  In Judge Gilstrap’s words “[a]s the post-judgment discovery progressed, it became obvious that Iris Connex was not simply a non-practicing entity seeking to vindicate its patent rights—albeit with an
exceptionally bad infringement case.”  Judge Gilstrap found that Iris Connex is the first level of two shell corporations which were intended to shield the real actor, Mr. Brian Yates, from personal liability. Judge Gilstrap found that Mr. Yates and those in active concert with him exploited the corporate form to operate largely in secret and to insulate the true party in interest from the risk associated with dubious infringement suits—that risk being fee shifting under Section 285.

Judge Gilstrap made 28 specific findings, including:

  • Iris Connex has no assets except for the ’950 patent and it holds no working capital.
  • Iris Connex has no employees.
  • Iris Connex was formed for the sole purpose of enforcing its lone asset.
  • Iris Connex paid no cash value for the ’950 patent.
  • Iris Connex pays no rent, (and shares its office with 15 to 20 other entities owned directly or indirectly by Brian Yates,
  • There is no sign for Suite 600-A displayed on any door in the building
    identifying Iris Connex as an occupant.

After a detailed analysis of the law, Judge Gilstrap identified a general and uncontroversial principle: that the corporate form cannot be used as a shield to insulate officers and parent corporations against liability for
their own tortious conduct or tortious conduct they control.  Judge Gilstrap rejected a narrow view of his authority to award fees under Section 285.

Judge Gilstrap noted said that the case “crossed the Rubicon of exceptionality” when the Court concluded that Iris Connex’s case was so weak from the outset that it lacked any real merit. Judge Gilstrap has “its fair share of claim construction arguments” and found that Iris Connex’s “clearly stand out.”

Moreover Judge Gilstrap’s finding of exceptionality was not based solely on the weak merits of the case, or litigation conduct.  Judge Gilstrap found two additional factors supported the finding:  First, that Mr. Yates made an intentional decision to create and undercapitalize Iris Connex as an empty shell, and second, the admitted sloppiness in prosecuting this case, brought about predominantly by Mr. Yates.  Judge Gilstrap found and held Iris Connex and Mr. Yates are jointly and severally liable for $355,000 of fees pursuant to 35 U.S.C. § 285.

Not finished dispensing Eastern District of Texas justice, Judge Gilstrap also sanctioned one of the more culpable counsel $25,000, and Mr. Yates an additional $152,000.