Seeking Attorneys’ Fees Under the Patent Act? Early and Clear Notice of an Opposing Party’s Deficient Litigation Conduct Is a Prerequisite for a Successful Motion

The Federal Circuit recently issued a precedential decision in Stone Basket Innovations, LLC v. Cook Medical LLC, No. 2017-2330 that has important ramifications for litigants seeking attorneys’ fees under Section 285 of the Patent Act.

Section 285 authorizes a court to award reasonable attorneys’ fees to the prevailing party in “exceptional cases.”  In Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014), the Supreme Court defined an “exceptional case” as one that “stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.”  Under Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744 (2014), district courts are to apply a “totality of the circumstances” test to determine whether a case is exceptional.

Stone Basket’s case started life as a run-of-the-mill patent infringement suit filed in the US District Court for the Eastern District of Texas in April 2015.  Defendant Cook Medical served its invalidity contentions in October 2015 and subsequently deposed the inventor in January 2016. The inventor testified that he “realize[d] there [wa]s nothing novel about” the “sheath movement element” added to the claim to overcome an examiner rejection.  Cook Medical then petitioned the US Patent and Trademark Office for inter partes review in March 2016.  Shortly thereafter, the court transferred the case to the US District Court for the Southern District of Indiana.  The parties filed a joint motion to stay the proceedings in April 2016, which the district court granted.

The PTO instituted an IPR on all claims of the asserted patent in September 2016, which prompted one of Stone Basket’s managing members to offer Cook Medical a license in exchange for $150,000.  Negotiations broke down and in December 2016, Stone Basket filed a motion requesting adverse judgment in the IPR proceeding.  The PTO granted the adverse judgment and cancelled all claims.

Following cancellation, the district court granted Stone Basket’s motion to dismiss the infringement suit with prejudice.  Cook Medical subsequently sought attorneys’ fees.  The district court denied the fee application because it determined the case was not “exceptional” under 35 USC § 285.

Addressing the issue of the substantive strength of Stone Basket’s non-prevailing litigation position, the Federal Circuit found that the district court did not abuse its discretion in finding that the evidence Cook Medical submitted—invalidity contentions and inventor testimony—did not, taken alone or in combination, warrant a finding of exceptionality.

Describing Cook Medical’s invalidity contentions as “inconsistent and unilluminating,” the Federal Circuit observed that the invalidity contentions failed to provide “clear notice” of invalidity.  While Cook Medical focused on the obviousness of the asserted patent over a prior art reference (the “Leslie reference”), the Federal Circuit explained that the contentions fell short of notifying Stone Basket how the Leslie reference renders the asserted patent obvious or even that Stone Basket should conduct a focused investigation on whether the Leslie reference, in particular, renders the asserted patent obvious.  The Leslie reference Stone Basket championed, moreover, was listed on the face of the patent and Stone Basket failed to overcome the presumption that the examiner considered the reference.  As such, the Federal Circuit explained that Stone Basket, having been issued a valid patent, was entitled to a presumption of good faith in asserting its patent rights against Cook Medical.

The Federal Circuit found equally unavailing Cook Medical’s reliance on the inventor testimony concerning the novelty of a particular claim element.  Citing its precedent, the Federal Circuit reiterated that a post-issuance statement regarding a single element of a claimed invention does not establish invalidity because the court must consider the subject matter sought to be patented taken as a whole.  Again noting that a duly issued patent is presumed valid, the Federal Circuit explained that it was not “necessarily unreasonable” for Stone Basket to continue relying on the presumptive validity despite the inventor’s testimony.

Cook Medical further faulted the district court for considering its litigation conduct when declining to find the case exceptional, arguing that the district court cited no authority for the proposition that the tactical decisions made by the prevailing party are relevant to assessing the substantive strength of the non-prevailing party’s litigation positions.  The Federal Circuit rejected the argument, noting post-Octane precedent that the conduct of all parties—including the movant—is a relevant factor for district courts to consider under Octane’s totality of the circumstances inquiry.  Accordingly, the Federal Circuit concluded it was appropriate for the district court to consider Cook Medical’s failure to send any communication to Stone Basket that highlighted and set out with precision the specific invalidity argument that rendered the lawsuit frivolous or unfounded.

Ultimately, Cook Medical’s failure to provide “early, focused, and supported notice [to Stone Basket] of its belief that it was being subjected to exceptional litigation behavior” proved dispositive to the Federal Circuit’s opinion that the district court had not abused its discretion.  Reviewing the chronology, the Federal Circuit noted that Cook Medical waited nearly a year after service of its invalidity contentions and nine months after the inventor’s deposition before informing Stone Basket that Cook Medical intended to seek fees if Stone Basket refused to drop its case.  According to the Federal Circuit, a “party cannot simply hide under a rock, quietly documenting all the ways it’s been wronged, so that it can march out its ‘parade of horribles’ after all is said and done.”

The key takeaway: Although Section 285 does not expressly require notice, providing interim notice during the litigation of exceptionally weak arguments or bad behavior is an important factor in the determination of an exceptional case.  Like Rule 11, such a notice serves the salutary role of avoiding undue expenses by providing the noticed party with the opportunity to correct its approach and by providing the court the ability to take corrective action at an early stage.

Limiting Exposure Under the UK Trade Secrets Regulations

The UK Trade Secrets Regulations which came into effect earlier this month for the first time provide a statutory definition of a “trade secret.”  The definition is narrower than the existing standard and focuses more on whether the information has been kept secret rather than its inherently secret nature.  This new requirement puts the onus on businesses to take reasonable steps to secure their trade secrets. Our paper prepared by Carlton Daniel highlights a few steps UK businesses may take to limit their exposure under this new legislation.

Patent Venue Mandamus Has Its Limits

Having just addressed several, important patent venue issues on mandamus in a trilogy of cases (see our prior posts here, here, and here), the Federal Circuit recently issued a terse opinion denying mandamus on yet another venue-related petition, stating that mandamus was unwarranted. Continue Reading

China Reforms its IP Administrative System with the Creation of a New Super Administration

As part of larger institutional reorganization schemes, the Chinese government has recently issued a draft statute for the reform of the State Intellectual Property Office (SIPO). SIPO, until now an agency subordinated to the executive branch (i.e. the State Council), will be organized under a newly created super agency in charge of IP and product quality and safety. Among the goals of the reform are administrative simplification and increased efficiency in handling IP related matters, as well as the improved protection of the intellectual property rights of foreign entities and individuals in China. Continue Reading

New Jurisprudence Rendered By Spanish Courts Facilitates Closing Of Websites

Recent jurisprudence rendered by Spanish Courts establishes that in the case of copyright infringement over the internet, it is not necessary to sue the infringer, but rather the IT intermediaries that host the website.

The Court of Appeal in Barcelona has now dismissed an appeal filed by several IT companies against the first instance Judgment that established the above-mentioned doctrine.  The claimant had sued several IT companies requesting that the defendants must prevent access to a website that was allegedly infringing certain copyrights.  The petition was made based on the Spanish Copyright Act, which establishes the ability to request such action against the intermediaries, not only as an injunction but also as a petition on the merits.

The availability of this action, however, presents a potentially problematic situation that was argued by the IT intermediaries as an objection against the claim. The problem is that if the infringer is not sued, there would be no previous declaration of infringement and, consequently, the intermediaries could not be requested to prevent access. Here, the claimant previously requested the Spanish regulator to order the infringer to stop infringing the claimant’s copyright.  Although initially the infringer stopped the infringement, it eventually restarted it. The claimant also produced an expert report that showed that the infringer facilitated links that allow free downloading of music.  The Court of Appeal decided that it is possible to sue the intermediaries without the need to sue the infringer and without the need to obtain a previous declaration of infringement, so long as evidence of the infringement is provided.

Finally, another problematic issue is that this action might determine that non-infringing content could also be prohibited. However, if the main use of the website infringes the copyright, the decision to prevent access is not disproportionate.

Failure To Name Joint Inventors May Bar Patentability

Following a rejection by the United States Patent and Trademark Office (“USPTO”) under section 102(f) for a rehabilitative dog harness, the Federal Circuit recently affirmed the rejection because the applicant “did not himself solely invent the subject matter sought to be patented.”  In re VerHoef, No. 2017-1976 (Fed. Cir. May 3, 2018).

Jeff VerHoef built a prototype harness to remediate walking difficulties that his dog developed post-surgery.  VerHoef recognized that the harness would work better if it were connected to the dog’s toes, and discussed the matter with his veterinarian, Dr. Alycia Lamb.  During their discussion, Dr. Lamb suggested that VerHoef should consider using a figure eight strap that fit around the dog’s toes and wrapped around the lower part of the leg.  VerHoef implemented the figure eight idea, and, after further adjustments, had a working device that reduced the dog’s walking difficulties.  VerHoef filed a patent application naming both him and Dr. Lamb as co-inventors, with a single claim that included Dr. Lamb’s figure eight strap suggestion.  After a falling out, VerHoef’s attorney abandoned the joint application, and each inventor then filed their own separate applications reciting the same independent claim contained in the abandoned joint application.

After finding the parallel Lamb application in his prior art search, the examiner rejected the claims in VerHoef’s new patent application under section 102(f), finding that VerHoef did not solely invent the claimed subject matter in light of the parallel Lamb application.  The Patent Trial and Appeal Board (“PTAB”) affirmed the examiner’s rejection, and VerHoef appealed. Continue Reading

USITC Finalizes Amendments To Procedural Rules Governing Section 337 Investigations

The U.S. International Trade Commission (ITC) has published in the Federal Register final revisions to its rules of practice and procedure governing Section 337 investigations, the investigations that the ITC conducts under 19 U.S.C. § 1337 based on private party complaints against imported articles that allegedly violate U.S. intellectual property rights.  This completes a process begun in 2015 when the ITC first initiated a proposed rulemaking for changes to its rules.  The rules will go into effect for investigations instituted after June 7, 2018.

Among the changes highlighted by the ITC as most significant are:

  • Requiring the ITC’s notice of investigation to explicitly identify the accused products subject to investigation.
  • Clarifying that the ITC may institute multiple investigations based on a single complaint.
  • Permitting an Administrative Law Judge (ALJ) to sever an investigation on motion or sua sponte to allow efficient adjudication.
  • Formalizing the ITC’s pilot program for early disposition of investigations in which the ITC (not the assigned ALJ) identifies, at institution, a potentially investigation-dispositive issue that can be resolved in an expedited (100-day) proceeding.

Takeaways:

The requirement that the notice of investigation explicitly identify the accused products serves transparency, guides discovery, and frames the scope of relief if a violation is found.  The new rules on institution and severance both aim to give the ITC additional tools to manage its increasing docket.  The ITC’s pilot program for early disposition also is an important case management tool, and its use has appeared to gain some momentum in 2018 (see our prior post and newly-designated Inv. No. 337-TA-1109 (Notice)).  However, the early disposition of cases is more than a management tool:  it provides a substantive opportunity for resolution of a Section 337 investigation before proceeding with a costly hearing.  Although case-dispositive motions were permitted before the ITC’s pilot program came into existence, many perceived the ability to achieve an early ruling as more theoretical than real.  By formalizing the pilot program, the ITC now has an official process to point to that it can use to counter some of the recent criticisms of the Section 337 adjudicative process.

U.S. Corporate Defendants Incorporated In Multi-District States Reside Only In A Single District For Patent Venue Purposes

In the third important patent venue decision it has issued in the past week (In re: BigCommerce, No. 2018-122 (May 15, 2018)), the Federal Circuit has clarified the proper location for patent infringement suits against U.S. corporations whose state of incorporation is large enough to have multiple federal judicial districts.  According to the Court,

a domestic corporation incorporated in a state having multiple judicial districts ‘resides’ for purposes of the patent-specific venue statute, 28 U.S.C. § 1400(b), only in the single judicial district within that state where it maintains a principal place of business, or failing that, the judicial district in which its registered office is located[.]

The Court’s opinion answers a question left open by the Supreme Court’s landmark decision in TC Heartland, LLC v. Kraft Foods Grp. Brands, LLC, 137 S.Ct. 1517 (2017), which held that a U.S. corporate defendant resides in the state in which it is incorporated (see our prior post), but did not answer the question of where to sue in multi-district states.

The Court’s interpretation of the patent venue statute as restricting venue to a single judicial district was not unexpected (see our prior post), and pointed to “clear support in the statute’s language, history, purpose, and precedent.”  The Court’s opinion also, however, provides guidance on how to determine the proper district for patent venue that was not strictly required to resolve the case at hand. Continue Reading

Federal Circuit Rules That Plaintiff Bears Burden Of Proving Proper Patent Venue

In another important patent venue decision (In re: ZTE (USA) Inc., No. 2018-113 (May 14, 2018)), the Federal Circuit has determined that who bears the burden of establishing proper venue is a question of Federal Circuit law and that it is the plaintiff who bears that burden.  According to the Court, although the Federal Circuit itself has never ruled on where to place the burden in its 37-year history, its conclusion is supported by authority among the other circuit courts and by the venue statute’s “intentional narrowness” as “compared with the broad general venue provision.”  The Court therefore granted the defendant’s mandamus petition, vacated the district court’s order denying defendant’s motion to dismiss for improper venue, and instructed the district court to place the burden of proof on the plaintiff and to reconsider defendant’s motion, and specifically, whether the nature of the defendant’s relationship to a call center it had contracted with “warrant[s] [the] call center being deemed a regular and established place of business [of the defendant].”

Takeaway:  The Court’s decision plugs still another hole left open after the Supreme Court’s landmark patent venue opinion in TC Heartland LLC v. Kraft Foods Grp. Brands LLC , 137 S. Ct. 1514 (2017) and creates a not insignificant, new hurdle for patent plaintiffs.  Still more decisions are expected in this area from mandamus petitions that remain pending at the Federal Circuit (see our prior post).

Federal Circuit Finds Patent Venue Over Alien Corporations Is Proper In Any District

In an important patent venue decision (In re HTC Corporation, No. 2018-130 (May 9, 2018)), the Federal Circuit has denied the mandamus petition of a Taiwanese company challenging the District of Delaware’s finding that that court is a proper venue for patent infringement litigation over the company.  Relying on the Supreme Court’s decision in Brunette Machine Works, Ltd. v. Kokcum Industries, Inc., 405 U.S. 706 (1972), the unanimous panel reaffirmed that the rule that non-U.S. resident or “alien” defendants can be sued in any judicial district applies in patent cases.

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