June 17, 2008
Ole Nilssen, patent goofball extraordinaire, in rather massive assertion against Osram Sylvania, was found to have committed inequitable conduct in multiple ways, a ruling affirmed on appeal. In awarding attorney fees in this exceptional case, Nilssen's conduct went beyond inequitable conduct, to litigation misconduct, the trial court judge ruled. 2-1, the CAFC agreed. The CAFC puts plaintiffs on notice that prosecution and litigation tactics that resemble shenanigans parades will not be tolerated.
Ole K. Nilssen and Geo Foundation v. Osram Sylvania (CAFC 2007-1198, -1348)
Nilssen is the owner and principal inventor of over 200 patents, many of which concern fluorescent light bulbs and ballasts used in combination with those bulbs. In August 2000, Nilssen brought an action alleging that certain light bulbs and ballasts manufactured and sold by Osram infringed certain of Nilssen's patents. Osram denied the allegations and filed a counterclaim alleging that the patents in suit were invalid. Following a bench trial begun in June 2006, the district court issued a decision holding unenforceable the patents at issue due to inequitable conduct committed by Nilssen in procuring and maintaining those patents. Nilssen v. Osram Sylvania, Inc., 440 F. Supp. 2d 884 (N.D. Ill. 2006). On appeal, we affirmed. Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223 (Fed. Cir. 2007).
After the inequitable conduct trial, Osram filed for, and was granted, reimbursement of attorney fees.
The court noted three reasons for finding exceptionality: Nilssen's inequitable conduct, the frivolous nature of the lawsuit, and appellants' litigation misconduct. Id. at *26-*31. The court found that the lawsuit was frivolous because Nilssen "knew or should have known" that the suit was baseless. Id. at *29. In support of the finding of litigation misconduct, the court noted appellants' refusal to allow Evensen's deposition in the United States, the late withdrawal of fifteen of the patents in suit, the belatedly-produced documents, and Nilssen's last minute waiver of the attorney-client privilege. Id. at *28-*30.
District courts may award reasonable attorney fees to a prevailing party "in exceptional cases." 35 U.S.C. § 285. We review a finding that a case is "exceptional" within the meaning of 35 U.S.C. § 285 for clear error. Forest Labs., Inc. v. Abbot Labs., 339 F.3d 1324, 1328 (Fed. Cir. 2003). "A finding is clearly erroneous when, despite some supporting evidence, 'the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Id. (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). Once a case is determined to be exceptional, we review a district court's decision to award attorney fees under an abuse of discretion standard. Id. (citing Cybor Corp. v. FAS Techs., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc)). An abuse of discretion occurs "when [the district court's] decision is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary, or fanciful." Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc). In reviewing a district court's award of expert fees, as with all procedural issues not unique to patent law, we apply the standard of review of the regional circuit. Go Med. Indus. Pty., Ltd. v. Inmed Corp., 471 F.3d 1264, 1272 (Fed. Cir. 2006). The Seventh Circuit reviews the denial of expert fees under Federal Rule of Civil Procedure 26(b)(4)(C) for an abuse of discretion. Gwin v. Am. River Transp. Co., 482 F.3d 969, 975 (7th Cir. 2007).
In a 2-1 decision, the CAFC affirmed.
Even if we were to hold that the inequitable conduct conclusion was based on actions that were less egregious than other actions that are more typical of inequitable conduct holdings, we are faced with more than inequitable conduct here. In addition to Nilssen's inequitable conduct, the district court considered appellants' litigation misconduct before and during the inequitable conduct trial as support for its finding of exceptional case.
The dissent picks through the various flaws in the conduct of the patentee to argue that they do not individually justify the exceptional label placed on the case by the district court judge. Their multiplicity, however, indicates in part why the district judge ruled as he did. The district court, in its original opinion on the merits, described Nilssen's testimony on various issues as "not credible," Nilssen, 440 F.Supp.2d at 904, 909, 910, "unconvincing," id. at 904, "unbelievable," id., "without merit," id. at 905, and "unpersuasive," id. at 908. On this basis, and others including litigation misconduct, the district court later found the case to be exceptional.
With her usual impeccable logic, Judge Newman dissented.
The court today promotes unexceptional trial procedures and non-culpable prosecution errors into an "exceptional case" of such severity as to warrant the award of attorney fees. That is not what the statute, or precedent, or policy contemplates.
Here, the district court referred to both "litigation misconduct" and "inequitable conduct" as rendering the case "exceptional." The merits of the patents were not reached, leaving unclear the court's designation of the suit as "baseless." My colleagues now hold that when "inequitable conduct" is relied on for a fee award, there is "no distinction, in either our caselaw or any statutory authority, between inequitable conduct that is somehow benign, and inequitable conduct that is otherwise." Maj. op. at 9. To the contrary, that distinction is critical, as reflected in precedent and in the premises of the statute, and must be considered.
The panel majority stresses that the district court did not view the inventor Nilssen as credible; all of the credibility criticisms relate to the issues on which the district court based its ruling of inequitable conduct in the PTO, issues that this court described as "not per se unreasonable." Nilssen, 501 F.3d at 1223. Thus the district court stated that it disbelieved Nilssen's statement that he did not deliberately conceal the relationship of an affiant in affidavits filed in the PTO; the district court stated that it disbelieved Nilssen's statement that he did not deliberately misstate the parentage of some patent applications and did not deliberately withhold some references; the district court stated that it disbelieved Nilssen's statement that he relied on the advice of tax counsel in paying small entity fees; the court criticizing his tardy waiver of the attorney-client privilege; the district court stated that it disbelieved Nilssen's statement that he did not know of his duty to tell the examiner about the Motorola litigation involving other patents. All of these aspects led to the ruling of inequitable conduct in the PTO. As I have mentioned, in this court's review of the inequitable conduct issues we observed that Nilssen's actions were not unreasonable as such and "may have been an oversight." Nilssen, 501 F.3d at 1223. It is inappropriate now to recharacterize this conduct in the PTO as "litigation misconduct." An unexceptional case cannot be made exceptional by double-counting the same infractions.
The panel majority departs from precedent in holding that the nature of "inequitable conduct" is not a factor to be weighed in the attorney fee determination. The court today enlarges the scope of "exceptional case" to include less than egregious aspects of patent prosecution and litigation practice, with no evidence or charge of bad faith or prejudice. Any patent prosecution, and indeed any litigation, is vulnerable in its detail. It is appropriate and necessary to consider the nature of the conduct, in reviewing an attorney fee award, and to limit such award to major infractions, as statute and precedent require. Application of the "exceptional case" provision should be as objectively consistent as its subject matter permits, and in conformity with precedent.
Posted by Patent Hawk at June 17, 2008 11:49 PM | Inequitable Conduct