Medtronic and St. Louis University and McDermott Will & Emery LLP v. BrainLAB (CAFC 2009-1058, -1059) precedential

The district court kept its powder dry until after the battle.

After the appeals process was completed, BrainLAB filed a petition in the district court seeking attorney fees and expenses based on 35 U.S.C. § 285, 28 U.S.C. § 1927, and the court's inherent powers. BrainLAB argued that the case was exceptional and that Medtronic and its trial counsel, McDermott, had prolonged a frivolous lawsuit and had obtained an improper jury verdict through litigation misconduct and abusive advocacy.

The district court agreed with BrainLAB, held that the case was exceptional under 35 U.S.C. § 285, and ruled that an award of attorney fees was justified. Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersystems GmbH, No. 98-cv-1072 (D. Colo. Feb. 12, 2008). In so doing, the district court relied on two grounds. First, the court ruled that Medtronic should have "accept[ed] that the claims construction rulings stripped the merits from this case." According to the court, Medtronic either should have sought to take an interlocutory appeal from the claim construction order or should have abandoned its case when BrainLAB filed its motions for summary judgment. Second, the court ruled that Medtronic's counsel had engaged in various forms of litigation misconduct during the trial, including misleading the jury as to the court's claim construction; focusing on a comparison between a Medtronic product and a BrainLAB product, rather than on a comparison between the patent claims and the accused products; and wrongfully arguing that a statement in an FDA submission made by BrainLAB constituted an admission of infringement.

With respect to Medtronic's failure to abandon its claims after the claim construction ruling, the court ruled that Medtronic and the McDermott lawyers "had a duty to reexamine this litigation [after claim construction] and make an objective assessment of the validity of Medtronic's claims that BrainLAB's products infringed the patent claims as construed." Instead, the court stated, Medtronic continued undeterred despite full awareness that its case was without merit, "reflecting an attitude of 'what can I get away with?'"

The district court charged that Medtronic had artfully avoided the court's claim constructions in order to create an illusion of infringement and had "chose[n] to pursue a strategy of distorting those rulings [and] misdirecting the jury to a different reading of the claim language."

The district court also criticized Medtronic for disregarding the prosecution history of the Bucholz patent, which had proved fatal to Medtronic's doctrine of equivalents claim.

In addition to awarding attorney fees under 35 U.S.C. § 285, the district court invoked 28 U.S.C. § 1927 and held McDermott jointly responsible for the fee award on the ground that the McDermott attorneys had proceeded "cavalierly" and "with full awareness that their case was without merit." In the alternative, the court based its order against McDermott on its inherent authority to assess fees against counsel who engage in abusive litigation conduct. Both Medtronic and McDermott have appealed the sanctions order to this court.

On appeal -

Awards of attorney fees under section 285 are reviewed under a highly deferential standard. See Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1026 (Fed. Cir. 2008) (factual findings in section 285 determination are reviewed for clear error; legal conclusions are reviewed without deference; determination of whether and in what amount to award fees is reviewed for abuse of discretion). Despite our reluctance to second-guess the judgment of trial judges who typically have intimate knowledge of the case, we have the responsibility, in light of the substantial economic and reputational impact of such sanctions, to examine the record with care to determine whether the trial court has committed clear error in holding the case exceptional or has abused its discretion with respect to the fee award. Where we have found error, we have reversed exceptional case findings and vacated attorney fee awards based on those findings. See, e.g., DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1337-39 (Fed. Cir. 2009); FieldTurf Int'l, Inc. v. Sprinturf, Inc., 433 F.3d 1366 (Fed. Cir. 2006); Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378 (Fed. Cir. 2005); Stephens v. Tech Int'l, Inc., 393 F.3d 1269 (Fed. Cir. 2004); Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324 (Fed. Cir. 2003). Based on a close study of the record in this case, we conclude that the district court committed clear error in finding this case to be exceptional, and we therefore reverse.

We first address the district court's ruling that Medtronic acted improperly in failing to abandon its claims following the district court's claim construction order. The salient inquiry is whether Medtronic's claims were so lacking in merit that Medtronic was legally obligated either to abandon its case altogether or to limit itself to challenging the district court's claim construction order on appeal. If Medtronic's infringement claims were not frivolous or objectively unreasonable, Medtronic was entitled to pursue those claims, and its ultimate lack of success does not render the case exceptional. See Brooks Furniture, 393 F.3d at 1384 ("[E]nforcement of patent rights that are reasonably believed to be infringed does not entail special penalty when the patentee is unsuccessful.").

We have held that there is a presumption that an assertion of infringement of a duly granted patent is made in good faith. Brooks Furniture, 393 F.3d at 1382; Springs Window Fashions LP v. Novo Indus., L.P., 323 F.3d 989, 999 (Fed. Cir. 2003). Clear and convincing evidence is required to overcome that presumption and show that the patentee's infringement claims were vexatious, unjustified, or frivolous, and were pursued in bad faith. Serio-US Indus., Inc. v. Plastic Recovery Techs. Corp., 459 F.3d 1311, 1322 (Fed. Cir. 2006); Forest Labs., 339 F.3d at 1329-30.

The district court's behavior factored in heavily.

The district court's characterization of Medtronic's claims as frivolous is undermined by the fact that the court denied BrainLAB's motions for summary judgment and denied each of its motions for JMOL filed during the trial. Absent misrepresentation to the court, a party is entitled to rely on a court's denial of summary judgment and JMOL, as well as the jury's favorable verdict, as an indication that the party's claims were objectively reasonable and suitable for resolution at trial. See ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 875 (Fed. Cir. 2010) ("[T]he district court's denial of summary judgment of noninfringement reflects the belief that it was reasonable for ResQNet to have retained that patent for suit."); Forest Labs., 339 F.3d at 1330 (district court's denial of JMOL at the close of the evidence and the jury's favorable verdict "suggest that [the patentee's] position was not baseless"); Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989) ("[W]e find it difficult to agree that the inequitable conduct defense was 'baseless' when it survived a motion for summary judgment and was rejected only after findings were made on disputed facts."); Browning v. Kramer, 931 F.2d 340, 345 (5th Cir. 1991) ("[O]ne might well wonder how a case could be so frivolous as to warrant sanctions if it has sufficient merit to get to trial."); Ruben v. Warren City Sch., 825 F.2d 977, 988 (6th Cir. 1987) ("A sanction is generally improper where a successful motion could have avoided any additional legal expenses by defendants."); see also Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 338 (2d Cir. 1999) (favorable jury verdict "also speaks against the District Court's finding of the absence of colorability--the attorneys were not the only ones who found SNC's claim convincing").

As for the court's statement that Medtronic and its counsel had a legal obligation not to oppose BrainLAB's summary judgment motions, we disagree. An examination of each of Medtronic's infringement claims at trial confirms that each was sufficiently reasonable to warrant being litigated to verdict, even though all of them were ultimately rejected by the district court in its JMOL ruling and by this court on appeal.

Medtronic had reacted to the court's claim construction by dropping literal infringement and only arguing doctrine of equivalents.

The prosecution estoppel argument was not "so clear-cut that it was unreasonable for Medtronic to litigate the question until it obtained a ruling from the district court on the matter. See Haynes Int'l, Inc. v. Jessop Steel Co., 8 F.3d 1573, 1579-80 (Fed. Cir. 1993) (district court erred in awarding attorney fees under 35 U.S.C. § 285 based on the conclusion that the patentee should have known its infringement claim was barred by prosecution history estoppel)."

Although Medtronic was unable to persuade either the district court or this court that BrainLAB's products use a fiducial structure or its equivalent in an infringing manner, we cannot agree with the district court that Medtronic's arguments on that issue were frivolous or vexatious. Medtronic's claim of infringement was based in part on the analysis of its expert, Dr. Russell Taylor, and in part on BrainLAB's documents, including one that stated that the Mayfield star "establishes the 3D coordinate system for VectorVision Neuronavigation System within the operating field."

Furthermore, after considering Medtronic's submissions at the summary judgment stage and at trial, we do not perceive that Medtronic changed its position in a way that was improper. In effect, Medtronic narrowed the scope of its infringement claim from relying on four structures at the summary judgment stage to relying on only two of those four structures at trial. A decision by a party to narrow its case for presentation to a jury does not generally suggest manipulation of the litigation process, and we see nothing improper in Medtronic's decision to narrow its infringement claim in this case. We conclude that Medtronic presented a plausible theory of literal infringement even under the district court's restrictive claim construction, both at the summary judgment stage and at trial.

The CAFC then turned to § 285.

Several of the comments that the district court highlighted were unobjectionable, and the court's criticisms of those comments were therefore unwarranted.

The district court also found that Medtronic's counsel committed misconduct during closing argument by suggesting to the jury "that the absence of jury instructions about the prosecution history of the Bucholz Patent showed that BrainLAB had not been forthright in its presentation." The court noted that the jury instructions had not referred to prosecution history estoppel because the court had ruled that issue to be a question of law for the court, and not for the jury.

When viewed in context, counsel's comment was innocuous. It was made in response to an argument made by the opposing party, and it did not exceed the bounds of fair commentary on the issues, the evidence, and the jury's task as defined by the court.

In effect, Medtronic's counsel was suggesting to the jury that the argument on prosecution history estoppel made by BrainLAB's attorney was erroneous on the merits and was directed to an issue that was not going to be submitted to the jury. The former assertion constituted permissible argument, in light of BrainLAB's focus on the issue in its closing argument. The latter assertion was clearly correct, as the court had made clear that it did not intend to instruct the jury on the issue of prosecution history estoppel. Moreover, counsel's comments drew no objection from BrainLAB's lawyer. Instead, BrainLAB's lawyer merely requested, in light of the parties' discussion of prosecution history estoppel in their closing arguments, that the court instruct the jury briefly on that issue, a request that the court denied. We conclude that it was improper for the district court to base its sanctions order to any degree on that portion of counsel's closing argument.

The district court stated in its sanctions opinion that Medtronic had "pursue[d] a strategy of distorting" the court's claim construction rulings, "misdirecting the jury to a different reading of the claim language," and "directing the jury to override the court's claim construction." Medtronic did so, according to the district court, through the opinions of its expert witnesses, which the court characterized as "crafted to fit the infringement theories put forward by Medtronic's counsel," and by making arguments that gave "superficial recognition to the court's claim construction rulings, while pressing its own interpretations of the claims."

The CAFC observed that "[i]n context, it appears that counsel was not asking the jury to compare a microphone and a camera in the abstract, but rather to compare their relative functions in the patent and in the accused devices."

Medtronic counsel had made product comparisons for infringement analysis.

The district court was legitimately concerned that the product-to-product comparison might confuse the jury by leading it to believe that it should focus on the similarities between Medtronic's StealthStation device and BrainLAB's similar optical tracking devices. While we agree with the district court that the product-to-product comparison presented a risk of jury confusion, we see no reason to conclude that the court's repeated cautionary instructions were insufficient to explain to the jury the limited purpose for which the jury was to consider that evidence.

Moreover, the extent to which the StealthStation evidence was admitted at trial was largely within BrainLAB's control. Medtronic offered to refrain from demonstrating its StealthStation device if BrainLAB would agree not to demonstrate its VectorVision device, but BrainLAB's counsel refused the offer. As a result, both devices were demonstrated to the jury.

Regarding Medtronic's arguments over BrainLAB's FDA submission, "differing interpretations" were possible.

Given that counsel's remarks are subject to differing interpretations, and in light of the deference accorded to trial courts in assessing the conduct of counsel before them for purposes of imposing sanctions, we are not prepared to override the district court's conclusion that the manner in which Medtronic's counsel presented the argument regarding the FDA filing was improper. Nevertheless, that single incident, viewed in context, is not sufficient to support the district court's finding that this case is "exceptional," and it is plainly insufficient to support the broad attorney fee award that the district court entered in this case. The district court's fee award was designed to compensate BrainLAB for the entire cost of its legal representation after the summary judgment phase of the case, based on the court's conclusion that Medtronic unnecessarily prolonged the proceedings after that point. Because we have concluded that Medtronic did not improperly prolong the proceedings by pursuing its claims through trial, and because we disagree with most of the district court's criticisms of Medtronic's litigation tactics, we reverse the trial court's exceptional case finding and vacate the attorney fee award under section 285.

Exhaustive analysis of § 285 left little to say about § 1927.

In light of our analysis of the district court's ruling under section 285, little remains to be said about the court's ruling under section 1927 and the court's inherent authority. Section 1927 provides that a court may require an attorney to "satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred" when the attorney "multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927.

Because we have held that it was not unreasonable for Medtronic to seek relief even in light of the court's claim construction, it follows a fortiori that McDermott, as Medtronic's counsel, cannot be held liable for continuing to represent Medtronic in that effort. Even if McDermott had concluded that Medtronic's prospects for ultimately prevailing in the litigation were significantly diminished by the court's claim construction order, it was not unreasonable for McDermott to continue to press its client's case in light of the arguments that remained available to it. See Mezibov v. Allen, 411 F.3d 712, 719 (6th Cir. 2005) ("[A]n attorney is ethically bound to make reasonable arguments on behalf of his client, even if the attorney disagrees with them."); Stitt v. Williams, 919 F.2d 516, 528 (9th Cir. 1990) ("[A] lawyer should not be sanctioned for failing to abandon his client's case at the drop of a summary judgment motion, unless there is no colorable defense to the motion that can be advocated and no possible merit to any argument that can be advanced.").

The district court puffing its chest to a higher court brought a slap.

As for the district court's invocation of its inherent authority as a basis for an award of fees, costs, and expenses, the Supreme Court has emphasized that a court's inherent powers "must be exercised with restraint and discretion." Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1992). The Court in the Chambers case recognized that a court may assess attorney fees when a party has acted "in bad faith, vexatiously, wantonly, or for oppressive reasons." Id. at 45-46. In the same vein, we have required "a finding of fraud or abuse of the judicial process before a trial court can invoke its inherent sanctioning power," and we have stated that a case must be "sufficiently beyond 'exceptional' within the meaning of section 285 to justify . . . a sanction under the court's inherent power." Amsted Indus., Inc. v. Buckeye Steel Castings Co., 23 F.3d 374, 378-79 (Fed Cir. 1994).

Other courts have taken a similarly narrow view of the role of inherent authority as a basis for imposing sanctions for misconduct. See, e.g., Amlong & Amlong, P.A. v. Denny's, Inc., 500 F.3d 1230, 1252 (11th Cir. 2007) ("[T]he threshold of bad faith conduct for purposes of sanctions under the court's inherent powers is at least as high as the threshold of bad faith conduct for sanctions under § 1927. So sanctions that are impermissible under § 1927 are also impermissible under a district court's inherent powers."); Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385, 390-91 (7th Cir. 2002) ("The inherent authority of federal courts to punish misconduct before them is not a grant of authority to do good, rectify shortcomings of the common law . . . or undermine the American rule on the award of attorneys' fees to the prevailing party . . . . [I]t is a residual authority, to be exercised sparingly . . . ."); Saldana v. Kmart Corp., 260 F.3d 228, 238 (3d Cir. 2001) ("[I]nherent power should be reserved for those cases in which the conduct of a party or an attorney is egregious and no other basis for sanctions exists."); Jones v. Winnepesaukee Realty, 990 F.2d 1, 4 (1st Cir. 1993) (inherent power to award fees "should be used sparingly and reserved for egregious circumstances").

Reversed.