Old Reliable Wholesale v. Cornell (CAFC 2010-1247) precedential

A district court is vested with authority to award attorney fees to a prevailing party in patent litigation if it determines that the case is "exceptional." 35 U.S.C. § 285. While the discretion granted to a trial court under section 285 is broad, it is not unbridled. See Wedgetail, Ltd. v. Huddleston Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir. 2009) (noting that "only a limited universe of circumstances warrant a finding of exceptionality in a patent case"); Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1329 (Fed. Cir. 2003) (emphasizing that section 285 is limited to cases where the award of fees "is necessary to prevent a gross injustice" (citations and internal quotation marks omitted)); Cambridge Prods., Ltd. v. Penn Nutrients, Inc., 962 F.2d 1048, 1050 (Fed. Cir. 1992) ("[T]he exceptional nature of the case must be established by clear and convincing evidence."). In view "of the substantial economic and reputational impact" of an award of attorney fees, this court is required "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." Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersysteme GmbH, 603 F.3d 943, 953 (Fed. Cir. 2010)

"Absent misconduct in conduct of the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless." Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). The standard for establishing that a claim is "objectively baseless" under section 285 "is identical to the objective recklessness standard for enhanced damages and attorneys' fees against an accused infringer for § 284 willful infringement actions under In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc)." iLOR, LLC v. Google, Inc., Nos. 2010-1117, 2010-1172, 2011 U.S. App. LEXIS 516, at *11 (Fed. Cir. Jan. 11, 2011). Thus, "objective baselessness" depends not on the state of mind of the party against whom fees are sought, see Seagate, 497 F.3d at 1371, but instead on "an objective assessment of the merits" of the challenged claims and defenses. iLOR, 2011 U.S. App. LEXIS 516, at *12 (citations and internal quotation marks omitted). Unless an argument or claim asserted in the course of litigation is "so unreasonable that no reasonable litigant could believe it would succeed," it cannot be deemed objectively baseless for purposes of awarding attorney fees under section 285. Id.; see also Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008).

A lame admission by the inventor blew the roof off validity, but however exceptionally lame that was, it wasn't lame enough to trigger the case being exceptional.

Old Reliable had reasonable grounds for its argument that the '950 patent was valid over the prior art, even following inventor testimony that the prior art VT-2 product and the commercial embodiment of the '950 patent did "[e]xactly the same thing."

Old Reliable wasn't the only one not reliable. The USPTO found the '950 valid during reexam, then changed its mind after the CAFC ruling. Bob Dylan doesn't need a weatherman to know which way the wind blows, but the PTO does. Yet, pursuant to a polite fiction, the CAFC tipped its hat to the patent office as having "acknowledged expertise in evaluating prior art and assessing patent validity."

On June 15, 2010, the PTO issued a notice of intent to issue an ex parte reexamination certificate confirming the patentability of all claims of the '950 patent. After reviewing numerous prior art references, including the VT-1 and the Air-Flo, the PTO concluded that "[n]one of the prior art discloses nor renders obvious the combination of features" disclosed in the '950 patent. While it is true that this "court is not bound by the PTO's actions and must make its own independent determination of patent validity," Medrad, Inc. v. MRI Devices Corp., 401 F.3d 1313, 1322 (Fed. Cir. 2005), it is equally true that the PTO has acknowledged expertise in evaluating prior art and assessing patent validity. See Hyatt v. Kappos, 625 F.3d 1320, 1334 (Fed. Cir. 2010) (en banc) (recognizing the deference owed the PTO as "the knowledgeable agency charged with assessing patentability"); Tech. Licensing Corp. v. Videotek, Inc., 545 F.3d 1316, 1331 (Fed. Cir. 2008) ("This is not to say that the determinations made by the corps of examiners are not important, or should not be worthy of appropriate deference to their expertise in . . . technical matters, especially when we have the benefit of well-reasoned explications."); Applied Materials, Inc. v. Advanced Semiconductor Materials Am., Inc., 98 F.3d 1563, 1569 (Fed. Cir. 1996) ("The presumption of validity is based on the presumption of administrative correctness of actions of the agency charged with examination of patentability."). The fact that the PTO, after assessing the relevant prior art, confirmed the patentability of all claims of the '950 patent undercuts Cornell's contention that Old Reliable had no reasonable basis for its assertion that its patent was not anticipated.⁶

⁶ Whereas clear and convincing evidence is required to invalidate a patent in district court, a patent can be invalidated during PTO reexaminations by a simple preponderance of the evidence. In re Swanson, 540 F.3d 1368, 1377 (Fed. Cir. 2008).

Litigation misconduct was found against Old Reliable by the district court for its failure "to engage in settlement negotiations", but the district court excluded counsel in its rebuke.

Where a party engages in litigation misconduct, fees can be awarded pursuant to section 285 even absent clear and convincing evidence that an asserted claim or defense is objectively baseless. Brooks Furniture, 393 F.3d at 1381. Litigation misconduct generally involves unethical or unprofessional conduct by a party or his attorneys during the course of adjudicative proceedings. 9 See ICU Med., Inc. v. Alaris Med. Sys., Inc., 558 F.3d 1368, 1380 (Fed. Cir. 2009) (affirming an award of attorney fees where a party made "multiple, repeated misrepresentations" to the court (citations and internal quotation marks omitted)); Mathis v. Spears, 857 F.2d 749, 752 (Fed. Cir. 1988) (affirming an award of attorney fees where a party "blatantly misled[] the PTO" and then "attempted to employ the courts as handmaidens to its iniquity" (footnote omitted)).

⁹ The trial court specifically determined that sanctions were to be assessed only against Old Reliable and not against its attorneys. See Attorney Fees Decision, 2010 U.S. Dist. LEXIS 8756, at *17 n.23 ("The Court's award of attorney fees to Cornell is against [Old Reliable] only. The Court does not award the fee against counsel for [Old Reliable] and finds no basis for an award against [Old Reliable's] lawyers." (emphasis in original)).

Reversed and fee award vacated.