Opinion
Nio. CIV. S-02-2669 FCD KJM.
September 6, 2006
MEMORANDUM AND ORDER
This matter is before the court on defendant Bridge Medical, Inc.'s ("Bridge") motion for attorney fees, pursuant to 35 U.S.C. § 285, in the amount of $4,044,581.13, plus post-judgment interest. Bridge moves for said fees on the grounds that (1) it is the prevailing party based on the court's June 13, 2006 order, finding plaintiff McKesson Information Solutions Inc.'s ("McKesson") '716 patent unenforceable for inequitable conduct, and (2) the court's finding of inequitable conduct renders this case "exceptional" within the meaning of § 285. Consideration of the type of inequitable conduct in this case in conjunction with McKesson's bad faith pursuit of baseless claims and vexatious litigation tactics, Bridge argues, warrants the court exercise its discretion and award fees. McKesson opposes the motion, arguing that this case is not "exceptional" within the meaning of § 285, and even if it were, an award of fees is not appropriate in this case where neither McKesson nor its predecessor-in-interest were involved in the inequitable conduct, and McKesson did not pursue baseless claims or engage in vexatious litigation tactics.
Said amount excludes fees for time spent on litigating the instant motion; while Bridge requested fees for this work, it did not provide the court with an amount requested.
The court heard oral argument on the motion on August 18, 2006. By this order, it now renders its decision on the motion. While the court's order finding the '716 patent unenforceable for inequitable conduct amply supports a finding of an "exceptional" case, numerous factors, described below, militate against an award of fees in this case. Thus, despite the court's finding that this case is "exceptional" within the meaning of § 285, the court declines to award fees to Bridge.
McKesson has been seriously punished in this case — its patent rights have been deemed unenforceable and its infringement claims against Bridge rendered moot thereby. Under the factual circumstances of this case, the court cannot, in its discretion, further punish McKesson by an award of fees to Bridge. Such an award would not serve the interests of justice, as in this case, the court finds that requiring each side to bear its own fees is a "fair allocation of the burdens of litigation as between [Bridge the] winner and [McKesson the] loser." S.C. Johnson Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed. Cir. 1986).
Because the court declines to award fees, it does not consider whether the amount of fees claimed by Bridge is reasonable. The court notes, however, that McKesson did not challenge the number of hours claimed by Bridge or Bridge's requested rates, but rather argued that Bridge was entitled only to those fees, if at all, relating to the work on the inequitable conduct issue. In that regard, McKesson argued that Bridge should be entitled to no more than $669,057.25 in fees. Bridge responded that McKesson miscalculated the amount of fees attributable to the inequitable conduct issue, claiming said amount to be $995,984.71.
BACKGROUND
On December 13, 2002, McKesson sued Bridge, alleging infringement of U.S. Patent No. 4,857,716 ("the '716 patent"). McKesson acquired the '716 patent as part of its acquisition of HBOC of Atlanta in approximately 1988. (Opp'n, filed Aug. 4, 2006, at 1.) HBOC of Atlanta had acquired the patent during its acquisition of CliniCom, Inc. ("CliniCom") — the original assignee of the '716 patent. (Id.) During the mid-1980's, CliniCom hired the law firm of Merchant Gould P.C. ("MG") to act as its patent counsel for the prosecution of several patent applications related to medication administration technology. (Id. at 1-2.) Then MG attorney Michael Schumann ("Schumann") was the principal attorney in charge of the CliniCom applications, including the application that issued as the '716 patent. (Id. at 2.)
Some of these facts were not introduced at trial; however, Bridge has not opposed the facts on the motion.
By way of affirmative defense to McKesson's complaint and via its own counter-complaint for declaratory judgment, Bridge asserted that the '716 patent is unenforceable due to inequitable conduct by Schumann during the prosecution of the patent before the United States Patent and Trademark Office ("PTO").
Ultimately, the lawsuit engendered more than three years of hard fought litigation, which included: (1) McKesson's motion to strike certain affirmative defenses and counterclaims of Bridge, which the court granted in part (Docket # 37); (2) Bridge's motion for summary judgment, brought prior to any discovery or even Bridge's answer to the complaint, which the court denied (Docket # 36); (3) Bridge's discovery motion to limit certain discovery but in essence seeking a partial claim construction, which while provided by the magistrate judge, was vacated subsequently by this court (Docket # 128); (4) McKesson's motion for a preliminary injunction, which the court denied (Docket # 185); (5) multiple rounds of claim construction briefing and hearing; (6) two years of fact discovery including third-party discovery and twenty-seven depositions; (7) the exchange of expert reports and seven expert depositions; (8) six summary judgment motions — four filed by McKesson and two by Bridge, all of which the court denied (Docket #s 532, 533, 535, 547); (9) McKesson's motions to reopen discovery and add Cerner Corporation as a party, which the court denied; (10) preparation and a 4-day trial of the inequitable conduct issue; and (11) preparation for a four to five week jury trial on infringement and validity.
In May 2006, the court presided over the inequitable conduct bench trial. On June 13, 2006, the court issued Findings of Fact and Conclusions of Law ("FFCL") holding that inequitable conduct occurred in the prosecution of the '716 patent, thereby finding the patent unenforceable. (FFCL, filed June 13, 2006.) The court found that Schumann intentionally withheld three pieces of highly material information from the PTO: (1) the prior art Baker patent (id. at 20-34); (2) two rejections of substantially similar claims in the co-pending '009 prosecution (id. at 34-45); and (3) the allowance of substantially similar claims in the co-pending '372 prosecution (id. at 45-48). The court further found that during his testimony, "Mr. Schumann offered nothing other than bare denials of intent, combined with numerous excuses that this court finds implausible and not credible." (Id. at 50:7-10; see also Id. at 31:16-32:11 [Schumann's excuse regarding the nondisclosure of Baker "strains credulity" and "is simply not credible"]; Id. at 41:12-15 [explanation for nondisclosure of the '009 rejections "is not accurate"]; Id. at 49:18-20 [Schumann "failed to provide a credible explanation for his nondisclosures."].) In conducting the equitable weighing of materiality and intent, the court recognized that "[a] pattern of material nondisclosures, such as present here, weighs firmly in favor of unenforceability." (Id. at 48:27-28.) The court accordingly ruled that the inequitable conduct rendered the '716 patent unenforceable. (Id. at 50:13-15.)
STANDARD
Under the "American Rule," prevailing parties are not normally entitled to attorney fees in federal court. See Machinery Corp. of America v. Gullfiber, 774 F.2d 467, 471 (Fed. Cir. 1985). One reason for having each party bear its own fees is so that litigants are not "penalized for merely defending or prosecuting a lawsuit." Id. The Patent Act provides a limited exception to the "American Rule," allowing prevailing parties to recover reasonable attorney fees in "exceptional" cases. 35 U.S.C. § 285 ("The court in exceptional cases may award reasonable attorney fees to the prevailing party.") The statute does not define an "exceptional cas[e]."
Courts have determined that whether to award attorney fees under § 285 is a two-step process. First, the court must determine whether a case is exceptional. Phonometrics, Inc. v. Westin Hotel Co., 350 F.3d 1242, 1245 (Fed. Cir. 2003). It is the prevailing party's burden to demonstrate the exceptional nature of the case by clear and convincing evidence. Cambridge Prods., Ltd. v. Penn Nutrients, Inc., 962 F.2d 1048, 1050 (Fed. Cir. 1992). Second, if the court finds the case exceptional, it must decide, in its discretion, whether an award of fees is appropriate. Phonometrics, 350 F.3d at 1245.
"The prevailing party may prove the existence of an exceptional case by showing: inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement." Epcon Gas Sys., Inc. v. Bauer Compressors, Inc., 279 F.3d 1022, 1034 (Fed. Cir. 2002) (internal citations omitted). However, a finding of inequitable conduct does not require a finding that the case is exceptional. Gardco Mfg., Inc. v. Herst Lighting Co., 820 F.2d 1209, 1215 (Fed. Cir. 1987) ("it has not been held that every case of proven inequitable conduct must result in an automatic attorney fee award, or that every instance of inequitable conduct mandates an evaluation of the case as `exceptional.'") Indeed, courts have recognized that "[t]o prove a case exceptional imposes more stringent requirements than proof of inequitable conduct." National Diamond Syndicate Inc. v. Flanders Diamond USA Inc., 67 U.S.P.Q.2d (BNA) 1671, 1676 (N.D. Ill. 2003). In holding that inequitable conduct rises to the level of exceptional circumstances warranting attorney fees, courts have been influenced by, inter alia, the following factors: "(1) multiple material references were withheld from the PTO; (2) misleading statements and misrepresentations were made to the PTO as a result of the non-disclosure; (3) inequitable conduct formed the basis for the issuance of the patent; and (4) the applicants engaged in a `program' of withholding their knowledge of material information from the PTO." Evident Corp. v. Church Dwight Co., Inc., 2003 U.S. Dist. LEXIS 26296, *7-8 (D.N.J. June 30, 2003), aff'd, 399 F.3d 1310 (Fed. Cir. 2005).
Nevertheless, even an exceptional case does not require in all circumstances the award of attorney fees. Consolidated Aluminum Corp. v. Foseco Int'l Ltd., 910 F.2d 804, 815 (Fed. Cir. 1990). "In the context of fee awards to prevailing accused infringers, we have observed that § 285 is limited to circumstances in which it is necessary to prevent `a gross injustice' to the accused infringer[.]" Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1329 (Fed. Cir. 2003) (internal citations omitted). To determine whether attorney fees are warranted, a court should "weigh considerations such as the closeness of the case, the tactics of counsel, the conduct of the parties, and any other factors that may contribute to a fair allocation of the burdens of litigation as between winner and loser." S.C. Johnson, 781 F.3d at 201.
The decision to award attorney fees, vel non, is discretionary and permits the judge to weigh intangible as well as tangible factors: the degree of culpability of the infringer, the closeness of the question, litigation behavior, and any other factors whereby fee shifting may serve as an instrument of justice.Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1378 (Fed. Cir. 2001) (internal quotations and citation omitted). In the end, the court must decide, in its discretion, whether "it would be `grossly unjust' for the winner to bear the burden of [its own] counsel fees [which] prevailing litigants normally bear." Pollenex Corp. v. Sunbeam-Home Comfort, 835 F. Supp. 403, 404 (N.D. Ill. 1993); Rohm Hass Co. v. Crystal Chem. Co., 763 F.2d 688, 691 (Fed. Cir. 1984).
ANALYSIS
1. Is This An Exceptional Case?
McKesson does not dispute that Bridge is the prevailing party in this litigation based on the court's judgment finding the '716 patent unenforceable for inequitable conduct. The parties do, however, vigorously dispute whether the court's finding of inequitable conduct provides grounds for an exceptional case determination. On one hand, Bridge emphasizes that the Federal Circuit has "repeatedly identified as `exceptional' those cases involving inequitable conduct before the Patent Office." Forest Labs., 339 F.3d at 1329. To Bridge, the court's inequitable conduct ruling alone provides "compelling" grounds to deem this case exceptional under § 285. McKesson, on the other hand, stresses that a finding of inequitable conduct does not require a finding of an exceptional case, see Gardco, 820 F.2d at 1215, and here, McKesson argues, the facts supporting the court's finding are not "so egregious" as to warrant the conclusion of exceptional circumstances.
The court agrees with Bridge. First, an exceptional case finding is warranted here given the court's previous finding of a pattern of highly material nondisclosures. (FFCL at 48:27-28.) "The number of material references intentionally withheld from the PTO is relevant to finding a case exceptional. . . ."Evident Corp., 2003 U.S. Dist. LEXIS 26296 at *10, *14 (premising exceptional case finding in part on applicants' "engage[ment] in a program to withhold material art from the PTO"). In this case, the inequitable conduct "extended well beyond any mere isolated lapse in disclosing a potential prior art reference." Tarkett, Inc. v. Congoleum Corp., 156 F.R.D. 608, 614 (E.D. Pa. 1994). The court found that Schumann failed to disclose multiple material references — the Baker patent, the '009 rejections and the '372 notice of allowance. Like inTarkett, this conduct "represented a general breakdown in the candor and good faith with which [the patent prosecutor] was expected to deal with the patent office." Id.; see also Evident Corp., 2003 U.S. Dist. LEXIS 26296 at *14 (Schumann, like the inventors and their counsel in Evident Corp., "failed to disclose material prior art to the PTO despite multiple opportunities," to do so).
See FFCL at 29:11-30:10 (describing Schumann's multiple opportunities, after Examiner Lev brought the Baker patent to his attention, to disclose the patent in the '716 prosecution).
Moreover, with respect to each non-disclosure, the court found the showings of materiality and intent to deceive "high." (FFCL at 50:5-6.) Indeed, based on that conclusion, the court expressly noted that any one of the subject non-disclosures would support judgment of unenforceability. (FFCL at 50:2-5.) Significantly, Schumann's non-disclosures allowed him to make arguments to the PTO that he otherwise would have been unable to make had he disclosed the references. (FFCL at 28:16-30:10 [re: the Baker patent], 38:4-39:6 [re: the '009 rejctions].) As to '372 allowance, the court found that disclosure may well have resulted in the rejection of the '716 application for double patenting. (FFCL at 45:13-46:11.) As recognized by other courts, such facts strongly support a finding that the case is exceptional. See e.g.; Agfa Corp. v. Creo Prods., Inc., 451 F.3d 1366, 1378 (Fed. Cir. 2006) (basing exceptional case finding, in part, on fact that undisclosed prior art was "inconsistent with Agfa's misleading statements to the examiner during prosecution"); Evident Corp., 2003 U.S. Dist. LEXIS 26296 at *13 (exceptional case finding warranted where non-disclosed prior art enabled applicants to make multiple subsequent misrepresentations regarding the prior art and non-disclosures directly led to the issuance of the patent);Tarkett, 156 F.R.D. at 614 (exceptional case finding based on facts that non-disclosed prior art anticipated at least some claims of the subject patent and misleading statements were made to the PTO about the non-disclosed prior art); Pollenex, 835 F. Supp. at 405 (finding important to the exceptional case determination that the failure to disclose two prior art references misled the PTO into believing that three or more references had to be combined to achieve the element combination in the claim).
Finally, the court found that Schumann failed to proffer a credible explanation for his conduct. "[S]chumann offered nothing other than bare denials of intent, combined with numerous excuses that this court finds implausible and not credible." (FFCL at 50:5-10.) The court concluded that this was "not a case of mistake or negligence" and that Schumann had acted in a "wayward position contrary to law." (FFCL at 49:20-21, 49:26.)
McKesson argues that its defenses raised at trial preclude an exceptional case finding. These failed defenses, which the court rejected and found lacked credibility, do not affect the analysis. Similar arguments were made in virtually every case deemed exceptional. See e.g. Bruno v. Living Aids, Inc. v. Acorn Mobility Servs., Ltd., 394 F.3d 1348, 1352 (Fed. Cir. 2005) (case exceptional despite patentee's argument that it was not aware of the prior art's materiality, and looking back in hindsight, it believed the withheld prior art was immaterial and cumulative of other disclosed art).
Furthermore, while the court acknowledges that McKesson proffered some evidence of Schumann's good faith and candor before the PTO, in that he disclosed numerous examples of prior art and the co-pendency of the various CliniCom applications to the '716 examiner, said evidence does not persuade the court that this case is not exceptional. The cases relied on by McKesson are distinguishable. In Elk Corp. of Dallas v. GAF Bldg. Materials, 2000 U.S. Dist. LEXIS 2658, *6 (N.D. Tex. Mar. 7, 2000), the district court denied an award of fees, finding the case not exceptional, in part, because the plaintiff patentee disclosed other material prior art during the prosecution of the patent-in-suit. However, in its findings of fact and conclusions of law, the Elk Corp. court expressly found the inequitable conduct issue to be a "close question." Id. Ultimately, the court found that the plaintiff did not "disclose the most material prior art [and thus was found to have committed inequitable conduct]," but noted that the plaintiff was "reasonably entitled to rely on the arguments it advanced at trial." Id. at *6-7. Similarly, in Torin Corp. v. Philips Industries, Inc., 625 F. Supp. 1077, 1096-97 (S.D. Ohio 1985), the district court found the case, involving the non-disclsoure of only piece of prior art, not exceptional because the "questions of fact were close" and the inequitable conduct was proved "circumstantially from events occurring nearly twenty years before the suit was initiated."
Here, the pattern of deceit and the array of excuses offered by McKesson which this court found wholly lacking in credibility distinguish this case from Elk Corp. and Torin. Nowhere in the court's FFCL did it describe this case as a "close question," nor could the court's analysis of the facts here reasonably be given this interpretation.
Accordingly, based on the above, the court finds this case exceptional.
2. Is An Award of Attorney Fees Appropriate ?
While the court has concluded that Bridge succeeded in presenting evidence sufficient to meet its burden to prove inequitable conduct and the exceptional nature of this case, "that does not mean the case [is] `open and shut'" regarding the award of fees. Espeed, Inc. v. Brokertec USA, L.L.C., 417 F. Supp. 2d 580, 600 (D. Del. 2006) (finding case exceptional but declining to award attorney fees where case was "hard fought" with a split jury verdict finding infringement but deeming patent invalid and the plaintiff's counsel was professional in the conduct of the litigation); accord Modine Mfg. Co v. The Allen Group, Inc., 14 U.S.P.Q.2d 1210 (N.D. Cal. 1989) (finding case exceptional because of willful infringement but declining to award attorney fees). Clearly, an exceptional case does not require, in all circumstances, the award of attorney fees. Consolidated Aluminum Corp., 910 F.2d at 815 (affirming district court's decision to deny attorney fees' request despite finding of inequitable conduct, stating that this ruling was in accord with the court's "repeated statement that not every case deemed `exceptional' must result in a fee award").
Concurrently with the jury trial, the parties in Espeed tried the issues of inequitable conduct and laches to the court. By the instant opinion, the district court issued its post-trial findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a) and rendered its decision on an award of fees pursuant to § 285. Id. at 584.
Here, a variety of factors militate against an award of fees to Bridge:
a. McKesson's CliniCom's Lack of Involvement in the Inequitable Conduct
First, the subject conduct occurred over 20 years ago and neither McKesson nor CliniCom were involved in the inequitable conduct. Indeed, McKesson did not acquire any rights in the '716 patent until more than a decade after the inequitable conduct occurred. In this case, unlike all the cases cited by both parties, there was simply no evidence that the plaintiff, McKesson, or its predecessor, CliniCom, had any role in the inequitable conduct. In that regard, McKesson correctly argues that the cases relied on by Bridge to support an award of fees are distinguishable because in each of the cases a close nexus existed between the plaintiff(s) in the patent action and the party responsible for the inequitable conduct. See e.g. Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1375, 1385 (Fed. Cir. 2001) (awarding attorney fees for inequitable conduct committed directly by the plaintiff in failing to disclose on-sale bar activities and suing on a knowingly invalid patent); Vardon Golf Co. v. Karsten Mfg. Corp., 2003 U.S. Dist. LEXIS 5072, *3-4 (N.D. Ill. Mar. 31, 2003) (awarding fees for inequitable conduct based on the plaintiff's failure to disclose known, material prior art);Ulead Sys., Inc. v. Lex Computer Mgmt. Corp., 151 F. Supp. 2d 1192, 1204 (C.D. Cal. 2001) (awarding attorney fees for inequitable conduct committed by CEO and sole shareholder of the plaintiff); Tarkett, 156 F.R.D. at 614 (awarding attorney fees for inequitable conduct based on fraudulent acts of the plaintiff "carried out at the highest and most responsible levels of the company"); Pollenex, 835 F. Supp. at 404-06 (awarding attorney fees for inequitable conduct based on the plaintiff's intentional copying of prior art devices and failure to disclose those prior art devices to the PTO).
Even Evident Corp. and Peabody Myers Corp. v. Vac-Con Inc., 17 U.S.P.Q.2d 1817 (M.D. Fla. 1990), the two cases cited by Bridge which did not involve inequitable conduct by the plaintiffs themselves, are distinguishable because in both of these cases, the plaintiffs' predecessors were involved in the conduct. In Evident Corp., the inventors and their counsel committed the inequitable conduct; the patent was later licensed to plaintiff Evident Corporation. 2003 U.S. Dist. LEXIS 26296 at *2. In Peabody, while plaintiff Peabody was not involved in the subject conduct, its predecessor-in-interest was actively involved in the wrongdoing. 17 U.S.P.Q.2d at 1827-28. Here, there was no evidence whatsoever that CliniCom played any role in the wrongdoing.
While McKesson's authorities, denying awards of fees, could also be distinguished on this basis (see e.g. Elk Corp., Torin, Gardco, Consolidated Aluminum, and Nat'l Diamond Syndicate), the court finds that McKesson's and CliniCom's lack of involvement in the inequitable conduct weighs heavily against an award of fees in this case. Said fact, contrary to Bridge's argument, is properly considered by the court. While Bridge is correct that a patent holder may be charged with the consequences of inequitable conduct that occurred in the prosecution of a patent without regard to its own guilt or innocence, the court may nonetheless consider McKesson's and CliniCom's lack of involvement in deciding whether to award fees. The two issues are separate inquiries: By law, McKesson may be held accountable for inequitable conduct and its patent deemed unenforceable, even though it was not a direct participant in the wrongdoing. However, that finding does not prevent the court from considering the level of culpability in deciding whether justice would be served by an award of fees. See e.g. Bayer AG v. Housey Pharma., Inc., 2004 U.S. Dist. LEXIS 9633, *7 (D. Del. Jan. 29, 2004) (reducing amount of attorney fees in inequitable conduct case and noting that "the court has already granted substantial relief to Bayer in the form of a declaration of unenforceability"), vacated by 140 Fed. Appx. 948 (vacating award of fees because of remand of inequitable conduct determination for further findings).
See Stark v. Advanced Magnetics, Inc., 119 F.3d 1551, 1556 (Fed. Cir. 1997) ("One bad apple spoils the entire barrel. Misdeeds of co-inventors, or even a patent attorney can affect the property rights of an otherwise innocent individual.");Peabody, 17 U.S.P.Q.2d at 1817 (corporation that acquired interest in patent through merger found liable for inequitable conduct committed long before it acquired its interest in the patent and ordered to pay attorney fees).
The court's decision, here, is ultimately an equitable one and where there is no evidence that McKesson or its predecessor, CliniCom, were involved in the conduct, the court should be hesitant to award fees so as not to chill the pursuit of valid patent infringement claims. See Revlon, Inc. v. Carson Prods. Co., 803 F.2d 676, 679 (Fed. Cir. 1986) (affirming denial of attorney fees and holding that "[a]ttorney fees are not to be routinely assessed against a losing party in litigation in order to avoid penalizing a party `for merely defending or prosecuting a lawsuit'"). Indeed, there is no evidence here that McKesson had any actual and/or constructive knowledge, prior to this lawsuit, that the '716 patent was procured through inequitable conduct. By law, McKesson's '716 patent was presumptively valid ( 35 U.S.C. § 282); McKesson apparently learned of the inequitable conduct charges through this lawsuit; once revealed by Bridge's answer and counter-complaint, McKesson gleaned the relevant facts from the prosecution history as Schumann had no present recollection of the events in question. (FFCL at 30:11-31:4.) That McKesson may have become aware of facts that the court later determined constituted inequitable conduct does not equate with pursuit of inequitable conduct itself. Forest Labs., 339 F.3d at 1329-30 (reversing award of attorney fees and holding that knowledge of the events that led to a finding of equitable estoppel could not be equated with bad faith knowledge that the plaintiff would be equitably estopped from pursuing its claims). Under these circumstances, the court agrees with McKesson that:
Bridge makes much of the fact that McKesson and Schumann were represented by the same counsel in this action; Bridge argues that by the joint representation, McKesson should be charged with knowledge of the fact of Schumann's inequitable conduct. However, Schumann had no recollection of the events at issue, and thus, McKesson cannot be charged with any knowledge supplied by Schumann. Schumann conceded at deposition and trial that he had no present recollection of the '716 patent prosecution, and his testimony was based therefore on his custom and practice and that of his firm at the time, as well as his beliefs, now, looking back at the file history. Ultimately, this proved significant to the court's decision as Schumann was unable to provide the court with a good faith, contemporaneous explanation for what occurred. This, however, is not a basis for an award of fees to Bridge.
An award of fees against McKesson would send a signal to patent assignees that even though they own a presumptively valid patent and have no knowledge of potential inequitable conduct when bringing suit, they run a risk that upon a good faith assertion of that patent against an infringer, they will be held liable for substantial attorney fees relating to inequitable conduct in which they played no role but vigorously contested at trial.
(Opp'n, filed Aug. 4, 2006, at 8:20-25.) Such a rule of decision is contrary to the federal policy behind the Patent Act.Revlon, 803 F.2d at 679; Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967).
b. McKesson's Claims and Defenses were not Frivolous
During this litigation, McKesson vigorously opposed the charge of inequitable conduct. It successfully opposed, based largely on its experts' opinions, Bridge's motion for summary judgment on the issue. This success is strong evidence that McKesson's positions on inequitable conduct were not frivolous. Sulzer Textil A.G. v. Picanol N.V., 358 F.3d 1356, 1370 (Fed. Cir. 2004) (affirming district court's denial of attorney fees to the prevailing defendant because "it is difficult to conceive of a `baseless' claim that survived summary judgment). In fact, after the court's denial of Bridge's motion for summary judgment, Bridge dropped allegations it previously advanced regarding the subject inequitable conduct ( e.g., Bridge did not pursue at trial allegations concerning six prior art references disclosed in the '441 patent application). (Mem. Order, filed Aug. 11, 2005, at 4:9-13.) This is further evidence that McKesson's positions were not frivolous or taken in bad faith. While, in the end, the court did not agree with McKesson's experts' opinions and with McKesson's arguments concerning the inferences to be drawn from the evidence presented at trial, this disagreement is not a sufficient basis to find that McKesson engaged in the "bad faith" pursuit of baseless claims, as asserted by Bridge.
c. McKesson did not Engage in Vexatious Litigation Tactics
Bridge not only argues the baselessness of McKesson's claims but argues more generally that McKesson engaged in various "bad faith" and "vexatious" litigation tactics which warrant a grant of attorney fees to Bridge. Whether the parties engaged in bad faith or vexatious litigation tactics is often a consideration used by courts to determine the propriety of an award of fees.See e.g. Elk Corp., 2000 U.S. Dist. LEXIS 2658, *10 (holding that even had the court found the case exceptional, it would have denied fees due to both parties' bad faith litigation tactics);Torin, 625 F. Supp. at 1097 (denying fees, in part, because the plaintiff conducted litigation fairly and expeditiously by dismissing claims with no merit); Consolidated Aluminum, 910 F.2d at 814 (affirming denial of fees and noting that the defendant had been adjudicated a willful infringer, had engaged in delay tactics, had lost some of its claims, and the plaintiff prevailed on many of its infringement claims); Peabody, 17 U.S.P.Q. 2d at 1828 (awarding fees, in part, because plaintiff persisted in litigating the case despite the obvious invalidity of the patent); Vardon, 2003 U.S. Dist. LEXIS 5072, *4 (awarding fees, in part, because plaintiff had engaged in vexatious litigation tactics).
Here, Bridge argues that McKesson unnecessarily complicated this litigation by advancing arguments that directly contradicted (1) the facts as it knew or should have known them to be, (2) the law, (3) the court's rulings, and/or (4) its own witnesses' testimony. Bridge gives several purported examples relating to each of the subject non-disclosures by Schumann.
First, regarding the Baker patent, Bridge argues that at summary judgment, McKesson refused to admit Baker disclosed a three-node wireless communication system employing a radio transmission link between a portable handheld unit and a fixed base station unit, yet, at trial, McKesson's expert Bims conceded this fact. Bridge also argues that Bims conceded, contrary to McKesson's position on the motion for summary judgment, that the Baker patent was material from a scientific standpoint.
Bridge's examples do not demonstrate bad faith litigation tactics by McKesson. McKesson provided reasoned and supported responses to Bridge's arguments at summary judgment. Indeed, the court denied both parties' cross-motions for summary judgment on inequitable conduct finding that based on the proffered, competing expert testimony, triable issues of fact remained. Specifically as to the Baker patent, McKesson disputed Bridge's reading of the Baker patent's claim terms; as such, McKesson argued Bridge's statement of "undisputed fact" regarding the three-node system was overbroad in light of the actual wording of the Baker patent itself, which McKesson quoted from in its response to Bridge's "undisputed fact." Moreover, at summary judgment, McKesson disputed, through its expert, that the Baker patent was material, at all, to the '716 prosecution; in McKesson's view, Baker was cumulative of other art disclosed by Schumann involving telecommunications. This position was supported by evidence and not wholly without merit. Finally, while Bims did concede at trial that the Baker patent was material from a "scientific standpoint," his ultimate opinion was that the patent was cumulative of other art disclosed, and thus not material.
Next, Bridge argues regarding the '009 rejections, that at summary judgment, McKesson improperly argued that there was no evidence Schumann knew he was under a duty to disclose a rejection from a co-pending case. At his deposition taken prior to the motions, Schumann testified he would disclose rejections in co-pending cases if they were material. Also, Bridge points out that McKesson continued to argue at trial, despite the court's ruling on the motions for summary judgment, thatDayco Products, Inc. v. Total Containment, Inc., 329 F.3d 1358, 1368 (Fed. Cir. 2003), created new law. Finally, Bridge argues McKesson maintained at summary judgment that the '009 rejections were immaterial because they related to a "handheld" instead of a "system," but at trial, Schumann testified otherwise and the court ultimately found the argument "not credible."
In its memorandum and order of August 11, 2005, denying the parties' cross-motions for summary judgment on inequitable conduct, the court found that Dayco did not create new law. (Mem. Order at 10 n. 8.)
Again, Bridge's examples are not persuasive. Schumann's testimony regarding the obligation to disclose rejections in co-pending cases must be read in full context. His response was given after heavy "cross-examination" during that portion of the deposition, and his answer could fairly be read as only an admission that he understood if a rejection was material, he would be obligated to disclose it. He later testified that he could not recall a single instance in which he had determined that a rejection was material and should be disclosed. That testimony was consistent with his repeated statements that it was his custom and practice and that of his firm at the time, to never disclose office actions in co-pending cases because they believed they were under no duty to do so. Moreover, McKesson, as an advocate for its position, understandably did not raise this testimony of Schumann; however, significantly, nor did Bridge raise the testimony in support of its motion (and presumably Bridge should have, if in its view, such testimony was persuasive). Furthermore, there is nothing vexatious about McKesson's continued assertion of its position on Dayco (thatDayco created new disclosure obligations that did not apply to Schumann at the time of the '716 prosecution). Bridge never objected during trial to McKesson's argument, and the court did raise the issue either. In rendering its decision, the court found some of McKesson's arguments unpersuasive and some of its witnesses' testimony not credible. However, such findings do not render McKesson's positions vexatious. Nothing about McKesson's conduct in this case has exceeded the "normal bounds of aggressive advocacy." Cf. Elk Corp., 2000 U.S. Dist. LEXIS 2658 at *10. This litigation was, as noted at the outset, hard fought by very capable, specialized and admirably professional counsel on both sides.
Schumann testified: "if it was deemed relevant and in your duty to disclose, you would do that [disclose a material rejection in a co-pending case]. I'm just saying that the typical normal course is that it's rare that you would bring an office action to the attention of the examiner in a co-pending case." (Schumann Dep., 127:24-128:4.)
Finally, Bridge contends with respect to the '372 notice of allowance, that at summary judgment, McKesson took the position that Schumann had no duty to disclose a notice of allowance in a co-pending case, yet at trial, McKesson's expert Smegal testified that such a duty existed for a substantially similar claim in a co-pending application.
However, Smegal testified that Dayco created this duty, not that Schumann was under such a duty at the time of the '716 prosecution. Moreover, Bridge's argument is unavailing as it ignores McKesson's defense that the notice of allowance in any event, did not need to be disclosed because it was for an invention that was patentably distinct from the '716 invention. While the court did not agree with McKesson's position regarding the patentably distinct nature of the inventions, its position was reasoned and supported by evidence, including expert testimony, and thus cannot be said to have been taken in bad faith.
In sum, the court finds that Bridge has overstated its case for "bad faith litigation tactics" on the part of McKesson. This case was an aggressively litigated case between two sophisticated parties represented by well-qualified counsel, specialized in patent law. While McKesson may have, at times, "pushed the envelope" in terms of its arguments or interpretations of the evidence submitted, so too did Bridge. McKesson vigorously pressed its infringement claims in this action; claims which survived Bridge's motion for summary judgment of non-infringement and which were set to be tried before a jury. That trial date, of course, was vacated upon the court's decision finding the patent unenforceable for inequitable conduct. That finding, however, is no reflection on the merits of McKesson's infringement claims; indeed, those claims may well have succeeded had McKesson held an enforceable patent. As set forth above, significantly, that patent was deemed not enforceable through no conduct of McKesson's. While the court ultimately did not agree with McKesson's experts nor its interpretations of the evidence, the court cannot find that McKesson's positions were frivolous or taken in bad faith nor its litigation tactics vexatious.
d. Other Considerations
In addition to the above, two other factors are noteworthy, both of which further support the denial of an award of fees to Bridge. First, no order of this court has found that McKesson engaged in improper conduct in any facet of this litigation. Bridge raises, in passing, in its motion for fees, allegations of discovery misconduct by McKesson. However, while the parties had numerous contentious discovery battles, McKesson was never once found to have improperly withheld discovery, and in fact, several times, Bridge was compelled by the court to provide discovery responses and documents previously withheld. (See e.g. Docket #s 215 [compelling Bridge to provide complete responses to interrogatories], 236 [requiring Bridge to provide financial information 45-days prior to disclosure of expert witnesses], 431 [compelling Bridge to provide supplemental response to interrogatory].) Second, this case was not a "David versus Goliath" contest as insinuated by Bridge. Bridge is not a small competitor of McKesson; during the majority of this action, Bridge was a wholly owned subsidiary of AmerisourceBergen Corporation ("ABC"), one of the largest pharmaceutical services companies in the United States. (Chou Decl. [Docket #559], ¶ 5.) Also, during the pendency of this action, ABC sold substantially all of Bridge's assets to another major competitor of McKesson, Cerner Corporation. (Id. at ¶ 2.)
In the same vein, it was Bridge that brought a summary judgment motion before any discovery had begun, which the court summarily denied, and it was Bridge that surreptitiously sought and received a claim construction ruling via a discovery motion, which ruling the court subsequently vacated.
Overall, upon consideration of the combination of above factors, the court cannot find that it would be "grossly unjust" for Bridge to bear its own counsel fees as prevailing litigants normally do. Pollenex, 835 F. Supp. at 404; Rohm Hass, 763 F.2d at 691.
CONCLUSION
For the foregoing reasons, the court DENIES Bridge's motion for attorney fees pursuant to § 285. Despite the court's conclusion that Schumann committed inequitable conduct in procuring the '716 patent which rendered the patent unenforceable by McKesson in this infringement action, and the finding that this is an exceptional case, the court declines, in its discretion, to award attorney fees to Bridge. In this case, requiring each side to bear its own fees is a fair allocation of the burdens of litigation as between the parties.
IT IS SO ORDERED.