Abstract

A California federal district court recently awarded attorney fees under Section 285 of the Patent Act to a prevailing defendant in view of the Supreme Court’s recent Octane Fitness opinion. The court found that the defendant met the required “exceptional case” standard of § 285 based on the unreasonable way in which the patent-owner litigated the case. Though the court awarded attorney fees under § 285, the court denied the defendant’s request for sanctions under 28 U.S.C. § 1927, because there was no evidence of bad faith by the plaintiff’s counsel in pursuing the litigation.

Section 35 of the Patent Act permits courts to award reasonable attorney fees to the prevailing party in exceptional cases. Recently, in Octane Fitness LLC v. ICON Health and Fitness, Inc., the Supreme Court clarified that an "exceptional case" is one that "stands out from others" regarding either the substance of the party's litigation position or the unreasonable manner in which the party litigated the case. The Supreme Court further clarified that the inquiry is discretionary, based on the totality of circumstances, and imposes no specific evidentiary burden.

In Action Star Enterprise v. Kaijet Technology International, the U.S. District Court for the Central District of California1 applied Octane Fitness and awarded attorney fees to a prevailing defendant under 35 U.S.C. § 285. In particular, the court held that the plaintiff was unreasonable in unqualifiedly representing during the discovery phase of the litigation that it had no further evidence of direct infringement and then later introducing evidence of direct infringement for the first time in opposing the defendant's motion for summary judgment.

Background

Action Star sued Kaijet for patent infringement, asserting a patent directed to a method of using a computer mouse with an additional switch to toggle between two or more computer systems. After Action Star submitted its initial disclosures listing a mere two witnesses likely to have discoverable information, Kaijet served interrogatories and requests for production of documents seeking all facts supporting Action Star's infringement contentions. Action Star's response did not include evidence of anyone ever performing the patented method using Kaijet's accused product. Action Star also did not provide any evidence of indirect infringement. When Kaijet pointed out these deficiencies, Action Star responded by stating that it had no more responsive information to provide and that information on direct infringement was in Kaijet's control. Action Star never pursued any discovery regarding how Kaijet's customers used the accused product or how Kaijet tests its products. Likewise, Action Start did not notice a single deposition or issue a subpoena, believing it could prove infringement through its expert witness and trial testimony.

The court, however, did not admit Action Star's expert's report, because Action Star failed to submit the report before the close of discovery. Subsequently, Kaijet moved for summary judgment of non-infringement. In response, Action Star withdrew its claim of direct infringement and its claim for damages but maintained its indirect infringement claim. In its opposition to Kaijet's summary judgment motion, Action Star admitted that its infringement contentions did not mention indirect infringement, did not identify any facts that would establish indirect infringement, and did not cite any evidence to show actual performance of the claimed method by anyone. Action Star also introduced, for the first time, declarations by the patent inventor and another individual affiliated with Action Star, who Action Star never previously identified, in support of its infringement claims. The submitted declarations included references to Youtube videos that showed operation of Kaijet's accused products, which Action Star never previously disclosed, despite admitting that it was aware of the videos before it filed suit. The court granted Kaijet's motion for summary judgment on Action Star's remaining indirect infringement claims and Kaijet moved for attorney fees under 35 U.S.C. § 285 and, alternatively, under 28 U.S.C. § 1927.

The District Court's Ruling

In considering Kaijet's request for attorney fees under 35 U.S.C. § 285, the court relied on the Supreme Court's recent Octane Fitness LLC v. ICON Health and Fitness, Inc. opinion. It described Octane Fitness as having "lowered the standard" for awarding attorney fees under section 285, by clarifying that an "exceptional case" is one that simply stands out from other cases based on the totality of circumstances and does not require a finding of bad faith. The court declared the case to be exceptional under § 285 based on the totality of the circumstances, which suggested that Action Star litigated the case in an unreasonable manner. Most significant to the court's finding was Action Star's failure to provide evidence responsive to Kaijet's requests for evidence of infringement, despite the duty to supplement discovery responses imposed by the Federal Rules and despite Kaijet's multiple requests. Instead, Action Star declared that it had "no further responsive information to provide," without ever specifying what investigation Action Star's counsel undertook in support of this representation. The court was not persuaded by Action Star's excuse that a lack of communication between it and its counsel prevented the Youtube videos from being disclosed sooner. The court was also not persuaded by Action Star's argument that it relied on the previously withheld information only in defense, not as affirmative proof of infringement. Due to Action Star's unreasonable litigation conduct in withholding evidence throughout the discovery phase of the litigation, the court found the case to be exceptional and awarded Kaijet attorney fees, after reducing the requested amount by a percentage to account for Kaijet's block (as opposed to itemized) billing practices and to compensate for any inefficiencies in litigation.

The court also considered Kaijet's request for sanctions under 28 U.S.C. § 1927, which gives courts discretion to order an attorney to compensate the prevailing party for excess costs, expenses, and attorney fees caused by the attorney's unreasonable and vexatious litigation conduct. The court explained that, in the Ninth Circuit, fees may only be awarded under § 1927 on a showing of subjective bad faith, which may be met where counsel knowingly or recklessly raises a frivolous argument or where counsel argues a meritorious claim for the purpose of harassing an opponent. While the Court found that Action Star's counsel's assertion of an indirect infringement claim without having any supporting evidence of direct infringement was reckless, it did not constitute a frivolous claim. First, the court reasoned that Action Star's counsel held a good-faith (albeit incorrect) belief that he had sufficient evidence to establish indirect patent infringement. Second, the court found Action Star's arguments did not wholly lack merit given that its expert opined that Kaijet infringed and other accused parties responded to Action Star's allegations by agreeing to discontinue selling the accused products. Additionally, the court found no evidence to suggest that Action Star pursued its claim to harass Kaijet: Action Star did not attempt to extort money from Kaijet, did not offer a settlement demand, and did not coerce settlement under the threat of protracted litigation. Finally, the court explained that § 1927 applies to unnecessary filings and tactics after the litigation has begun. Rather than multiply the proceedings, Action Star actually reduced the scope of the litigation by filing an amended complaint, withdrawing claims filed in the original complaint.

Strategy and Conclusion

This decision sheds some light on how courts may apply the "exceptional" standard of 35 U.S.C. § 285 after the Supreme Court's recent Octane Fitness ruling. It shows that reckless litigation conduct—even if conducted in good faith—may support an award of attorney fees under § 285.

Endnotes

1 The Central District of California's decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2014/ActionStar_v_KaijetTech.pdf.