Troutman Sanders LLP: EDVA Court Denies Attorney's Fees to Successful Patent Defendant

Troutman Sanders LLP: EDVA Court Denies Attorney's Fees to Successful Patent Defendant

By Dabney Carr

Judge Morgan's recent denial of attorney's fees to an accused patent infringer highlights the high bar a defendant must meet for sanctions under 35 U.S.C. 285 and the pitfalls of the EDVA's fast docket for a plaintiff-patentee when circumstances change. General Components, Inc. v. Micron Tech., Inc., Civil Action No. 2:11CV152, 2012 U.S. Dist. LEXIS 76584 (E.D.Va. June 1, 2012) found here.

The Underlying Litigation

General Components (GCI) brought suit against Mott Corp. and Setra Systems for infringement of its patent for sealing technology used in semiconductor manufacturing equipment. Mott and Setra filed answers stating that the accused products were covered by a license that GCI had given to a third party, Fujikin. 

At the Rule 26(f) conference, GCI offered to dismiss its suit without prejudice pending resolution of an arbitration proceeding between GCI and Fujikin in which GCI claimed that Fujikin had improperly sublicensed GCI's patent. Shortly afterwards, the Court entered a standard scheduling order that required fact discovery to be completed in four months and expert discovery in five months.

Over the next two months, the parties had intermittent discussions about GCI's proposal to dismiss the case without prejudice. Ultimately, Mott and Setra refused the offer and pressed forward on discovery. GCI finally filed a motion to stay the suit pending resolution of the arbitration two and a half months after first making its offer. Faced with looming discovery deadlines, though, GCI gave both defendants a covenant not to sue and moved to dismiss the case with prejudice a week later. After dismissal of the suit, Mott and Setra moved to have the case declared exceptional under 35 U.S.C. 285 and for an award of attorney's fees.

Defendants' Attorneys' Fee Motion

The Court began its analysis with the observation that attorney's fees under § 285 are available only to prevent a "gross injustice' to an accused infringer and in only two circumstances

  • Where there is clear and convincing proof of misconduct which generally involves unethical or unprofessional conduct.  The alleged misconduct must occur after the litigation is filed, and otherwise valid actions accompanied by "open speculation" as to the purpose of those actions is insufficient.  
  • Where an accused infringer shows that the litigation was brought in subjective bad faith and was objectively baseless. To be objectively baseless, allegations must be such that "no reasonable litigant could reasonably expect success on the merits." In other words, Mott and Setra had to show by clear and convincing evidence that all reasonable litigants would have known that GCI was actually foreclosed from bringing its claims in federal court rather than in arbitration. The standard for subjective bad faith is similarly high, requiring proof that the plaintiff knows its allegations are baseless but pursues them anyway.

Mott and Setra could not establish either basis for an award of attorneys' fees. GCI's offer of a dismissal without prejudice at the Rule 26(f) conference and its ultimate dismissal of the suit was entirely contrary to a finding of litigation misconduct. Further, the lack of timely communication over the three months between GCI's dismissal offer and its covenant not to sue, the Court held, were due to inaction and failure to communicate by both parties. The Court also noted that Mott and Setra could have moved to dismiss in favor of the arbitration at the beginning of the case and thus avoided the legal fees it was seeking to recover from GCI.

Similarly, the litigation was not objectively baseless or brought in subjective bad faith.  Neither GCI's license agreement with Fujikin or any previous precedent clearly barred GCI from asserting its claims in federal court, and so the claims were not objectively baseless. Further, at the time suit was filed, GCI had no way of knowing that the accused products were subject to the Fujikin license, precluding a finding of subjective bad faith.

Under these standards, it will be rare that an accused infringer can recover attorney's fees under § 285. The substantive standard and the burden of proof are so high that attorney's fees will be awarded only in case of clearly egregious bad faith conduct that has no rational legitimate basis. Indeed, it may be that it was Judge Morgan's intent to discourage exceptional case motions by both plaintiffs and defendants, just as courts have increasingly narrowed the grounds for inequitable conduct claims. 

The Lesson for Plaintiff-Patentees

The speed of litigation in the EDVA is often a great advantage to the plaintiff-patentee, but GCI's experience shows how the EDVA's docket speed can be fatal when circumstances change. GCI was forced to dismiss its claims with prejudice because it delayed a mere two months in filing its motion for a stay. 

If GCI had pressed Mott and Setra to accept or refuse its offer of dismissal without prejudice and moved to stay quickly if that offer was refused, it stood a good chance of living to fight another day. Instead, GCI wasted valuable time by failing to follow-up on its offer and was forced into a dismissal with prejudice because of the EDVA's short discovery and claim construction deadlines . In almost any other district in the country, GCI's inaction would have made no difference, but in the EDVA it resulted in dismissal and the additional cost of defending a motion for attorney's fees.

Copyright © 2012, Troutman Sanders LLP

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