Federal Circuit Reverses Fees Award For Failure To Meet The Threshold For Exceptional Case
On June 8, 2020, the Court of Appeals for the Federal Circuit (CAFC) reversed an order of the United States District Court for the Central District of California (CDCA) awarding fees under 35 U.S.C. § 285 and 15 U.S.C. § 1117(a). Munchkin, Inc. v. Luv N’ Care, Ltd., No. 2019-1454, __ F.3d __ (Fed. Cir. Jun. 8, 2020). The CAFC found that the CDCA abused its discretion because the facts relied upon by the movant did not support a determination that plaintiff acted unreasonably in bringing and maintaining its case.
On September 16, 2013, Munchkin, Inc. (Munchkin) filed suit against Luv N’ Care, Ltd. (LNC) for trademark and unfair competition claims related to its logo for its spillproof cups. A year later, the CDCA granted Munchkin leave to amend its complaint to (1) replace the basis of its trademark and unfair competition claims with a new logo, and (2) add claims for trade dress infringement and infringement of the newly-issued U.S. Patent No. 8,739,993 (the ’993 patent). In response, LNC petitioned for inter partes review (IPR) of the ’993 patent. The Patent Trial and Appeal Board (PTAB) instituted the IPR, but not before Munchkin dismissed its non-patent claims to focus on its patent claim and the CDCA adopted Munchkin’s narrow claim construction for the ’993 patent. But, the PTAB, in a final written decision, adopted LNC’s broader construction and found the ’993 patent unpatentable. The CAFC summarily affirmed the PTAB’s decision. Thereafter, Munchkin dismissed its patent claim in the CDCA.
LNC moved for attorney’s fees under 35 U.S.C. § 285 and 15 U.S.C. § 1117(a). The CDCA granted the motion, finding that Munchkin should have been aware that its position on the validity of the ’993 patent was weak and that its non-patent claims were substantively weak. Munchkin appealed.
The CAFC reversed, holding that, when an exceptional case determination is based on issues that were not fully litigated before the court, a fee award requires “a fuller explanation of the court’s assessment of a litigant’s position.” The CAFC found that LNC’s fees motion failed to make the required “detailed, fact-based analysis of Munchkin’s litigating position to establish they were wholly lacking in merit,” and that the CDCA abused its discretion because its opinion granting fees similarly lacked adequate support.
As to the patent claim, the CAFC found that the CDCA erred in determining that Munchkin unreasonably defended the validity of the ’993 patent. In particular, the CAFC noted that neither LNC nor the CDCA explained why Munchkin’s defense was unreasonable when the CDCA adopted Munchkin’s narrow claim construction, “erect[ing] a serious hurdle to LNC’s invalidity challenge.” The CAFC also found that the CDCA erred in determining that Munchkin unreasonably maintained its patent claim after the ’993 patent IPR was instituted, noting that IPR success statistics and the outcome of the ’993 patent IPR are not facts about the substantive strength of Munchkin’s litigation position. Lastly, the CAFC rejected as conclusory the CDCA’s determination that Munchkin’s alleged failure to disclose prior art during prosecution of the ’993 patent also indicated the “substantive weakness” of Munchkin’s validity position.
As to the trademark and trade dress claims, the CAFC found that the CDCA’s exceptional case determination conflicted with its order allowing Munchkin to amend the complaint, noting in particular the fact that many of the CDCA’s criticisms in the fee motion were objections that LNC raised in opposition to Munchkin’s motion to amend its complaint and the fact that LNC never moved to dismiss Munchkin’s amended claims. The CAFC also found that Munchkin’s decision to dismiss the claims with prejudice did not establish that the case was substantively weak because there are many reasons aside from substantive weakness to drop a claim, like Munchkin’s desire to focus on its patent claim.