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  • Recovery Of “Exceptional Case Attorneys” Fees Denied Because Wronged Party Delayed In Making Its Position Clear

    On June 11, 2018, the United States Court of Appeals for the Federal Circuit (CAFC) affirmed a district court’s denial of a motion for recovery of attorneys’ fees. Stone Basket Innovations, LLC v. Cook Medical LLC, appeal no. 2017-2330. The CAFC ruled that the fee-seeking defendant had not made its litigation position sufficiently clear early enough in the litigation to justify an award of attorneys’ fees pursuant to the “exceptional case” provision of 35 U.S.C. § 285.

    The United States patent laws provide that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. In this case, the accused infringer contended that the asserted patent was clearly invalid and that the patent owner’s continuation of the litigation to enforce the patent after being notified of defendant’s invalidity contentions made the case “exceptional.” Both the district court and the CAFC disagreed.

    The case began in April 2015 with an infringement complaint in the United States District Court for the Eastern District of Texas. Soon after the case began, defendant moved to transfer it to the United States District Court for the Southern District of Indiana. The Texas court took the motion under advisement and the parties continued the litigation pursuant to the Texas court’s local rules for patent litigation. Per those rules, defendant served invalidity contentions in October 2015. In March 2016, defendant filed a request for inter partes review (IPR) in the United States Patent and Trademark Office, and the Texas court granted the motion to transfer the litigation to Indiana. The parties then filed a joint motion to stay the case while the IPR was pending. Finally, in December 2016, the patent owner filed a request for adverse judgment in the IPR, conceding unpatentability, and successfully moved to dismiss the litigation with prejudice. In March 2017, defendant filed a motion for an award of attorneys’ fees under § 285, arguing that the patent owner had made the case “exceptional” by continuing the litigation in light of defendant’s ultimately successful invalidity defense. The district court denied the fee motion, and defendant appealed.

    In its opinion, the CAFC noted the Supreme Court’s holding in Octane Fitness v. ICON Health and Fitness, 134 S.Ct. 1749 (2014), that an “exceptional” case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The CAFC found that defendant had not shown that this case met this standard, and so affirmed the district court’s denial of the fee motion.

    In reaching its decision to affirm, the CAFC primarily relied on defendant’s conduct in the litigation. The CAFC noted that defendant’s October 2015 invalidity contentions included thirty-two pieces of prior art, with a “general statement” that each one rendered the claims invalid for obviousness, and “attached inconsistent and unilluminating claim charts.” The Court held that those invalidity contentions, which were “based on prior art already considered by the Examiner” and that contained “no further explanation,” did not make the patent owner’s conduct in continuing the litigation exceptional.

    The CAFC also found fault with defendant’s failure to inform the patent owner of its position that the litigation was frivolous. “Such conduct includes Cook’s failure to send any communication to Stone that highlighted and set out with precision the specific invalidity argument” on which Cook later relied to show that Stone’s continuation of the litigation made the case exceptional. “Cook’s failure to provide early, focused, and supported notice of its belief that it was being subjected to exceptional litigation behavior further supports the District Court’s determination that Stone’s litigating position did not stand out from others.”

    The CAFC also pointed to the passage of time from the October 2015 invalidity contentions through the other litigation and IPR events as justifying denial of the fee motions, quoting with approval another district court decision stating “a party cannot simply hide under a rock, quietly documenting all the ways it’s been wronged, so that it can march out its ‘parade of horribles’ after all is said and done.”

    The text of the “exceptional case” statute does not contain a safe-harbor provision like that in Rule 11 of the Federal Rules of Civil Procedure. However, the CAFC’s decision in this case suggests that a defendant who believes a case is exceptionally weak should make that belief explicit to the plaintiff as early as possible, and with as much specificity as possible.