Recently Judge Martin Reidinger of the United States Federal District Court for the Western District of North Carolina issued an interesting and perhaps important decision relating to the granting of attorneys’ fees and costs in Precision Links Inc. v. USA Products Group, Inc.
The case was an action for patent infringement involving U.S. Patent No. 5,673,464. The invention disclosed in the ‘464 Patent is a tie-down strap used to restrain cargo during transport. The Plaintiff is the owner of the patent and the manufacturer of the adjustable tie-down strap that is claimed to be covered by the Patent. The Defendant, USA Products Group, is alleged to import a strap accused of infringing the ‘464 patent and was alleged to have sold the accused strap to Defendant Home Depot USA, Inc., which is alleged to have sold the accused strap. Shortly after the Markman ruling the district court entered summary judgment in favor of the Defendants. Not being satisfied with victory, the Defendants moved for attorneys’ fees and costs, arguing that the case was “exceptional”, as defined by 35 U.S.C. § 285.
A district court has the authority to award attorneys’ fees to the prevailing party in a patent infringement litigation upon determining that the case is “exceptional.” A finding that a case is exceptional is appropriate when there has been material and inappropriate conduct related to the matter in litigation. Examples of activities that can result in the finding that a case is exceptional include situations where there is willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, or conduct that violates Fed. R. Civ. P. 11.
When there is no misconduct either during litigation or in securing the patent a finding that a case is exceptional is appropriate only when the prevailing party can show by clear and convincing evidence both that the litigation was brought in subjective bad faith and the litigation was objectively baseless. Where there is an absence of litigation misconduct or misconduct at the Patent Office the defendant must establish that the plaintiff’s case has no objective foundation, and the plaintiff knew that the case had no objective foundation. The awarding of attorneys’ fees based on there being no objective foundation to bring a lawsuit is rare.
In this case, the Defendants argued that the district court should find the case to be exceptional because the Plaintiff’s claim interpretation and infringement theory were objectively baseless, and because this litigation was brought and pursued in subjective bad faith. Additionally, the Defendants argue that Plaintiff’s litigation misconduct justified the imposition of an attorneys’ fee award. The Plaintiff countered that its proposed claim construction was supported by a plausible reading of the intrinsic evidence. The Defendant further denied the existence of any bad faith in bringing the litigation, arguing that it had conducted an appropriate pre-suit investigation and obtained an opinion of counsel as to infringement prior to filing suit. Finally, the Plaintiff denies engaging in any litigation misconduct, arguing that much of the expense claimed by the Defendants is attributable to their unreasonable impatience and to the combative nature of their litigation strategy.
Central to the issue of infringement was the construction of the phrase “dimensioned for the passage therethrough,” a phrase which appears in each of the independent claims ( Claims 1, 6, and 8 ) to describe the openings of the claimed strap. The Plaintiff maintained throughout this litigation that the phrase meant that each of the openings are large enough to allow the main body portion of another strap to pass through them, even if some deformation of the first strap must occur as the main body portion of the second strap passes through. The district court rejected this proposed interpretation at the preliminary injunction phase and again at the Markman phase, finding there was no support in the specification for the Plaintiff’s offered construction.
The fact that the Plaintiff’s claim construction was not adopted does not mean, however, that the claim construction was offered in bad faith. The district court pointed out that in determining whether a party’s claim interpretation constitutes evidence of bad faith the issue is whether it was frivolous. The court went further to explain that a claim interpretation is not frivolous where it follows the standard canons of claim construction and is reasonably supported by the intrinsic record. Unfortunately for the Plaintiff, the district court determined that their offered claim interpretation found no support either in the plain language of the claims or the intrinsic record of the patent at issue and, therefore, was frivolous.
The Plaintiff’s litigation misconduct did not end with a frivolous claim construction. There was also evidence that the Plaintiff’s claim was objectively without foundation. Even before the lawsuit was initiated there was inadequate investigation according to the district court.
Prior to filing the lawsuit the Plaintiff sought the opinion of patent counsel to evaluate the prospect of a patent infringement suit against the Defendants, and received such an opinion in the form of a letter from opinion counsel. A claims chart was attached to the opinion letter, which identified the limitations of the claims, the opinion counsel’s interpretation of each of the limitations, and an opinion as to whether each limitation is present in the accused product. Neither the letter nor the chart contained explanation of counsel’s claim construction and his application of the claim limitations to the accused product. There were no citations to the specification or prosecution history, and no analysis provided to explain why counsel construed the patent terms the way in which he did.
A defective opinion letter during a due diligence investigation prior to filing a lawsuit does not necessarily create problems for a Plaintiff. As the Federal Circuit has ruled in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), although incorrect the presence of an opinion that is “reasonable, comprehensive, and competent” insulates the Plaintiff against allegations of bringing a patent infringement lawsuit in bad faith. In this case, however, the district court determined that opinion counsel’s letter failed to adhere to the standard canons of claim construction and is so lacking in any fundamental analysis or evidentiary support that the Plaintiff’s reliance upon this opinion as a basis for alleging infringement of was simply unreasonable. In fact, the district court determined that the opinion letter was so utterly lacking in substance that no reasonable litigant could believe that an infringement claim could succeed based on this opinion. Reading between the lines it would seem the district court was of the opinion that the Plaintiff merely received the opinion they asked for, without any analysis or rationale, but rather merely conclusions.
As a result, the district court ruled that the Defendants showed by clear and convincing evidence that the Plaintiff instituted the patent infringement litigation based on an inadequate and unreasonable pre-filing opinion of counsel, and persisted in relying upon a construction of the claim terms that was both contrary to the plain meaning of those terms and entirely devoid of support in the intrinsic record. Thus, there was both litigation misconduct and proof that the claims of the Plaintiff were objectively without foundation.
As if this wasn’t enough, the district court also found that the Plaintiff unnecessarily extended this litigation by filing an untimely notice of appeal with the Federal Circuit and, when it became evident that the Defendants sought to dismiss the appeal due to its untimeliness, in an effort to salvage the untimely appeal the Plaintiff filed a motion asking the district court to recharacterize its summary judgment response brief as a notice of appeal or, in the alternative, to otherwise treat its filing of a Notice of Appeal as a motion to extend the time for filing an appeal. The request for this extraordinary relief contained no citation to support the request, but still the Defendants had to respond.
Ultimately the district court concluded that the case was, indeed, “exceptional” within the meaning of 35 U.S.C. § 285 and granted the Defendants’ motion for attorneys’ fees and cost. The Defendants’ now have until July 27, 2011, to submit a properly supported fee petition.
This case is obviously a lesson in what not to do and how to get on the bad side of a district court judge. While this is but one case, for those who are defendants in frivolous patent infringement litigations this decision provides hope. Increasingly I am seeing patent litigations filed where there could not possibly be any appropriate due diligence, because if there was no infringement action could have been brought. The bought-and-paid-for opinions that there is infringement are dealt a setback by this decision, and hope for those facing frivolous claims at the hands of bad actors should spring eternal.
The issues raised in this case are of great importance because it has become all too easy to bring a patent infringement case against multiple defendants who have a good business, but simply do not have the resources to fight frivolous claims. They are offered licensing deals that are quite cheap, and unfortunately have to fold and pay rather than fight what is truly an injustice. Hopefully this case will be appealed to the Federal Circuit and we will once and for all get an authoritative pronouncement relating to the type of due diligence that is required prior to bringing nearly extortion-based claims with the aim of forcing a settlement when absolutely no liability exists.