Federal Circuit Reverses and Remands District Court’s Refusal to Award Attorney Fees

Rothschild Connected Devices Innovations, LLC v. Guardian Prot. Servs.,  (Fed. Cir. June 5, 2017) (Before Prost, C.J., Mayer, and Wallach, J.) (Opinion for the court, Wallach, J.) (Concurring opinion, Mayer, J.)

This appeal arises from the district court’s refusal to award attorney fees to appellant ADS Security. Rothschild sued ADS for patent infringement of Rothschild’s patent related to a home security system. The suit against ADS was one of over 50 lawsuits asserting on this patent. ADS filed a motion for judgment on the pleadings, alleging that Rothschild’s patent covered patent-ineligible subject matter. ADS sent Rothschild a safe harbor notice under Federal Rule of Procedure 11(c)(2), which would allow Rothschild an opportunity to correct or voluntarily dismiss its pleadings within 21 days before ADS sought sanctions. Rothschild voluntarily dismissed the action, which ADS opposed, cross-moving for attorney fees. In its cross-motion, ADS cited various anticipatory prior art references. The district court granted Rothschild’s motion to dismiss and denied ADS’s cross-motion for attorney fees, finding that Rothschild did not engage in conduct sufficient to make the action exceptional under 35 U.S.C. § 285. ADS appealed, and the Court reversed and remanded.

The Court found that the district court abused its discretion for three reasons. The Court’s first reason was the district court’s failure to consider Rothschild’s willful ignorance of prior art. The Court noted the district court’s failure to give proper weight to statements made in Rothschild’s affidavits of counsel. Those affidavits included statements by Rothschild’s counsel asserting its good faith belief that the patent was valid while concurrently admitting that counsel had not reviewed the prior art asserted in the cross-motion. The Court also noted Rothschild’s many assertions of good faith in examining the validity of its patent were unsupported by evidence and conclusory.

The Court also found that the district court abused its discretion by misjudging Rothschild’s conduct in other litigations. The Court concluded that the district court’s failure to find that Rothschild engaged in vexatious litigation tactics was a clearly erroneous assessment of the evidence. The Court again referred to the district court’s reliance on statements made by Rothschild that held no evidentiary value in supporting the district court’s conclusion that Rothschild’s actions were not unreasonable. Instead, because Rothschild offered no evidence disputing the unreasonableness of its actions, the district court erred in holding Rothschild’s actions were reasonable.

Finally, the Court found that district court erred when it stated that an award of attorney fees would “contravene[] the aim of Rule 11[‘s] safe-harbor provision.” The Court concluded that whether a party engages in sanctionable activity is not the benchmark for attorney fees, but instead whether the party’s unreasonable conduct is exceptional.

In concurrence, Judge Mayer agreed with the Court’s opinion but wrote separately to explain that the case did, in fact, present exceptional circumstances warranting an award of attorney fees. Judge Mayer opined that Rothschild’s complaint was “frivolous on its face” noting Rothschild’s overly broad view of its patent such that its numerous lawsuits were against a wide range of products and the patent’s “potential to disrupt future innovation” while “its technological contribution is non-existent,” rendering it patent-ineligible.

When opposing a motion for attorney fees, evidence of a patentee’s frivolous claims and vexatious litigation, including failure to investigate relevant prior art and a pattern of indiscriminate lawsuits, must be rebutted by concrete evidence of reasonableness and good faith. Arguments are not evidence and a district court abuses its discretion by disregarding unrefuted evidence.

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