CAFC Says District Court Abused Its Discretion in Granting Attorney’s Fees Under Sections 285 and 1117(a)

By Eileen McDermott
June 8, 2020

“The upshot of LNC’s statistics and outcome-based argument would be to subject every patent owner to paying a § 285 fee award in a patent suit anytime its patent is canceled in a co-pending IPR proceeding, without any consideration of the relative strength of the patent owner’s legal theories, claim construction arguments, or proffered evidence in defense of the patent.” – CAFC

Attorney's Fees - https://depositphotos.com/10042948/stock-illustration-red-boxing-glove-conceptual-vector.htmlThe U.S. Court of Appeals for the Federal Circuit today reversed a district court decision awarding attorney’s fees to Luv n’ Care Ltd. (LNC) against Munchkin, Inc. The Federal Circuit held that the district court abused its discretion in granting LNC’s motion for attorney’s fees as “LNC’s fee motion insufficiently presented the required facts and analysis needed to establish that Munchkin’s patent, trademark, and trade dress infringement claims were so substantively meritless to render the case exceptional.” The Court also pointed to its recent ruling in Amneal Pharmaceuticals v. Almirall regarding attorney’s fees with respect to Patent Trial and Appeal Board (PTAB) proceedings, though it did not reach that issue in the present case. The opinion was authored by Judge Chen.

Spillproof Cups

The lawsuit originated with Munchkin’s suit against LNC for trademark and unfair competition claims based on a version of Munchkin’s CLICK LOCK logo for spillproof cups, which Munchkin said LNC’s CLIK IT! brand of spillproof cups infringed. In an amended complaint, Munchkin added trade dress infringement claims and replaced the original CLICK LOCK logo with an updated logo that was pending registration, as the basis for its suit. The amended complaint also added patent infringement claims based on its U.S. Patent No. 8,739,993, which had recently issued at the time of the amended complaint. Munchkin subsequently dropped all of the non-patent claims and streamlined the case to focus solely on the patent infringement claim. However, LNC in the meantime filed an inter partes review with the PAtnet Trial and Appeal Board (PTAB), which adopted LNC’s preferred broader claim construction and ultimately found the ’993 patent’s claims unpatentable. LNC then filed for attorney’s fees under 35 U.S.C. § 285 (for the patent infringement claim) and 15 U.S.C. § 1117(a) (for the trademark and trade dress claims).

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The Federal Circuit said that the case did not meet the criteria set forth in Octane Fitness, LLC v. ICON Health & Fitness, Inc.,  572 U.S. 545 (2014) that an exceptional case under Section 285 is “‘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 Court added:

While we generally give great deference to a district court’s exceptional-case determination, a district court nonetheless must “provide a concise but clear explanation of its reasons for the fee award.” Hensley v. Eckerhart, 461 U.S. 424, 437 (1983)…

This case represents “an unusual basis for fees,” in that the district court’s exceptional-case determination rests on an examination of issues—trademark infringement, trade dress validity, and patent validity—that were not fully litigated before the court.

Although that fact alone did not create the basis to deny a fee motion, “when the bases of an attorney’s fee motion rest on issues that had not been meaningfully considered by the district court, as is the case here, ‘a fuller explanation of the court’s assessment of a litigant’s position may well be needed when a district court focuses on a freshly considered issue than one that has already been fully litigated,’” said the Federal Circuit.

Stats Alone Will Not Suffice

The Court continued that the district court never adequately explained why Munchkin’s validity position was unreasonable when, in the original suit, “the district court’s claim construction ruling favored Munchkin and erected a serious hurdle to LNC’s invalidity challenge,” and that the finding of unpatentability at the PTAB could not alone translate to a finding that Munchkin’s defense of the patent was unreasonable. LNC had presented statistics showing that the PTAB cancels some of a patent’s instituted claims 85% of the time and cancels all of the instituted claims 68% of the time, and had argued that the PTAB’s final decision found all of the ’993 patent’s claims unpatentable and that the Federal Circuit had summarily affirmed that decision, all of which LNC said made Munchkin’s decision to maintain its patent infringement lawsuit. The Court opined:

The upshot of LNC’s statistics and outcome-based argument would be to subject every patent owner to paying a § 285 fee award in a patent suit anytime its patent is canceled in a co-pending IPR proceeding, without any consideration of the relative strength of the patent owner’s legal theories, claim construction arguments, or proffered evidence in defense of the patent. That form of shortcut thinking is wholly incompatible with Octane Fitness’s fact-dependent, “case-by-case” requirement, and we reject it.”

As to the district court’s finding that the trademark claims were “exceptional” under § 1117(a), the CAFC found that the main problem was that finding conflicted with the court’s earlier order allowing Munchkin to amend its complaint. As to the trade dress claims, the district court’s holding that they were weak lacked adequate support. “Again, the district court allowed Munchkin to amend its complaint to include these claims. LNC never filed a motion to dismiss, and the merits of Munchkin’s trade dress allegations were never adjudicated,” said the Court.

Attorney’s Fees for PTAB Proceedings

In a footnote, the Court also addressed its recent analysis of attorney’s fee awards for USPTO proceedings:

We recognize that the district court granted LNC its attorney’s fees attributable to both the district court proceeding and the related IPR proceeding, but in light of reversing the award of fees, we do not reach this issue of whether in the circumstances of this case § 285 permits recovery of attorney’s fees for parallel USPTO proceedings. See generally Order, Amneal Pharms. LLC v. Almirall, LLC, ___ F.3d ___ (Fed. Cir. 2020) (No. 2020-1106)

The district court’s grant of attorney’s fees to LNC was thus reversed.

 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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There are currently 2 Comments comments. Join the discussion.

  1. MaxDrei June 9, 2020 5:24 am

    Do I see it right, that it is not enough, for a case to be deemed “exceptional”, that the strength of the patentee’s “case” is not credible. Only when the patentee’s case has no basis in reason, and the patentee knows it, can the case be deemed “exceptional”?

    What a contrast, with England, where the legislative, executive and judicative branches all see litigation before the court, to settle a civil dispute, as a “last resort”, and that a consequences of wilfully imposing your case on the limited and precious resources of the court is that losing in court will accordingly have serious and proportionate cost consequences for you.

  2. Anon June 9, 2020 8:34 am

    MaxDrei,

    You seem to be wantonly wanting to confuse the choices of Sovereigns with your contrasting England view.

    Let me set you straight with a simple proposition: Your “last resort” is not in fact a last resort.

    Is it a less desirable resort than amicably settling disputes?

    Of course.

    But it is more than a bit of a strawman to jump from a relative desire (to which NO ONE would disagree) to a view that the US Sovereign must somehow hew to YOUR view of another Sovereign’s way of penalizing any one who would seek redress in court and then turn around and hide behind the “proportionate cost consequence” phrase.

    This rhetoric of yours hides the fact that OUR Sovereign has set the meaning of that very phrase of “proportionate cost consequences” differently.

    Please respect our Sovereign choice.

    Your eye glasses may work fine for you, but they do not work for everyone else.

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