“The CAFC noted that nothing … suggested that ‘sanctions are precluded for frivolous venue and service assertions, even if those assertions are considered ‘ancillary’ to the merits of a plaintiff’s infringement claims.’”
On August 13, the United States Court of Appeals for the Federal Circuit (CAFC) affirmed a decision of the U.S. District Court for the Northern District of Illinois in Kahn v. Hemisphere Inc, holding that “the district court did not abuse its discretion in dismissing the action, granting the defendants’ sanctions motion, denying the Khans’ sanctions motion, or denying Merit Medical’s motion for attorney fees under § 285.”
Drs. Nazir Khan and Iftikhar Khan filed an action against Hemosphere Inc., CryoLife Inc., and Merit Medical Systems, Inc., and over 300 hospitals and individual physicians, for infringing a claim of U.S. Patent No. 8,747,344, which was directed to an arteriovenous shunt, by “manufacturing or implanting into patients the accused HeRO® Graft shunt.” The Khans sent a waiver of service of summons form and a copy of the complaint to the over 300 defendants, but only three returned a completed waiver form. The district court dismissed without prejudice the Kahns’ claims against Merit Medical, CryoLife, and three physicians for improper venue because “the Khans had not contended that any of these defendants resided in the Northern District of Illinois, and the Khans had failed to plausibly allege that any of them infringed the asserted claim in the district and had a ‘regular and established place of business’ in the district.” Further, the district court granted motions to dismiss for more than 100 of the remaining defendants for want of prosecution and dismissed all remaining defendants due to the Khans’ “insufficient and untimely attempts at service.”
Alternatively, the court dismissed the action for improper venue and misjoinder. The district court granted the non-Illinois-resident defendants’ motion for sanctions, noting that the Khans “not only acted in direct contravention to clear procedural rules, statutes, and governing law, but continued to do so after being repeatedly warned at hearings by the Court, in written orders, and in correspondence with defense counsel” and ordering the Kahns to pay the defendants’ fees in the amount of $95,966.90. Merit Medical moved the district court to declare the case exceptional and to award attorney fees under § 285 in the amount of $292,693, but the district court denied the motion. The Kahns’ appealed to the CAFC, challenging the district court’s decisions and Merit Medical cross-appealed the district court’s decision to deny its motion to declare the case exceptional and to award attorney fees.
Proper and Timely Service
The CAFC first considered the Khans’ challenge to the district court’s dismissal of their complaint for failure to effectuate proper and timely service and, alternatively, for improper venue. Applying the law of the Seventh Circuit, the CAFC noted that Rule 4 lists acceptable methods for service and if a plaintiff does not request a waiver of service and there is no other statue providing for serving process, then Rule 4’s list is exclusive. The CAFC explained that the Kahns attempted to obtain waivers from all the defendants but very few returned the waiver form; thus, they were required to serve the non-waiving defendants in accordance with Rule 4. Agreeing with the district court, the CAFC stated that “the Khans’ mailing of the complaint and the summons does not constitute service under Rule 4(e).”
The Khans argued that the district court lacked jurisdiction to decide the motions to dismiss because the defendants did not return the waiver forms. However, the CAFC explained that Rule 4 does not require defendants to waive formal service, nor did the defendants’ failure to waive service cause the district court to lose its authority to decide the motions to dismiss on the basis of insufficient service. Thus, the CAFC noted that “[a]bsent proof under Rule 4(l) that proper service was made on any of the non-waiving defendants, the district court properly held that the Khans had failed to provide proper service.” With respect to the Rule 4(m) timeliness requirement, the CAFC also noted that district court did not abuse its discretion in determining that the Khans did not show good cause to justify the “extreme delay.” Thus, the CAFC concluded that the district court did not abuse its discretion in dismissing the complaint with prejudice for want of prosecution due to the Khans’ insufficient and untimely service.
Before the district court Khans did not contend that several of the defendants resided in the district and the district court found that “the Khans had failed to plausibly allege that any of them infringed the asserted claim in the district or had a ‘regular and established place of business’ in the district.” With respect to the remaining defendants the district court found that the complaint did not establish that the infringing acts occurred in the district or that the defendants resided in the district. The CAFC also explained that “the fact that certain employees live or conduct business in the district does not establish proper venue over defendants in the district.” Further, the CAFC noted that that convenience does not set the standard for venue, but the statue provides for transfer of actions to other districts for convenience. Thus, the CAFC concluded that “the district court did not abuse its discretion in dismissing the action with prejudice.”
The CAFC considered the Khans’ challenge to the district court’s decision granting the non-Illinois-resident defendants’ motion for Rule 11 sanctions and explained that the district court “properly exercised its discretion in sanctioning the Khans under Rule 11(b) for their frivolous arguments regarding venue and service of process.” The CAFC pointed out that, among other things, the Kahns, despite guidance from the district court, continued to rely on TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017) to support their arguments even though the Supreme Court had reversed the decision.
The Khans argued that sanctions cannot be awarded on assertions regarding service and venue because such assertions are “ancillary issues” that are “unrelated to the merits of the claim” and cited Moeck v. Pleasant Valley School District, 844 F.3d 387 (3d Cir. 2016) to support its assertion. The CAFC noted that nothing in Moeck suggested that “sanctions are precluded for frivolous venue and service assertions, even if those assertions are considered ‘ancillary’ to the merits of a plaintiff’s infringement claims.” The CAFC concluded that the district court did not err in granting the defendants’ motion for sanctions.
The Court also consider the Khans’ challenge to the district court’s denial of their cross-motion for Rule 11 sanctions against the physician defendants and their attorneys, wherein the Khans sought $250,000 in damages for alleged violations of Rule 11(b), such as “inadequate pre-filing investigation”, “prosecuti[on] [of] the case for [the] improper purpose of harass[ing]” the Khans, and “for causing mental anguish.” The CAFC concluded that the district court did not abuse its discretion in denying the cross-motion, noting that the Kahns failed to address the district courts reasons for dismissing the motion and simply reiterated its previous arguments on appeal.
In addressing Merit Medical’s cross-appeal asking the CAFC to declare the case exceptional and award attorney fees, the CAFC considered Merit Medical’s argument that “the district court ‘improperly conflated’ Rule 11 with § 285 rather than accounting for the totality of the circumstances” but found that the district court properly considered the totality of the circumstances in this case. Noting that the “district court determined that the Khans’ conduct in this case—while sanctionable—was not so unreasonable so as to make this case one of the rare cases worthy of a three-fold increase in fees imposed against them”, the CAFC concluded that the district court did not abuse its discretion in determining that the case was not exceptional.