I typically don’t analyze CAFC rulings, but there were a couple of opinions that came out yesterday on motions for exceptional case finding under 35 USC Section 285 – one reversing a denial and one affirming a denial – that I noticed something interesting about, especially when considered in combination with the pair of reversals in Section 285 cases at the beginning of last month.
In an average year about fifteen patent cases are tried in the Eastern District of Texas. Statistically, about half are complete defense verdicts, and of the remaining ones, only a few have willfulness findings, so it’s a rare case that presents both a Section 284 claim for enhanced damages and a Section 285 claim for exceptional cases status. When we do have them it allows analysis of which conduct supports (or doesn’t) an award, since courts try to ensure that a party isn’t inadvertently penalized twice for the same conduct. But a recent case out of Beaumont presents both, and provides some useful insight into a trial court’s calculation of enhanced damages, as well as the more frequently presented question of whether a case is “exceptional” for Section 285 purposes.
I was working on an update on the Iris Connex case (you remember – noninfringement dismissal after expedited claim construction, $507,000 in sanctions against plaintiff and nonparty) when I saw Dennis Crouch’s summary this morning of the Federal Circuit’s decision in Asetek Danmark v. CMI USA (“Cooler Master”) (Fed. Cir. 2017) focused on the issue on enjoining a nonparty.
In light of that case, I realized that the time might be right for a detailed post on the issue of the new EDTX-created mechanism for nonparty liability, which I’ll refer to as a the “Iris Connex” test.
The significance of this new test appears to be starting to seep in – I just read an analysis of it in an article by some TBL partners that correctly noted it as evidence that “courts on the front lines of patent litigation, and particularly in the Eastern District of Texas, are more adept at addressing potential systemic abuses than reform-minded politicians.” 23 No. 25 Westlaw Journal Intellectual Property 1. The specific proposals they were addressing were those in recent patent reform bills that sought to increase transparency in NPE cases to address exactly the abuses that the Court found in this case, but which ran into trouble trying to craft specific measures that didn’t cause other problems. When faced with a “shell corporation” scheme to elude liability under Section 285, the article wrote that “the Eastern District of Texas created a solution – and set an example for other courts and patent litigants to follow.” The article opines, and I think correctly so, that this may be another example of the courts developing an effective solution to a problems using existing tools before Congress legislates one.
But first, we need some background facts on the Iris Connex case. After all, it is the one Judge Gilstrap described as “the clearest example of an exceptional case to yet come before the undersigned. Simply put, if this case is not an exceptional case, then there are none.”
The next 4,296 words are my attempt to summarize the case, its resolution, and its significance. Pour yourself a cup of coffee, pull up a seat, and let’s get exceptional.
As readers of this blog know, prevailing parties’ opinions of the likelihood of a finding of “exceptional case” after a favorable verdict in a patent infringement case are a little like the children in Garrison Keillor’s Lake Wobegon – they’re all above average. And as readers of my annual column on patent infringement in the Texas Bar Journal’s “Year in Review” issue note, judges have to date uniformly disagreed that a verdict – standing alone – supports a finding of exceptional case.
This issue was presented in a EDTX case recently when
I mentioned previously that there’s really no “additur” by which a judge can scratch out the damages number awarded by a jury as insufficient under the evidence and increase it. While a trial court can effectively reduce a verdict via “remittuitur” or via JMOL/MNT practice, the reverse isn’t true. But to use an overused word, patent cases are exceptional in that judges do have the ability to “enhance” damage awards under 35 USC 284 where a jury has made a finding of willful infringement. Such was the case in
There are two directions a patent case can go following a verdict – up or down. And they get two opportunities at each. First, the verdict can be affirmed or it can be set aside. Then the bog-standard 285 motion asserting that the case is exceptional determines if it goes up or stays where it is. (In willful infringement cases there’s a third option, but that’s for a later post). In this case, the Court granted the first motion setting aside the plaintiff’s verdict, but denied the second.