One of the things about patent litigation, as opposed to many other types, is that many cases are not resolved in one ruling or trial, or even in one proceeding. Even setting aside procedural issues such as venue, discovery, and pleadings standards, the applicable law often requires that cases proceed through multiple stages of rulings, and in some cases multiple trips to the Federal Circuit before the substantial issues are resolved – with some cases complicated by the fact that the applicable caselaw changed after the case was filed.
And it is now standard practice in most patent cases for a successful outcome for the defendant (and in some cases the plaintiff) to be followed by a motion for attorneys fees under Section 285, and for successful outcomes for the plaintiff in many cases to be followed by motions for enhanced damages under Section 284. So to paraphrase Imhotep from The Mummy (the good one with Brendan Fraser and Rachel Weisz, “[dispositive motion/trial] is only the beginning.”
MyHealth presents a case of the former, in which the resolution on the merits several months ago (see
Motions to Dismiss Under 101 Granted As To the Asserted Claims) led to this recent interesting opinion of fees under Section 285, which brings to a close – at least assuming it isn’t appealed – five years of assertion of Imhotep’s neighbor in death – the ‘985 patent.
One of my favorite things is when the same court – meaning the same judge and in approximately the same time frame so you don’t have pesky things like intervening changes in the law messing up the comparison – issues orders going opposite ways on the same question based on the different facts in the two cases. The problem is somewhat similar to naval gunnery, where a ship begins an engagement by attempting to “find the range” to a target, with salvoes of shells falling short (and throwing up splashes that are then plotted) and then long as the gunners attempt to determine what trajectory finds the target. Once they “find the range” they attempt to direct as many shells as possible to that target. Where court opinions are somewhat different is that practitioners are acutely interested in where the shots change from short to long so they know at what point a court’s denials of a motion become grants – meaning which facts cause a court that would otherwise deny a motion to consider granting it. Yesterday I posted on a very recent opinion granting attorneys fees in a patent case under Section 285 against a “bulk filer” plaintiff. Two days later, the same judge denied a motion for fees against a different “bulk filer” patent plaintiff, giving us a unique insight into what facts can make cases different. So what were the facts in this new case?
George Bernard Shaw once said “I often quote myself. It adds spice to my conversation.” In that vein, in a May 5, 2014 article on the then-new Octane Fitness case making attorneys fees easier to recover, Texas Lawyer reporter John Council wrote:
The decisions also mean that patent practitioners should be wary of where they file their patent infringement claims, especially if their clients are nonpracticing entities who attempt to enforce patent rights against accused infringers in hopes of recovering licensing fees, said Michael C. Smith, a partner in Siebman, Burg, Phillips & Smith in Marshall.
“It’s going to become a ‘loser pays’ for nonpracticing entities in courts that have not seen a lot of these cases,” Smith said. “In courts that have seen a lot of these cases, they will expect plaintiffs to drop cases if they become insurmountable. And if they pursue it after that, they will get hung.’’
(Emphasis mine because, of course). This is the case that I was talking about.
An issue patent practitioners are always interested in is when a party’s conduct in a patent infringement case meets the test for “exceptional” case status so as to justify an award of attorney’s fees under 35 U.S.C. § 285. This case presents the situation as applied to a “bulk filer” plaintiff who filed 20 cases the same day in November 2015. If that date sounds familiar, it should – that was the “Thanksgiving Special” period where hundreds of patent cases were filed in the incorrect belief that the fast-approaching December 1, 2015 amendments to pleading requirements would not apply to them.
It’s been a busy few weeks finalizing some other projects, including tests, papers, seminar presentations and the like (and I finally finished that anime-ish P-40 for Parker with accurate paint colors), but I’m finally able to turn more of my attention to some of the very interesting activity in the district in the last few weeks. And speaking of interest, there are few cases that have generated more than VirnetX v. Apple, which just had its most recent trial’s postverdict motions come out. Most legal news is interested in the bottom line – that the verdict amount of $302 million resulted in a $439 million judgment, but for practitioners the analysis of how it got there is of great interest – I am not the only one out there that enjoys a good JMOL. So I wanted to work through the motions, but only after a short … well, that’s a lie, it’s not going to be short – procedural history.
Several recent opinions out of the EDTX provide litigants with more data points on enhanced damages – when are they appropriate and when are they appropriately set aside – on how future royalties are calculated, and and on when Section 285 awards of attorneys fees in “exceptional cases” are appropriate. They also provide a helpful analysis of which non-taxable fees and expenses are not recoverable under Section 285.
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