Thursday, February 4, 2016

Does a Patent Plaintiff's Unsuccessful Belief That It Can Enforce A Patent Render A Case Exception?


Sweepstakes Patent Company ("SPC") acquired a license to use U.S. Patent 5,569,082 in certain fields.  SPC later sued a number of defendants for infringement.  But the license agreement provided:
[Patent Owner - not SPC the licensee] shall, in its absolute discretion, instittute or not institute proceedings or defend or not defend proceedings ... as [it] shall deem fit, provided, however, where [Patent Owner] decides not to institute or defend any proceedings, it shall advise [SPC] of same and in such circumstance, [SPC] shall have the right at its own cost and expense, to institute or defend such proceeding. ...
* * * 
Subject to the foregoing, neither the Licensee nor any sublicensee shall under any circumstances whatsoever, institute or respond to ay claim or legal proceeding of any third party relating to the Inventions or any of the Patents without first obtaining the prior written consent of the [Patent Owner] 
SPC did not receive Patent Owner's written permission to file the lawsuit, and thus did not have standing to assert a patent infringement claim.  The Court dismissed the claim on that ground.  Defendants also pursued a motion to sanction SPC on this theory.  That sanction motion was denied, as the Court found that SPC made "colorable arguments" on the issue.

Defendants (after appellate confirmation of the dismissal) attempted to recover their fees by asking the Court to find the case exceptional pursuant to 35 U.S.C. § 285.  The Court presented the law:

A district court may award attorney’s fees pursuant to § 285 of the Patent Act. 35 U.S.C. § 285; Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct 1749, 1753 (2014). According to that provision, “[t]he court in exceptional cases may award reasonable attorney’s fees to the prevailing party.” Id. The Supreme Court’s holding in Octane Fitness makes clear that § 285 imposes only one restriction on the imposition of attorney’s fees: “that the power is reserved for exceptional cases.” Octane Fitness, 134 S.Ct at 1756. The Supreme Court clarified that “exceptional” is defined according to its ordinary meaning, as one that “stands out from others with respect to the substantive strength of a party’s litigating position . . . , or the unreasonable manner in which the case was litigated.” Id. The court may, in the exercise of its discretion, consider the totality of the circumstances and make a case-by-case determination. Id. District courts may look to a “nonexclusive” set of factors, including “frivolousness, motivation, objective unreasonableness . . . or the unreasonable manner in which the case was litigated. NXP B.V. v. Blackberry, Ltd., 58 F. Supp. 3d 1313, 1317 (M.D. Fla. 2014). The party moving for an award of attorney’s fees must demonstrate by a preponderance of the evidence that the case is “exceptional.” Id. A case is not exceptional merely because a party has a good faith belief that there is standing to sue but is ultimately incorrect. Clouding IP, LLC v. EMC Corp., No. 13-1355-LPS, 2015 WL 5766872, at *2 (D. Del. Sept. 30, 2015). The focus is the “substantive strength of the party’s litigating position . . . , not the correctness or eventual success of that position.” See SFA Sys., LLC v. Newegg, Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015)
The Court then analyzed (and rejected) Defendants' arguments that SPC's claims were so weak as to warrant an exceptional case finding:
The undersigned Judge agrees with the Magistrate Judge that Clouding IP stands for the proposition that an ultimately unsuccessful belief as to standing that is brought in good faith does not render a case exceptional.  In the present case, the Court has not found that SPC had any improper motivations other than a good faith, but ultimately incorrect, argument that it had standing based on its interpretation of the License Agreement.
Renewed Motion for Attorneys' Fees, denied.

Sweepstakes Patent Co. v. Chase Burns, Case No. 6:14-cv-151 (M.D. Fla. Feb. 2, 2016) (J. Conway)

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