Litigation misconduct and inequitable conduct lead to exceptional case, fees for defendantJune 18, 2008

In a decision yesterday, the Federal Circuit affirmed an award of attorneys' fees for a prevailing defendant in an infringement case. The district court held the case was exceptional under § 285 because the patent holder had engaged in inequitable conduct (a finding previously affirmed), asserted frivolous claims, and engaged in litigation misconduct. The district court also held that it would be manifestly unjust to force the defendant to pay the plaintiff's expert witness fees under Rule 26(b)(4)(C)(i). The Federal Circuit affirmed. While the individual acts may not have been sufficient to find the case was exceptional, the ultimate conclusion was not clearly erroneous. The Federal Circuit was very reticent to question the district court's finding of litigation misconduct, stating: "it ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court."Judge Newman dissented. In her opinion, the district court and panel majority applied too low a standard for a case to be considered "exceptional." Citing the Federal Circuit's previous opinion affirming the finding of inequitable conduct, she noted the court stated the actions that led to the finding "may have been an oversight." With this low level of "bad" conduct, Judge Newman would have reversed the award of attorney fees.More concerning Nilssen v. Osram Sylvania, Inc. after the jump. This case stemmed from a case that resulted in an earlier decision affirming that Nilssen had engaged in inequitable conduct during the pro se prosecution of several of his patents. Nilssen and his company, Geo Corporation (collectively "Nilssen"), had originally filed suit against Sylvania claiming infringement of his patents, which Sylvania denied and then filed a counterclaim saying the patents are invalid. The court found the patents to be unenforceable because of Nilssen's inequitable conduct and ruled in favor of Sylvania. After winning the initial trial, Sylvania then sought attorney's fees pursuant to § 285 and Nilssen countered asking for expert's fees. Under § 285, attorney fees may only be awarded if the case is to be deemed exceptional. In this case, the district court gave three reasons for finding this case exceptional: "Nilssen's inequitable conduct, the frivolous nature of the lawsuit, and appellants' litigation misconduct." The court first examined the issue of inequitable conduct and stated that there is no per se rule stating that inequitable conduct will always lead to finding a case exceptional. Instead, case law allows district courts to use their discretion in awarding attorney fees in inequitable conduct cases. Nilssen attempted to argue that the inequitable conduct was "benign" and should not be considered in determining exceptionality. The court rejected this claim, but did state that inequitable conduct does not always mean a case is exceptional. The court then moved on to the litigation misconduct by Nilssen. During the trial, Nilssen engaged in several questionable activities which the court stated were "legal oversight." Below are the events relevant to the alleged litigation misconduct:

  • August 2000: Complaint filed, asserting infringement of 26 patents
  • February 18, 2003: Nilssen provides claim chart including 15 new patents
  • March 2003: Sylvania objects to claim chart because of the additional 15 patents; court orders revised claim chart with only the original 26 patents listed
  • April 18, 2003: Nilssen provides new claim chart with 26 claims from 20 of the original 26 patents; no formal release granted for the 6 omitted patents, although Sylvania understood they were no longer at issue
  • May 2, 2003: 15 new patents asserted in a new lawsuit
  • July 9, 2003: Nilssen provides interrogatory responses that are unsigned (unverified) and have incorrect filing dates for the asserted patents; this is corrected via an attorney note during one of Nilssen's depositions but no formal correction is ever provided
  • November 2003: Nilssen files expert report analyzing 14 patents; no formal release granted for the 12 omitted patents
  • Late November 2003: Nilssen states they were willing to reduce the number of claims at issue in opposition to motion for summary judgment; attachment limited the claims to 25 claims from 13 patents
  • October 31, 2005: Nilssen provides formal statement of non-liability for 14 patents (leaving 12 at issue)
  • December 8, 2005: Nilssen provides second formal statement of non-liability for 1 additional patent (leaving 11 at issue)
  • February 2006: Bench trial held on inequitable conduct
    • Sometime before trial: Sylvania requests deposition of officer of Geo Corporation residing in Finland. Nilssen refuses, eventually the deposition proceeds in Finland.
    • At trial: Nilssen claims he relied on advice of tax counsel that he was permitted to pay small entity fees (one of the grounds for the inequitable conduct allegations). The court finds a waiver of privilege, and permits the deposition of Nilssen's tax counsel
    • At trial: Sylvania attempts to impeach Nilssen based on the unsigned interrogatory answers, Nilssen's counsel objects because they were never signed
    • Near the end of trial: Nilssen produces several documents for the first time; Sylvania objects, and the district court reserves ruling on their admissibility until Sylvania has a chance to review them
  • July 5, 2006: District court finds inequitable conduct, rendering the 11 patents still at issue unenforceable

The Federal Circuit gave substantial deference to the trial court, and stated "it ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court." Based on all this, the court affirmed the finding that the case was exceptional.The court also rejected Nilssen's argument that the district court abused its discretion in awarding attorneys' fees. The Federal Circuit stated that the district court had weighed all the factors properly, by considering both the inequitable conduct and litigation misconduct. Thus they affirmed the district courts award of attorneys' fees to Sylvania. Finally, Nilssen argued that they should be awarded expert fees from Sylvania under Rule 26(b)(4)(C)(i). As part of the original lawsuit, Nilssen had hired the necessary expert to file a report on the patents in issue. Rule 26(b)(4)(C)(i) allows for the award of reasonable expert fees incurred in deposing the expert as long as doing so would not result in "manifest injustice." The district court stated that because of Nilssen's inequitable conduct and the litigation misconduct, it would be manifestly unjust to force Sylvania to pay these expert fees. Nilssen argued that the district court had not properly interpreted "manifest injustice," but the Federal Circuit did not agree. Manifest injustice encompasses "traditional notions of trial court discretion." So again, the trial court was given much deference and its ruling to not award expert fees was affirmed.Judge Newman dissented. She argued the majority went against precedent and has now expanded the concept of the "exceptional case" to include actions which are not egregious. Judge Newman also stated that while Nilssen's litigation misconduct was not perfect, it was relatively minor and certainly was not sufficiently egregious to award attorneys' fees. Further, Nilssen's inequitable conduct was deemed by the Federal Circuit to be "not unreasonable" and "may have been an oversight" in the previous appeal. She argued that if it was a reasonable mistake, then Nilssen should not be expected to pay attorney fees. In the end she says that "it is appropriate and necessary to consider the nature of the conduct, in reviewing an attorney fee award, and to limit such award to major infractions, as statute and precedent require." To read the full decision in Nilssen v. Osram Sylvania, Inc., click here.

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