Lack of Early, Focused, and Supported Notice of Belief of Exceptional Litigation Behavior May Thwart Motion for Attorneys’ Fees Under 35 U.S.C. § 285

June 28th, 2018

In Stone Basket Innovations, LLC v. Cook Medical LLC, No. 2017-2330, 2018 U.S. App. LEXIS 15670 (Fed. Cir. June 11, 2018), the United States Court of Appeals for the Federal Circuit affirmed the District Court’s order denying attorneys’ fees pursuant to 35 U.S.C. § 285 (2012). The District Court was found to have properly concluded under the totality of the circumstances that Stone’s litigating position did not “stand out” from others after proper consideration of the evidence, including the prevailing party’s litigation tactics and invalidity position.

Under 35 U.S.C. § 285, a “court in exceptional cases may award reasonable attorneys’ fees to the prevailing party.” In 2014, the Supreme Court in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), held “that an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” In Octane, the Supreme Court further explained that the determination of an “exceptional” case does not have a precise rule or formula, and instead “District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id. at 1757.

In the present case, Stone Basket Innovations, LLC (“Stone”) sued Cook Medical LLC (“Cook”), alleging infringement of U.S. Patent No. 6,551,327 (the “ ‘327 Patent”) in April of 2015. Stone Basket, 2018 U.S. App. LEXIS 15670 at *2. In March of 2016, Cook petitioned the U.S. Patent and Trademark Office (“USPTO”) for inter partes review (“IPR”) of all claims of the ‘327 Patent, and the Patent Trial and Appeal Board (“PTAB”) instituted an IPR of all claims. Id. at *3. Stone filed a motion in December of 2016 requesting adverse judgment in the IPR proceeding, which was granted by the PTAB, resulting in cancellation of all of the ‘327 Patent’s claims. Id. Stone also motioned to dismiss the District Court litigation with prejudice. Id. Cook subsequently filed a motion under § 285 for attorneys’ fees, arguing Stone’s litigation position was exceptionally weak and that Stone has a pattern of vexatious litigation.  Stone Basket Innovations, LLC v. Cook Med., LLC, No. 1:16-cv-00858-LJM-TAB, 2017 U.S. Dist. LEXIS 94548, *8-9 (S.D. Ind. June 20, 2017). The District Court denied the motion on a finding that none of the evidence set forth by Cook warranted such fees.  Stone Basket, 2018 U.S. App. LEXIS 15670 at *4.

In support of its arguments for exceptionality on appeal, Cook submitted two primary pieces of evidence—invalidity contentions and testimony by the inventor that an element added to claim 1 to overcome an examiner’s rejection was not novel. Id. at *6. However, the Federal Circuit found that the “District Court did not abuse its discretion in finding that neither piece of evidence, taken alone or together, warranted a finding of exceptionality.” Id.

Particularly, in regard to the invalidity contentions, the Federal Circuit noted that, while Cook relied upon its obviousness contention based on U.S. Patent No. 6,168,603 to Leslie (“Leslie”), to show that Stone had “clear notice” of the ‘327 Patent’s invalidity, Leslie was not the focus of Cook’s invalidity contentions at the District Court. Id. at *6. Instead, Cook “listed Leslie along with thirty-one other pieces of prior art as anticipatory references” without specifically citing the combinations with Leslie, or the portions of Leslie standing alone, that rendered the patent obvious.  Id. at *6-7. The court noted that by merely listing Leslie as a prior art reference without further explanation, Cook failed to comply with local patent rules, which, while not necessary to provide ‘clear notice’, fell short of notifying Stone how Leslie renders the ‘327 Patent obvious. Id. at *7-8. Moreover, in finding that Stone did not have ‘clear notice’ of invalidity, the court explained that Leslie appeared on the face of the patent, thus creating a presumption that the examiner had considered the reference prior to issuing the patent. Id. at *8. Therefore, “[h]aving been issued a valid patent, Stone was entitled to a presumption of good faith in asserting its patent rights against Cook . . . .” Id. Thus, the court indicated that the invalidity contentions did “not make the substantive strength of Stone’s position exceptional.” Id.

Furthermore, in regards to the inventor’s deposition, the Federal Circuit notes that “a strong or even correct litigating position is not the standard by which we assess exceptionality.” Id. at *9. Thus, acknowledging the weaker position of Stone due to the inventor’s testimony, the Federal Circuit nonetheless stated, “[a] post-issuance statement regarding a single element of a claimed invention does not establish invalidity because ‘[w]e must consider the subject matter sought to be patented taken as a whole.’ ” Id. at *8 (quoting Graham v. John Deere Co., 383 U.S. 1, 32 (1966) (second alternation in original)).

At least due to the inventor’s deposition, Cook contended that Stone’s litigation position was “not tenable.” Id. at *10.  However, the District Court explained that while Cook had made such a contention, Cook had taken no actions to ensure rapid termination of the litigation. Id. at *11. While Cook responded that tactical decisions made by a prevailing party are not relevant to the assessment of the strength of a non-prevailing party’s position, the Federal Circuit held that the District Court was well within its discretion to factor in Cook’s litigation conduct, as “the conduct of the parties is a relevant factor under Octane’s totality-of-the-circumstance inquiry.” Id. (quoting Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., 790 F.3d 1369, 1373 (Fed. Cir. 2015)).

The Federal Circuit then stated that Cook, although having the better litigating position, failed to provide “early, focused, and supported notice” that it believed that the litigation behavior was exceptional, supporting the District Court’s finding. Id. at *12. Thus, as no evidence was submitted showing that Stone’s litigating position was frivolous when filed or at any time prior to dismissal, the Federal Circuit was not persuaded the District Court abused its discretion in determining Stone’s case did not meet the standard for an award of attorneys’ fees. Id.

Notably, Cook additionally argued that its case was similar to Rothschild Connected Devices Innovations, LLC v. Guardian Protection Services, Inc., 858 F.3d 1383 (Fed. Cir. 2017). Id. at *15. However, the Federal Court was unpersuaded, noting that in Rothschild, the defendant also provided notice of invalidity under 35 U.S.C. § 101 and 102, filed a motion for judgment on the pleadings, and served Plaintiff with a Rule 11 letter. Id. The Court found that by contrast, Cook only provided notice of invalidity under 35 U.S.C. § 103. Id. at *16.

Further, the District Court did not find evidence to support Cook’s assertion that Stone sued Cook, as it had others, “for the sole purpose of forcing settlements without any intention of testing the merits of its claim.” Id. at *17 (quoting Stone Basket, 2017 U.S. Dist. LEXIS 94548 at *17). Thus, while a district court may award fees in rare cases where the accumulation of multiple cases shows exceptionality where the current case alone would not, the District Court here did not err in holding that Cook’s arguments were unpersuasive. Id. at *18.

Having found the District Court did not abuse its discretion in concluding that Stone’s litigation position was not exceptionally weak (despite the evidence and corresponding arguments submitted by Cook) and that Cook’s arguments relating to Stone’s conduct in other litigation was unpersuasive, the Federal Circuit affirmed the District Courts determination that the case was not exceptional under 35 U.S.C. § 285.

Takeaway – A party to litigation should provide early, focused, and supported notice of its belief that it is being subjected to exceptional litigation behavior; or, alternatively or in addition, the party should take steps to demand rapid termination of litigation believed to be frivolous or unfounded, to strengthen a motion for attorneys’ fees under 35 U.S.C. § 285.