CAFC Affirms Exceptional Case Attorney Fees Based on Multiplicity of Minor Acts of Misconduct

PatentLawPic365Nilssen v. Osram Sylvania (Fed. Cir. 2008)

In 2007, a unanimous CAFC panel affirmed a district court’s finding that Ole Nilssen’s light bulb patents were unenforceable due to inequitable conduct.  The improper prosecution conduct included failing to disclose a close relationship with a 132 declarant; misleading priority claims; and improper payment of a small entity fee.

Now on appeal is whether Nilssen owes attorney fees under 35 U.S.C. § 285.  As with most civil cases in the US, the general rule in patent cases is that each party pays their own attorney fees.  Section 285 of the patent act provides a limited exception — providing that a district court “in exceptional cases may award reasonable attorney fees to the prevailing party.”  Here, the district court found the case exceptional based on the aforementioned inequitable conduct as well as “litigation misconduct” and the filing of a “frivolous lawsuit.” 

Benign Inequitable Conduct: Nilssen argued that his alleged inequitable conduct had very little real impact — i.e., that it was benign.  The CAFC rejected that argument — finding that inequitable conduct is never benign. “In fact, it is a contradiction to call inequitable conduct benign.”

Building a Mountain from Pebbles: Nilssen makes a good argument that none his individual acts of misconduct appear bad enough to call the case ‘exceptional.’ 

These acts of misconduct include late production of documents, disavowal of a prior interrogatory response (and never filing a formal correction), attempting to exclude interrogatories that were never signed; informally withdrawing patents from suit, but waiting until only a few months before trial to formally withdraw the patents; and waiving attorney client privilege without providing formal notice to Osram.

Each of these actions can rather easily be explained as “either harmless oversight or permissibly rough litigation tactics.”  This is perhaps especially true when you consider that the K&E firm – well known for its relentless bull dog litigation style — represented Osram.

To the CAFC panel, however, the “multiplicity” of these individual elements were sufficient to warrant the exceptional case finding — even without an individual smoking gun.

In dissent, Judge Newman did not see an exceptional case:

The statutory authority to award attorney fees was intended to “prevent gross injustice,” not to shift the economic balance against the unsuccessful plaintiff.

Notes:

  • The first line of the case reads: “Nilssen is the owner and principal inventor of over 200 patents…”  What does the court mean by “principal inventor” and is there any legal significance associated with that designation?

 

 

19 thoughts on “CAFC Affirms Exceptional Case Attorney Fees Based on Multiplicity of Minor Acts of Misconduct

  1. Utah Patent Attorney

    Apparently you have not been listening to PTO management — the reason(s) for the backlog is that the PTO is bogged down (despite its most excellent efforts) because applicants file crappy applications on worthless inventions and then cripple the PTO by “gaming” the system (e.g., filing continuation applications, filing dependent claims and so forth).

    Since I am also a patent attorney (though not one of those Utah ones) I feel terribly guilty on a personal level, lose sleep at night and have developed some type of stress rash.

  2. The US Patent and Trademark Office is 1.5 million applications behind and counting. The supervisors at the USPTO work from home (!!!). Something needs to be done. Somebody please appoint somebody who will fix this problem.

  3. The US Patent and Trademark Office is 1.5 million applications behind and counting. The supervisors at the USPTO work from home (!!!). Something needs to be done. Somebody please appoint somebody who will fix this problem.

  4. ” the Supreme Court denied Nilssen’s petition for cert. in the merits appeal track.”

    Tell me it ain’t so. Our bacon’s cooked.

  5. “With respect to counsel, Kirkland & Ellis fronted the district court action and handled the appeals. They did a fantastic job for the client. Somewhat behind the scenes, Sterne, Kessler, Goldstein & Fox did the forensic work to identify and develop the inequitable conduct defenses and supported Kirkland & Ellis in the district court action. An equally fantastic job for the client.”

    It would appear to be a case study for an infringement defense. Well done.

  6. On Monday, the day before the Federal Circuit affirmed the fee and cost award, the Supreme Court denied Nilssen’s petition for cert. in the merits appeal track.

    With respect to counsel, Kirkland & Ellis fronted the district court action and handled the appeals. They did a fantastic job for the client. Somewhat behind the scenes, Sterne, Kessler, Goldstein & Fox did the forensic work to identify and develop the inequitable conduct defenses and supported Kirkland & Ellis in the district court action. An equally fantastic job for the client.

    //
    //

  7. As for torts, loser pays systems, such as UK, Canada, Europe are a scam against everyone but the wealthy — a scam perpetrated by legislatures that have been bought out by insurance companies.

    If you have been injured but you face the possibility of crippling loser-costs because your lawyer might screw up or because you might get a nutto jury or judge, then you, basically, have no right to sue no matter how strong your case. Who is going to expose themselves to $100,000 loser-costs to recover $10,000 damages? Only the wealthy. As Lionel points out, in some countries, NZ, is a great example, the state picks up the tab for most compensation in return for the victim not suing. The cost of negligence is, basically, borne by the tax payer.

    Flip the coin of this issue and you see punitive damages, which in the US is an equally moronic “innovation” as the user-pays system of other jurisdictions. The P should be entitled to no more than to be made whole. In egregious cases where PDs are warranted, maybe the P should be entitled to enough of the PDs to pay his legal costs.

    PDs are there to punish and deter, not to provide windfalls to plaintiffs and their attorneys. The P’s lawyer’s compensation should be limited to his extra time required to bring and prosecute the PD claims and no more. Does the cop or the prosecuting attorney get to pocket fines levied in criminal cases? [Sort of. The fines go into a general fund which is used to pay their salaries. But they don't get a bonus when they convict.]

    Maybe behavior that warrants PDs in civil cases should be severed from the civil system and tried by the state.

    Dennis — seems like it has gotten a whole lot easier lately to get past your censor-bot. Thanks.

  8. That is true, Lionel. While I could not definitely commit to loser pays for torts, I think I could for patent infringement, though.

  9. As someone who sees the pros and cons of both systems, for me, the primary argument against loser pays is in the case of personal suits over product liability/environmental damage, medical malpractice etc. Many of the safety standards we have today are there due to these suits. Europe is a bit more enlightened when it comes to these issues and has better policy and statutory protection generally when it comes to these issues, so you may not grasp the importance.

    If we had a loser pays system, yes, the completely frivolous law suits would be stemmed, but so might legitimate ones when an individual and his pro bono attorney has to face a phalanx of corporate attorneys.

  10. Clearly “fear mongering.”

    But who is mongering the fear? Does Bab’s syllogism fairly represent the opinion? Certainly the first proposition is exactly what the CAFC said. As to the second, it looks like it might be a bit of an overstatement. Perhaps it should read: any inequitable misconduct that is not benign may be sanctionable, depending on the whims of the trial court because the CAFC ain’t gonna’ review “the facts,” which are nothing more than the judge’s statement of what happened.

    This case is like putting a noose in the trial courts’ hands — judge and executioner. And if there is anything that mongers more fear than the incompetence of examiners in the US system, it’s the incompetence of trial court judges that hear patent cases.

  11. “It might not have been the presumption up to now in USA but is the US sky really falling in, when prospective litigants have to factor in a greater than hitherto chance of an adverse award of costs, if their conduct is perceived as sneaky?”

    No. This has been another edition of simple answers to easy questions.

    “All you need to do is miss one prior art reference in the IDS or neglect to change to large entity when your client hires that 501th employeeand not only does the patent go down, but the infringer gets his lawyers’ fees paid.”

    This is false and an example of needless fear-mongering.

  12. “All you need to do is miss one prior art reference in the IDS or neglect to change to large entity when your client hires that 501th employeeand not only does the patent go down, but the infringer gets his lawyers’ fees paid.”
    Is this a case of an attorney being careless? ‘Cause it should be said that courts need to make sure carelessness gets folks burned just to discourage a gratuitously huge volume of applications and litigation. The swamped system doesn’t need folks patenting and suing with reckless abandon, thinking that details aren’t important, that makes waste, and there is too much waste from half-minded actions from all sides already. If you ain’t got time to prosecute an application properly, don’t take on the client’s work, that’s my opinion.

  13. Maybe attorney’s fees should be awarded in all cases (a loser pays system)?

    Inasmuch as this is my preference, I don’t feel any sorrow for a delaying defendant having to pay attorney’s fees.

  14. I’m not sure this is a “sky is falling” decision, although it could turn out to be that. Nilssen totally deserved this – he tried to abuse the system (for example by switching the numbers in his priority claims so as to get an earlier date) when he obtained his patents, then he marched into court knowing he had fraudulently obtained his patents, and asserted a gazillion of them before retreating to assert only a dozen, and I’m glad he was made to pay. I don’t think, for example, that this decision means Aventis will get slapped with costs after the CAFC (erroneously, over Judge Rader’s strenuous dissent) found inequitable conduct last month – Aventis didn’t start out by asserting 26 patents; and although Lourie/Mayer here said they weren’t differentiating between degrees of i.c., I think that in reality they were, b/c Nilssen did several things wrong, whereas in Aventis there was only one act of “i.e.”. But time will tell. If this does mushroom into a loser pays system – clearly Judge Newman’s concern – then it’s that much more impetus to clean up the present ridiculous state of i.e. jurisprudence.

    (Waiting for Mooney to say something sarcastic…)

  15. Fascinating stuff, for a reader from a non-common law jurisdiction. Wasn’t it Newman CJ. who said that the job of the CAFC is to set public policy? Isn’t it Mayer/Lourie who are now intent on moulding public policy, by sending out a message that anything less than the highest standards of probity might have the consequence of an adverse ruling on fees transfer? Most other countries have the English Rule (loser pays). It might not have been the presumption up to now in USA but is the US sky really falling in, when prospective litigants have to factor in a greater than hitherto chance of an adverse award of costs, if their conduct is perceived as sneaky? What sort of behaviour do the courts want to encourage, amongst the community of litigators? Do you want litigants to be sneaky? Is this a “good thing”? What tools do the courts have, to guide litigators towards higher levels of probity? Is this the first time the courts have interpreted their precedent creatively, in order to bolster a public policy objective?

  16. This opinion is very bad news. While I agree that a lot of Nilssen’s litigation misconduct should have been sanctioned on an ad hoc basis — for instance requiring payment of attorney fees for taking the late depositions — the approach of the trial court and Mayer/Lourie is draconian.

    Mayer/Lourie state on one hand that they didn’t witness the alleged trial misconduct it’s not in their capacity as an appellate court to second guess the trial judge on the facts. They then state that under the abuse of discretion standard they find the judge’s conclusions “supported by the evidence.” Huh? The evidence was that which the CAFC refused to pass on because it was not in their capacity to evaluate. Besides findings of facts can be reviewed even under the abuse of discretion standard. And when the trial judge is not evaluating the evidence but producing it, then it must be appellate court that evaluates it. This is filthy. As Newman points out.

    But it gets worse. As far as the patent prosecution “inequitable conduct,” because of this case we are all exposed to paying an infringer’s legal costs regardless of whether the alleged “inequitable misconduct” prejudices the infringer or has any effect on the patent’s validity.

    Here’s the CAFC killer syllogism: Proposition 1: no inequitable misconduct is benign. Proposition 2: any inequitable misconduct that is not benign is sanctionable under Section 285.

    Conclusion: every patentee who loses an infringement case because of “inequitable misconduct” — regardless of prejudice to the infringer — pays the infringer’s legal fees. All you need to do is miss one prior art reference in the IDS or neglect to change to large entity when your client hires that 501th employee and not only does the patent go down, but the infringer gets his lawyers’ fees paid. When your malpractice carrier reads this opinion, your premium will treble.

    Newman’s blistering dissent is brilliant; her view of the future is bleak:

    “The panel majority departs from precedent in holding that the nature of “inequitable conduct” is not a factor to be weighed in the attorney fee determination. The court today enlarges the scope of “exceptional case” to include less than egregious aspects of patent prosecution and litigation practice, with no evidence or charge of bad faith or prejudice. Any patent prosecution, and indeed any litigation, is vulnerable in its detail.”

  17. “Each of these actions can rather easily be explained as “either harmless oversight or permissibly rough litigation tactics.” This is perhaps especially true when you consider that the K&E firm – well known for its relentless bull dog litigation style — represented Osram.”

    Bulldog defendants? I’m not sure I’ve heard defendants characterized that way before. But obviously these guys know what they’re doing when it comes to making you sorry that you sued their client.

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