Old Reliable v. Cornell: Federal Circuit Again Rejects Award of Attorneys’ Fees

By Jason Rantanen

Old Reliable Wholesale, Inc. v. Cornell Corporation (Fed. Cir. 2011) Download 10-1247
Panel: Newman, Mayer (author), and Bryson

For the second time this year the Federal Circuit has issued a precedential decision reversing an award of attorneys' fees entered against a patentee.  Perhaps most noteworthy is the extent to which the judges on the court appear to be in agreement on the relevant standard and its application: although the panel compositions for Old Reliable and iLor v. Google do not overlap, the two opinions contain remarkably similar language and employ analogous analyses to reverse the exceptional case findings, suggesting a strong meeting of the minds on this issue.

Background
In 2006, Old Reliable filed an infringement action against Cornell, contending that one of Cornell's insulated roofing products (VT-1) infringed Patent No. 5,069,950.  Following depositions of the named inventor and Old Reliable's expert, the district court granted summary judgment of anticipation and obviousness based on based on a prior Cornell product (VT-2) and a third party product (the Air-Flo).  The Federal Circuit affirmed the invalidity judgment in December 2009 via a Rule 36 summary disposition.

Meanwhile, Cornell had moved for an exceptional case determination and requested an award of its attorneys' fees.  In February 2010, the district court granted Cornell's motion, although it limited its fee award to only the portion of the litigation following the September 2007 deposition of the named inventor, at which he admitted that the VT-2 "did the same thing as his invention."  The district court concluded that Old Reliable's decision to continue the suit following this deposition was "improper and unjustified," warranting a finding of exceptional case. Old Reliable appealed. 

Litigation Not "Objectively Baseless"
On appeal, the Federal Circuit drew heavily on its recent pronouncements in iLor v. Google, focusing its scrutiny on the "objectively baseless" element of the meritless case inquiry.  As in iLor, the CAFC began its analysis by looking to Brooks Furniture: "Absent misconduct in conduct of the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Slip Op. at 8, quoting Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).  This second element, the court noted, involves a purely objective inquiry.  "Unless an argument or claim asserted in the course of litigation is “so unreasonable that no reasonable litigant could believe it would succeed,” it cannot be deemed objectively baseless for purposes of awarding attorney fees under section 285."  Slip Op. at 8, quoting iLor, 2011 U.S. App. LEXIS 516, at *12 (Fed. Cir. 2011).   

The CAFC concluded that this "exacting standard" was not met in this case.  The inventor's testimony failed to establish anticipation, which requires that all of the claim elements and their limitations be shown in a single prior art reference.  Nor were Old Reliable's arguments distinguishing the VT-1 from the VT-2 "objectively meritless."  "There was nothing frivolous or inherently implausible about Old Reliable’s [noninfringement assertion]."  Slip. Op. at 12.  Similarly non-frivolous was Old Reliable's argument that the third party product did not anticipate. 

Effect of PTO Proceedings
On June 15, 2010 – after the CAFC's affirmance of the invalidity finding – the PTO issued a notice of intent to issue an ex parte reexamination certificate confirming the patentability of the '950 patent over references including the VT-2 and Air-Flo.  Although this notice was withdrawn shortly thereafter (citing  the CAFC affirmance), the panel nonetheless took judicial notice of the reexamination certificate and concluded that "the fact that the PTO confirmed the validity of the ’950 patent on reexamination provides probative evidence on the issue of whether Old Reliable had a reasonable basis for its assertion that its patent was not anticipated."  Slip. Op. at 19.

Comment: The court's emerging doctrine of exceptional case determinations envisions a threshold "objective" requirement that must be met, regardless of whether the underlying theory is one of willful infringement or meritless suit.  In the context of willful infringement, the infringer must have acted "despite an objectively high likelihood that its actions constituted infringement of a valid patent;" in the context of an exceptional case determination the conduct must be "objectively baseless."  Subjective considerations of bad faith play no role in this determination. An actor may have a completely wrongful intent, but if the conduct itself does not meet the objective threshold that intent just doesn't matter.  Given the extraordinarily high hurdle required to satisfy the objective standard – "Unless an argument or claim asserted in the course of litigation is 'so unreasonable that no reasonable litigant could believe it would succeed,' it cannot be deemed objectively baseless for purposes of awarding attorney fees under section 285" (Slip Op. at 8 (emphasis added) – one would expect such findings to be rare indeed. 

Update: Scott Daniels of the blog Reexamination Alert has a discussion of the implications for reexamination.

18 thoughts on “Old Reliable v. Cornell: Federal Circuit Again Rejects Award of Attorneys’ Fees

  1. Before we start down the somewhat racist slamming of trolls, how do you distinguish between anyone offering a uniform, reasonable-royalty license below litigation costs and what Paul calls an unreasonable litigation/licensing tactic? Is it the patent or the patent owner? Are we to distinguish between patents and their validity based on who owns them? That echos the big boys lamment that “we invent” technology; they don’t. So get out of my way. It assumes that no one but the big boys can actually invent technology, therefor, the patents of the university, the failed startup or the like, who are now being licensed by licensing entities, must be invalid and a tax on society.

    As to “unreasonable” claims of infringement, boo hoo. Most defendants never go to court thinking they infringe. Claim construction quickly takes the scope of the problem down a peg, possibly to zero.

  2. Not sure that I follow. I was referring to crazy infringement contentions in litigation (not pre-suit demands).

    I guess this could be good for defendants if the standard is high for willfulness.

    Overall, I’m not a fan of this case, but really I’m not a fan of the American policy that the sides pay their fees. Perhaps the loser automatically paying is too much, but an “objectively baseless” standard makes it way too difficult. Seems crazy to me that some small business is forced to pay ransom / settle or else risk millions in attorney fees that are basically impossible to recover.

  3. How is this different than, for example, an industry leader asking all participants in an industry to pay them a uniform, reasonable royalty for a license to a patent? The royalty asked for is typically smaller than the cost of litigation.

  4. “Assert?”

    In court?

    Me thinks you want to sanction them for accusations of infringement made prior to filing suit. Assuming they do not make such claims of infringement in any lawsuit, do you think they should still be sanctioned when and if the accused party brings a declaratory judgment action of non-infringement?

  5. I’d be fine with this if this were the standard actually being applied against Defendants too when considering willful infringement.

    But is it? The cases might say yes, but it seems that defendants are being held to a higher standard. Defendants should know that they were infringing, but it’s okay when plaintiff’s assert ridiculous claims and ridiculous claim constructions.

    Maybe I’m wrong though.

  6. Yes, because the discovery costs for each defendant to bring a case through Markman to summary judgment are typically 10x the troll’s settlement offer. I don’t have the recent AIPLA survey in front of me, but these costs, per defendant, easily exceed $1 million.

  7. … patent pirates can save a lot of money by ignoring the valid and infringed patents of those asking only for fair compensation for their inventions.

    There. Fixed.

  8. The E.D. TX case is “Parallel Networks”, and that is what I was talking about, not the facts in this “Old Reliable” case. But attorney fees for defendants are almost never granted even in more deserving patent cases.

  9. Malcolm, this really is not new. I personally had dealings with the folks representing Lemelson on more than one occassion. I would characterize L’s offers to be well below litigation costs.

    What I feared MORE than Lemelson and his attorneys was our litigation counsel, various firms, who consistently turned mole hills into mountains. I took the view that if I could not persuade management to settle, we would litigate for a few years doing law and motion and discovery, running up the bill big time, only to, in the end, settle for about the amount being offered.

    Now, who is the REAL villian here. The likes of L, or the litigation counsel who abuse their clients?

  10. don’t you think there is something a tad wrong with the DC awarding sanctions in a case where the PTO, on the same evidence, found the claims patentable?

    The question is: was the PTO “objectively” wrong.

    The problem with the standard is that it boils down to “If there is a chance that an otherwise reasaonble person could be fooled or confused by the patentee’s incorrect arguments, then there is no misconduct and ‘exceptional’ case.”

    The CAFC’s current “rule” seems to do little or nothing to dissuade patentees from “going for it” with lawyerly arguments that sound reasonable on their face but, upon closer examination, are empty.

    A more reasonable rule is one where about 1/5 (at least) of cases decided against the patentee on summary judgment would be found “exceptional.”

  11. Paul As one E.D. TX judge has caught on to recently [and is trying to do something about it]

    I’d like to hear more about this, Paul.

    This is an unwelcome development, but not surprising given the CAFC’s apparent fondness for litigant games (but watch out for those stern lectures during oral argument!!!!!).

  12. Also, Paul, don’t you think there is something a tad wrong with the DC awarding sanctions in a case where the PTO, on the same evidence, found the claims patentable?

  13. As one E.D. TX judge has caught on to recently [and is trying to do something about it] trolls can make a lot of money by suing hundreds of companies on patents that would be held invalid or not infringed if actually litigated, but by offering and collecting settlements for less than defendants legal costs no defendant can afford NOT to settle, the patents will never be seriously tested, and the troll has almost no legal costs.
    This “troll business model” works so well only because it is almost impossible to get FRCP Rule 11 or other sanctions, or attorney fees, in a patent case. Especially with sufficiently broad and/or ambiguous claims.

  14. The patent trolls rejoice. Will this outcome result in lobbying to statutorily lower the bar for sanctions in patent infringement suits? And will the CAFC impose a similarly high bar to prevent the innocents who successfully defend themselves from the false marking trolls from recovering for frivolous litigation?

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