Loser Pays: Federal Circuit Affirms $4 Million Award of Attorney Fees and Costs

By Dennis Crouch

MarcTec LLC v. Johnson & Johnson and Cordis Corp. (Fed. Cir. 2012) (O’Malley, J.) on appeal from the Southern District of Illinois

In this decision, the appellate panel (Judges Newman, Prost, and O’Malley) focused on the question of whether the district court properly found the case “exceptional” leading to the award of attorney fees and expenses of over $4 million. Its answer –  Yes.

The patents in suit are directed to various surgical implants heat-bonded to antibiotic-containing polymer material. The district court construed the term “bonded” in a way that excluded the accused Cordis devices and thus resulted in a summary judgment of non-infringement. That decision was affirmed on appeal in 2010.

On remand, the district court determined that the case was “exceptional” because the patentee MarcTec’s attorneys had “engaged in litigation misconduct.” The particular misconduct was that MarcTec alleged theories of claim construction and infringement that were clearly incorrect.

MarcTec engaged in litigation misconduct when it: (1) misrepresented both the law of claim construction and the constructions ultimately adopted by the court; and (2) introduced and relied on expert testimony that failed to meet even minimal standards of reliability, thereby prolonging the litigation and the expenses attendant thereto.

Regarding its claim construction argument, the court found that MarcTec had improperly argued for a plain meaning interpretation of the term “bonded” despite clear language in the specification and prosecution history that contradicted the plain meaning being advanced. In the process, MarcTec misrepresented the law on claim construction and encouraged the court to ignore the specification unless it found an insoluble “ambiguity” in the claim language.  This mischaracterization of the law coupled with its unsupported allegations of infringement was sufficient to support the conclusion of litigation misconduct.

45 thoughts on “Loser Pays: Federal Circuit Affirms $4 Million Award of Attorney Fees and Costs

  1. We never had a POA for Smith. And he never returned what he told us we would get copies of.. now doesn’t that strike you as funny? We were there. Why didn’t we get Copies then?????????????????
    Loffler’s was stolen, and what he sent me back was a Pro se POA that I never signed. It was cut and pasted to read differently.
    And the March 2, 1997 that I signed. The only one with the correct Hewitt Reg. number.. that too was stolen, so if you are claiming I have to send them in.. Send them to me so I can.

  2. What really gets me is all this talk about Lawyers not being measured the same as the next in Lawyers abilities. and using that as a Case in point. But then you claim the Client is incompetent. See what I mean about the word SNOB… I suggest I didn’t dig deep enough for a better word which is more like thinking of themselves as God like.

  3. IBP As a practical matter, incompetence is a complex issue–easy to assert, more difficult to define and demonstrate. There is a difference between intrinsic incompetence, and merely failing to demonstrate competence on a particular occasion

    This from the guy who expressed difficulty with the term “the human mind,” as in “the mental step occurs in the human mind.”

    Split all the hairs you want, IBP, and have fun sweating while you count the ends. There is nothing wrong with this decision, with its reasoning, or with the result. More please.

  4. It very well might.

    Errors and omissions insurance might cover incompetence, but the carrier will initially deny claims based on subjective bad faith.

    Furthermore, incompetence can relate to a specific point, or subject-area, whereas bad faith is not so limited.

    Also, competence has a sliding scale–not all attorneys are expected to be equally competent–but they ARE all expected to act in good faith and fair dealing.

    As a practical matter, incompetence is a complex issue–easy to assert, more difficult to define and demonstrate. There is a difference between intrinsic incompetence, and merely failing to demonstrate competence on a particular occasion, in which case a finding of negligence can result.

    So yes, there are problems that can be avoided by avoiding a finding of subjective bad faith.

  5. …but the simply incompetent might get unjustly tarred with the “bad faith” brush …

    You might be right. So we let the attorney plead incompetence as a defense to bad faith litigation misconduct. Does that solve the problem?

  6. Leopold–

    The FedCir may have weakened the DC criticism, but “The District Court judge sees the whole case and all of the shenanigans that go on. The Federal Circuit panel sees only the page-limited briefs, written in many cases (including in this case) by attorneys who weren’t there.” (Leopold) The DC judge is therefore in the best position to observe and criticize.

    The DC judge didn’t consider the proposed claim construction “weak”, he considered it to be “nonsense”. “Weak” implies some degree of merit, whereas “nonsense” implies none–that is to say that “”no reasonable application of the principles this court enunciated in Phillips” (MarcTec) supports the proposed claim construction.”

    As in MarcTec, here the “proposed claim construction was so lacking in any evidentiary support that assertion of this construction was unreasonable and reflects a lack of good faith.” (MarcTec)

    “The District Court used the term “hokum” to refer to ‘one’ of the defendant’s multiple alternative non-infringement arguments.” (Leopold)

    The last quote offered from MarcTec states that a single unreasonable proposed claim construction can “reflect a lack of good faith”–therefore ‘one’ “hokum” argument can be evidence of a lack of good faith.

    Leopold, I’m sensing the birth of a standard that is based upon the distinction of arguments that are weak, and those that are non-starters.

    While I might actually be in favor of such a standard, it doesn’t allow for incompetence. A bright-line test may be available to avoid conflict with the duty of zealous representation (for instance, advancing a proposition for which there is no evidence whatsoever), but the simply incompetent might get unjustly tarred with the “bad faith” brush, which is why I think there should be some demonstrable intent requirement–like the lack of evidence having been brought to their attention, for instance in a brief, and the proposition having been advanced nonetheless.

    I agree with one of your essential points that a cumulation of colorable acts should be able to constitute dispositive evidence, as was argued happened in MarcTec–I just don’t think that the events in MarcTec were so colorable.

    Random thoughts.

  7. Maybe Celsis will want to try it, given the language employed by the DC.

    I wouldn’t recommend it. The District Court used the term “hokum” to refer to one of the defendant’s multiple alternative non-infringement arguments. The Federal Circuit panel did not appear to quite share that view, instead referring the defendant’s reading of the claim as “unnatural,” which strikes me as a much weaker criticism.

    In any case, there’s a huge difference between having a weak argument (apparently the situation here) and misrepresenting the content of the law AND misrepresenting a judge’s claim construction (apparently the situation in MarcTec).

    I really don’t think MarcTec stands for the proposition that a weak argument, even a really, really weak argument, is tantamount to litigation misconduct.

  8. Thanks for the lead to Celsis. I thought it (more particularly, the dissent) interesting on obviousness. I should be interested to know what’s wrong with the line on obviousness taken by the dissent.

  9. Yes, I know that no allegation of litigation misconduct has yet been made in this case.

    Maybe Celsis will want to try it, given the language employed by the DC.

  10. “So it would be OK to argue a losing claim construction that is not consonant with the FedCir’s understanding of Philips if it were argued by a defendant as part of a defense to an allegation of infringement, but not by a plaintiff as part of an allegation of infringement?”

    Today we have Celsis v Cellzdirect, where that precise scenario seems to have occurred:

    /media/docs/2012/01/10-1547.pdf

    Here, defendant/appellant Cellzdirect unsuccessfully appealed the grant of a PI by the DC to the FedCir. The DC labeled Cellzdirect’s proposed claim construction as “hokum”, a finding that the FedCir majority endorsed, opining that the proposed claim construction was “unnatural”.

    To me, the DC’s use of the pejorative “hokum” (nonsense) to describe the defendant/appellant’s claim construction suggestion is tantamount to saying that said suggestion was made in bad faith.

    BUT the difference here is that it was made by the defendant/appellant rather than by the plaintiff, so that the “frivolous [hokum] and unsupported [unnatural]” action did not constitute the “advancement of an allegation of infringement”.

    I still don’t like the way the MarcTec opinion was written.

  11. 6, don’t feel bad, and don’t think all patentees are naive and innocent…

    “I almost feel bad for the patentee here for getting such bad representation as to take them down this path. You know they didn’t come up with these outlandish arguments on their own.”

    Actually, my CEO returned from an industry conference a few years back telling me that the scuttlebutt was that Bonutti had his brother-in-law for his IP attorney (3rd hand information, not confirmed but believed to be accurate), and that this was a family collaboration. This was a topic of conversation because so many CEO’s had heard from Bonutti and Co. And this was at an orthopedic conference, with nary a stent maker in sight.

  12. You are quite welcome. For what it’s worth, from the online District Court records it appears that the trial attorneys were from a much larger firm (Kirkland & Ellis), which is of generally good repute as far as I’m aware.

  13. Otherwise, what do we leave it to? Essentially the trial judge’s determination of the credibility of plaintiff and counsel, and hence of their bona fides. Which are well within the purview of the DC judge, absent clear error.

    Absolutely.

    The obvious question is why the Federal Circuit can’t stop meddling when it comes to inequitable conduct determinations based on very similar evidence.

  14. Yeah, I know…but it has happened. I have even seen an admission to that effect in a federal court, made by a junior who was told that if a frivolous claim was made alongside a non-frivolous claim, it could constitute a legitimate delaying tactic.

    Fact is often stranger than fiction.

    Otherwise, what do we leave it to? Essentially the trial judge’s determination of the credibility of plaintiff and counsel, and hence of their bona fides.

    Which are well within the purview of the DC judge, absent clear error.

    I guess I just don’t like the way that the rationale was articulated in this decision.

    Again, Leopold’s point is well-taken.

  15. agent s: To help put this case in context, Dr. Bonutti is well known in the medical device field as a circling vulture of a patent troll looking for opportunities to extort a settlement by threatening litigation through creative and overly broad claim constructions.

    Be careful or you’ll hurt Dr. Bonutti’s fee-fees! These cretins tend to have thin skins.

  16. Dr. Sojka’s theory that spraying droplets at an unrealistic speed, approaching the speed of sound (and unrelated to anything that happens in the Cypher coating process) would increase the tem- perature of the droplets – in ways that cannot be measured

    That is truly hilarious. Interesting that Newman, too, found this ridiculous given that she vigorously fought her peers (and lost) over the issue of claiming compositions whose structures were indescribable or unknown.

  17. IMHO a finding of subjective bad faith should require something like an affirmative statement by the plaintiff and/or counsel to the effect that they intend to deceive the court, or that they are aware of the frivolousness of a claim, not just that a colorable argument can be made that their actions were conducted in bad faith.

    LOL.

  18. “Given the strong language of this decision, I wonder if disciplinary hearings are on the way”

    I know right? I almost feel bad for the patentee here for getting such bad representation as to take them down this path. You know they didn’t come up with these outlandish arguments on their own.

    “Another question this kind of case ought to raise about what is wrong with patent litigation these days is this: why should it cost a defendant more than $4,683,653. [as here] to get out of a patent suit that never even went to trial, and was decided on summary judgement, and had slam-dunk prosecution history estoppel non-infringement? ”

    Seriously.

  19. Leopold–

    IMHO a finding of subjective bad faith should require something like an affirmative statement by the plaintiff and/or counsel to the effect that they intend to deceive the court, or that they are aware of the frivolousness of a claim, not just that a colorable argument can be made that their actions were conducted in bad faith.

    Your point about de novo vs clear error review is well-taken, thanks for that.

  20. To help put this case in context, Dr. Bonutti is well known in the medical device field as a circling vulture of a patent troll looking for opportunities to extort a settlement by threatening litigation through creative and overly broad claim constructions.

    My company has received a handful of letters over the years inviting us to discuss licensing opportunities for Bonutti patents which we found to be granted from a spec and prosecution history rooted in a different area of surgery; where one would have to actively cultivate alternative claim constructions to force the claim to be read anywhere near our products.

    My own experience with Bonutti sounds eerily familiar to the case here (minus the $4.6M bill from outside counsel).

    I almost fell out of my chair laughing when I read this:

    Dr. Sojka’s theory that spraying droplets at an unrealistic speed, approaching the speed of sound
    (and unrelated to anything that happens in the Cypher coating process) would increase the tem-
    perature of the droplets – in ways that cannot be measured – for 5 millionths of a second (0.000005
    seconds) is an untested and untestable theory that is neither reliable nor relevant to the issues at hand.

    I am but a simple, in-house patent agent and not an attorney, but in this case it seems to me that Bonutti and MarcTec got exactly what they deserved and that only trolls stoking unreasonable theories to expand claims beyond broadest reasonable interpretation should find anything to fear in this decision.

  21. The plaintiff has a large patent portfolio and has collected large settlements from others in the past, I believe. Whether any of that is available to satisfy this judgment remains to be seen, however. Of course, any future settlements and judgments in the plaintiff’s favor will be available.

    Regarding plaintiff’s lawyers, I assume that you are aware that the lead attorneys for the appeal were not the trial attorneys.

  22. Keep in mind that the Federal Circuit is not reviewing the exceptional case finding de novo, but only for clear error. As a result, the Federal Circuit panel is not necessarily telling you that they would have made the same finding.

    Regarding the asymmetry of the claim construction issues, I think that’s imagined, rather than real. The statement you quote simply says that when you put these several facts together, there is enough there to provide some reasonable basis for a finding of misconduct.

    If you ask me, this level of review is appropriate. The District Court judge sees the whole case and all of the shenanigans that go on. The Federal Circuit panel sees only the page-limited briefs, written in many cases (including in this case) by attorneys who weren’t there.

  23. This decision is disturbing.

    This opinion says at pages 16-17 that the district court found 3 things to support subjective bad faith/baselessness:

    1) grounds to apply PHE to the heat limitation;

    2) grounds to apply PHE to the stent limitation; and

    3) grounds to reject the proposed claim construction.

    Regarding (1) and (2) above, amending claims during prosecution is always an affirmative act by the applicant, and knowledge is therefore presumed. If either (1) or (2) above are in fact evidence of subjective bad faith in this case, then analogous findings would have to be such evidence in EVERY case in which the doctrine of PHE is applied and prevails.

    Since that is certainly not the case, IMHO (1) and (2) above cannot logically form a basis for a finding of subjective bad faith.

    Regarding (3) above, the finding of subjective bad faith relied upon the court’s finding that “no reasonable application of the principles this court enunciated in Phillips” supports the proposed claim construction. The court stated that “MarcTec’s proposed claim construction was so lacking in any evidentiary support that assertion of this construction was unreasonable and reflects a lack of good faith.”

    The court also stated that “While standing alone, such mischaracterizations of Phillips would not warrant an award of attorney fees, when coupled with MarcTec’s decision to advance frivolous and unsupported allegations of infringement premised on mischaracterizations of the claim constructions adopted by the trial court, this misdirection lends support to the district court’s finding of litigation misconduct.”

    So it would be OK to argue a losing claim construction that is not consonant with the FedCir’s understanding of Philips if it were argued by a defendant as part of a defense to an allegation of infringement, but not by a plaintiff as part of an allegation of infringement?

    I must be missing something here. The opinion doesn’t make sense to me. The PHE issues don’t seem logical, the asymmetry of the proposed claim construction issue does not seem sustainable, and the (un)reasonableness of any interpretation of Philips is way too wide-open.

    Help.

  24. Discovery-related fees are usually the bulk of any defense cost. J&J was probably forced to produce 10+ million pages of documents during the litigation. But I haven’t checked PACER to see so I could be wrong.

  25. And when you combine the “throw people at a case” habits of those firms with 1000 dollar partners and 500 dollar associates, you end up with a cost 3-4 times what you CAN get competent representation for.

  26. Paul,

    Might it be that a big firm was handling the defense?

    I haven’t checked, so I do not know. But generally, Gen. Counsel of major companies are risk avoiders, both for their companies and for themselves. They reduce risk by hiring big firms. Big firm provide a very comprehensive and normally competent defense. They throw a lot of attorneys at a case. This is what the GC normally wants, but which also is very expensive.

    I had a long convo on this topic with a District Court judge some time back who had a great deal of litigation experience before he went on the bench. It also jibes with my own experience.

    So, why don’t you check who handled the defense in this case and report back?

    High cost of litigation? It has a lot to do with who is handling the defense.

  27. If they shook EXHIBIT A into the faces of those that saw what was being done to me….. Then why is the RECORDED EXHIBIT that was shook in the faces of those that knew… not accepted as recorded… It was the EXHIBIT A that kept me awake. But if it was at the USPTO, I would expect nothing less from the SCUM to say I was not there yet. But now I aM.
    Now that was something that screaming Woman with her eyes popping out. Now this will be fun. GHAA GHAA GHAAA GHAAA GHAAAA.

  28. What I’m curious about is whether J&J will ever recover their costs? Plaintiff is surely now bankrupt so who will pay, the inventor or his law firm? How much more will it cost J&J, to go after the good doctor and his legal team, and even if they were to pursue them, would it bring anything?

    I recognise Plaintiff’s lawyers as a big firm, of repute, I had thought. How much does reputation matter, these days?

  29. Another question this kind of case ought to raise about what is wrong with patent litigation these days is this: why should it cost a defendant more than $4,683,653. [as here] to get out of a patent suit that never even went to trial, and was decided on summary judgement, and had slam-dunk prosecution history estoppel non-infringement?

  30. This is a long way from a real “loser pays” system, which I doubt if we will ever have. But I think this may be a record for by far the largest sanction sustained on appeal for frivolous or unfounded patent litigation ever, unless someone else knows of another that was larger?
    This might even scare a few trolls? Even though they know that almost all defendants will just pay them off to get out of the litigation, rather than put up any fight, perhaps some trolls and other patent owners may decide to be more careful about whom they chose to sue and/or do a more credible claim analysis and infringement investigation before suing? IF [big if] other D.C.judges and other panels of the Fed. Cir. would support more such sanction awards that are not just a slap on the wrist [FRCP Rule 11 is a joke], that could certainly be more effective for reducing unfounded patent infringement suits than anything in the AIA.

  31. “The allegedly infringing products were bonded at room temp.”

    I don’t see anything inconsistent with that characterization of the infringing product and the definition in the specfication.

  32. From the decision:

    The specifications explain that the terms “bondable” or “bondable material” refer “to any material, suitable for use in surgical applications, which can be softened and made flowable by the application of heat, and which, when softened, will become tacky and bond to other materials and will flow to fill available space.” ’753 Patent col.3 ll.52-57; ’290 Patent col.3 ll.48-53.

    The allegedly infringing products were bonded at room temp. MarcTec was therefore “compelled” to make up some new law regarding claim construction to achieve the necessary claim scope.

    Although MarcTec argues that it had no way of knowing that the district court would disagree with its proposed claim construction, no reasonable application of the principles this court enunciated in Phillips v. AWH Corp., 415 F.3d 1303, 1313-19 (Fed. Cir. 2005) (en banc) supports its position.

    Of course, it’s also true that “no reasonable application of the principles … enunciated in Phillips” support limiting the scope of claim terms based on “disclosed embodiments” where the plain language of the claims and the unambiguous use of the terms throughout the specification indicates that the applicant understood the term to have broader, generic scope. I wonder if a few Federal Circuit judges will be disciplined next?

  33. Given the strong language of this decision, I wonder if disciplinary hearings are on the way.

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