Full Attorney Fees ($9m) Awarded for Pattern of Vexatious Litigation Strategy, Affirmed on Appeal

Monolithic Power Systems (MPS) v. O2 Micro (Fed. Cir. 2013).

The court decision here ends with the following statement:

More than a decade ago, the Beckman Instruments court foretold, "we can certainly imagine a case in which litigation misconduct would justify an award of attorney fees for the entire litigation." Beckman Instruments, Inc. v. LBK Produkter AB, 892 F.2d 1547 (Fed. Cir. 1989). We are quite confident that this was the kind of case it had in mind.

Background: In October 2008, MPS filed a declaratory judgment (DJ) action against O2 Micro – asking the district court to issue declarations of noninfringement and invalidity with respect to four O2 Micro patents. U.S. Patent Nos. 6,856,519, 6,809,938, 6,900,993, and 7,120,035. O2 Micro's attorneys had been monitoring case-filing information and, when the company learned that it had been sued, it quickly filed its own complaint regarding the same patents in the USITC (even before MPS was able to serve notice on O2 Micro). O2 Micro then filed a motion to stay the district court. 28 U.S.C. § 1659 provides statutory guidance for staying district court patent litigation while awaiting the outcome of USITC actions. The statute states that when there are parallel proceedings, "the district court shall stay, until the determination of the Commission becomes final, proceedings in the civil action with respect to any claim that involves the same issues [being adjudged at the USITC]. The stay provision has two additional requirements. First, the stay must be requested by one of the parties. Second, as a deadline, the request to stay must be made within either "(1) 30 days after the party is named as a respondent in the proceeding before the Commission, or (2) 30 days after the district court action is filed, whichever is later." 28 U.S.C. § 1659. However O2 Micro apparently waited a bit beyond the 30-day deadline which gave the district court discretion to deny the stay motion.

Losing Case and Covenants Not To Sue: As the litigation progressed, O2 initially provided evidence of a February 1998 invention date based upon the inventor's testimony and an electronic date-stamp on the documents. However, MPS provided evidence that the date-stamp had been back-dated. The district court sided with MPS in ruling that the earliest invention date was July 1999. And, subsequently, the court-appointed technical expert (Prof. Perreault) drafted a memo that the patents were invalid based upon intervening prior art. Before the court could issue its final judgment (likely placing official approval on the expert report) O2 issued a unilateral covenant-not-to-sue that forced dismissal of the lawsuit. O2 had previously issued covenants not to sue in a handful of other cases once the cases began going south.

Full Attorney Fees Awarded: Although the court was unable to make its final invalidity ruling, it did take a major step by awarding MPS its entire attorney fees and costs of $9,000,000+. The patent statute provides for fee-shifting in "exceptional cases." 35 U.S.C. § 285 ("The court in exceptional cases may award reasonable attorney fees to the prevailing party.") The award here was based upon O2's "vexatious litigation strategy, litigation misconduct and unprofessional behavior." To be clear, the problem, according to the Judge, was not just this case, but instead the pattern of bad behavior seen in prior cases as well.

On appeal, the Federal Circuit has affirmed and repeated its earlier statements that "litigation misconduct" alone can be sufficient to make a case exceptional under § 285 – even when the lawsuit itself is not objectively baseless or brought in bad faith. "In other words, litigation misconduct alone may suffice to make a case exceptional."

Pattern from Prior Cases: The Federal Circuit also affirmed that the exceptional case award can be based on a pattern of "vexatious litigation strategy" that extends beyond the particular case or controversy at issue.

[T]he district court's findings of an overall vexatious litigation strategy and numerous instances of litigation misconduct are sufficient to support an exceptional case determination. The record provides ample grounds for the district court to find that O2 Micro had undertaken a vexatious litigation strategy. Having presided over a decade of litigation between O2 Micro and MPS, the district court witnessed several instances in which O2 Micro sued MPS customers in order to prompt MPS to file declaratory judgment actions with the court. In each previous case, O2 Micro withdrew its claims and granted covenants not to sue after substantial litigation had taken place. In the underlying case, O2 Micro employed its modus operandi, this time moving to dismiss only after MPS and ASUSTeK had completed their filings for the final pretrial conference, wasting the parties' and the court's resources. The district court, with its unparalleled familiarity with and insight into O2 Micro's motivations and repeated resort to these tactics, assessed that this pattern amounted to a vexatious litigation strategy that would support a finding of exceptional case. We decline to disturb that assessment.

Now, to be clear, while the prior pattern is relevant to the exceptional case award, the court did not here indicate that the costs of the prior cases could be tacked-on.

Fees from other cases: If you remember, this case involved parallel proceedings before the USITC. And, because the USITC cases generally move faster, the bulk of the costs (discovery) directly stemmed from that case. In calculating the costs, the district court allowed MPS to collect for USITC discovery costs that were then reasonably used in the district court case. On appeal, the Federal Circuit confirmed that result:

Based on the examples of unprofessional behavior provided by the district court and the many more instances of it we were able to glean from the record, we agree with the district court that O2 Micro's rampant misconduct so severely affected every stage of the litigation that a full award of attorney fees was proper here. Under the unique circumstances, the district court's award of ITC-related expenses is also not an abuse of discretion, especially in view of the discovery's application in the district court and the parties' agreement to its dual use.

$9,000,000 pre-trial. It is somewhat amazing that the attorney fees and costs awarded here were $9 million even though no trial occurred. That amount represents a 10% reduction on some fees and a 25% reduction on other fees. $300,000 of that amount went toward calculating the fees! ("Fees generated in preparing attorneys' fees application, $ 343,035). In order to appeal, a losing party who owes some monetary judgment will normally be required to post an appeal bond. FRCP 62(d). Here, O2 has already put-up $9.5 million in order to cover the amount due plus interest.

42 thoughts on “Full Attorney Fees ($9m) Awarded for Pattern of Vexatious Litigation Strategy, Affirmed on Appeal

  1. Gotta love that Texas justice!

    link to worldlawdirect.com

    Van Loben Sels asked potential jurors on July 6 if they had “a problem with a company that puts its headquarters offshore on a Caribbean island in order to avoid paying U.S. taxes.” Eastern District of Texas Judge Charles Everingham IV, who held van Loben Sels in contempt that day, had prohibited BiTEK’s lawyers from saying anything about O2 Micro’s tax haven home in the Cayman Islands, as it had nothing to do with the patent case.

    LOL. But surely during closing argument the jury will get to hear all about how handing out patents to super awesome innovators is part of the “American dream”, as if that has anything to do with “the patent case.”

  2. Dennis: $300,000 of that amount went toward calculating the fees!

    Seems like a lot (and it is, in objective terms — some people will earn only as much or less money during the course of their entire lives) but that’s 5-10 years of time entry by many, many people. All those bills need to be analyzed and, presumably, the time entry narratives need to be reviewed for privilege etc. Not a trivial task and also mind-numbingly boring. I also believe that much (most) of the $300k includes the cost of preparing the papers asking for the relief, providing justification, the appeal of that request, etc.

  3. Curiously absent from the discussion here are the actual human beings responsible for this travesty. Apparently many of the individuals “fled the scene” before the hammer dropped:

    link to amlawdaily.typepad.com

    Current and former Howrey IP partners K.T. “Sunny” Cherian, Duane Mathiowetz, Frank Coté, Henry Su, and Robert Harkins, Jr., are representing 02Micro, a Cayman Islands-based company that makes circuits used in computer screens, cell phones, and GPS devices.

    Coté was one of two Howrey lawyers that left for Jones Day’s Irvine, Calif., outpost last month, when Mathiowetz jumped to Pillsbury Winthrop Shaw Pittman’s San Francisco office. Cherian, who used to be one of Howrey’s top IP rainmakers, left the firm in mid-February with four other partners for Hogan Lovells in San Francisco. According to Martindale.com, Su is now with the Federal Trade Commission in Washington, D.C. Harkins remains at Howrey.

    The Recorder reports that Wilken’s ruling faults O2Micro’s lawyers for also engaging in litigation misconduct by trying to hide a witness’s false testimony about the date of an invention by filing “baseless motions.”

    [this list doesn't include the many other "elite" attorneys who jumped at the chance to represent O2 Micro after Judge Wilkins' initial hammering; see, e.g., link to hoganlovells.com

    By utilizing a combination of legal, technical, and team-building skills, Sunny is able to provide his clients with a motivated and talented team that works collegially in obtaining cost-effective results.

    LOL. I wonder who is getting stuck with paying the bills here? Will Howrey step up and take the hit on behalf of their former “star” who bailed on them? Will they split the cost with the client who “insisted” on engaging in the above-mentioned misconduct? Maybe the partners covered their butts by disclaiming responsibility for any/all fees/fines that might be incurred should they “zealously” adhere to their client’s awesome strategery and get busted for it down the road.

    The CEO for O2 Micro is Sterling Du, no doubt a proud citizen of the wonderful Cayman Islands (a very important US ally, widely beloved by the same very wealthy people who tend to gamble at the Great Patent Casino). It’s less clear who the in-house counsel was who surely assisted in the shenanigans but Joseph Lin’s name pops up in one of the earlier Federal Circuit appeals. Lin is now general counsel at Triple Ring Tech. Interesting “spin” on the MPS litigation here:

    While at O2 Micro, he led trial teams in four successful jury trials obtaining verdict of willful trade secrets misappropriation, invalidation of all asserted claims of major competitor’s patents and noninfringement of all asserted claims (O2 Micro International Ltd. v. Monolithic Power Systems, Inc., N.D. CA)

    These guys really s*ckd up an incredible amount of legal resources with their cr*p patent. But, hey, the lovely people of the Cayman Islands are entitled to their day in court just like everyone else. Just don’t tell the jury. It might “prejudice” them. But be sure to remind them over and over and over that patents are presumed valid and without them they wouldn’t have any of the wonderful toys that the people of the Cayman Islands want us to have.

  4. more expensive, time consuming, uncertain and fraught with political peril

    Hmm, normal people look at value as benefit/cost. So we now have with the AIA lower benefits and higher costs.

    And there will still be cl0wns out there asking ‘So?”

      (because ‘patents are the worst thing EVAH’)

    /eyeroll

  5. I agree Mr. Morgan, that the IPR, interparites and ex parte reexamination – were enacted to be an alternative to litigation. But, as you well know, this legislative purpose, the pto’s failing to ever apply res judicata and the fact that the statutes provide overlapping authority – means that all patent cases are or can be re-litigated after the fact at pto. So now you could have PGR, IPR, then a patent trial, appeal, inter parties and ex parte, pto appeals, trial appeals, remands, intervening claim construction estopples, etc, more reexaminations – , political muscle, going on and on and on. This ‘never ending litigation’ result of the AIA – was not by accident. ergo – the AIA makes protecting the patent right – more expensive, time consuming, uncertain and fraught with political peril and the PR fight in the PTO and ITC process. A king’s game.

  6. Since AIA IPR’s [unlike the terminating inter partes reexaminations] have to be filed within one year of the complaint date, and be decided in a year by the Board itself, they are more likely to run in parallel with [potentially stayed] litigation for a year than to become a post-trial re-litigation of validity over [solely] patent and publication prior art. I.e, the point is to have it decided before the litigation trial date, rather than after, unlike too many reexaminations. Also the scope and costs are not normally comparable.
    As for PGRs, they are only for the first nine months after the patent issues.

  7. Some of the judges in E.D. Tex. appoint technical advisers for claim construction, but some don’t. Others might be able to provide more specifics on individual preferences there. I’m not sure how common technical advisers are in other courts.

    Who pays? It’s usually split 50%/50% between Plaintiff and Defendant(s), at least in my experience.

  8. Yes, probably true to an extent. But the AIA more than makes up for the saved costs of striking – best mode – and invention date defenses – with the relitigation of the case at PTO.

  9. Nice to hear from you Terry. I know why, very occasionally, the patents court in London England feels it proper to appoint its own scientific adviser to sit with the court (a single judge). I also appreciate that the court in London frequently uses masters to discharge various process steps that need not take up the time of the judge, and thereby improve the efficiency of the judicial process. I also know that the English courts don’t take evidence from technical experts appointed by the court itself. I was just wondering if it is the same or different from London England, in the patents courts of the USA.

  10. Dear MaxDrei,
    “… in Germany the courts appoint an expert at the drop of a hat, in England never …”
    The difference is surely that Germany operates a civil-law inquisitorial jurisdiction where the judge or court is required to actively investigate and indeed prosecute, while England is of course a common-law adversarial jurisdiction where the judge is supposed to merely be an umpire, and it’s for the parties to attempt to convince the fact-finder by hiring their own expert witnesses.
    But it’s not unheard-of for the courts to descend into the arena where that’s necessary for the just and speedy determination of the proceeding. Usually involving a special master, as was noted.

    Regards, TC

  11. You’re perfectly right anon, it didn’t spontaneously occur to me as I was writing those lines that the same could also happen under FTF. For once, you seem to be in agreement with M3!

    In one of my early jobs in industry (not in Europe), I was presented with a lab notebook with numbered pages, but never got properly indoctrinated about its use, besides that it potentially mattered.

    Since then I have read a number of books on patent battles, mostly in the US, whose canonical titles could be “X was not invented by Y but by Z”. For X you could insert just about anything, like the laser, the telephone, or the computer. There was definitively foul play in some of these stories. Thus the association of FTI and the present case.

    Under FTF I saw in several cases evidence of applicants almost literally running out of meetings to file patents (or dropping an application in the box just before, in the hope that their proposal would be retained). The industry or government sponsored meetings weren’t necessarily “public” in the sense of Art. 54 EPC, even if everyone that counted in the field was in attendance.

    In such situations I thought that FTI might make some sense, but wondered why I invention ownership contests under Art. 61 are so rare.

  12. IANAE,

    I cannot understand how you can think that a single act of withdrawing a case after an adverse ruling is in any way litigation misconduct.

    Perhaps the complaint was filed in bad faith? But if so, why not say it was a sham.

    Single act – not part of a pattern, and not where the complaint was a sham. You say this justifies attorney fees?

    Really?

  13. Changing dates is a slippery slope. In one case, it ended with the patentee in jail and charged with soliciting the murder of the judge in the patent case. If there’s a story that tops this one, I’d like to see it:

    link to ipbiz.blogspot.com

  14. Nice question sir. My compliments.

    The Leonard Studio litigation took place ages ago. I do not know of a more recent case of altered dates till I saw this thread. Some people say that discovery is so rarely decisive that there is not enough justification for its inevitable humungeous cost, every time. I think we need it in the background though, always available as and when necessary, to keep all litigants honest.

    But it seems from the case the subject of this thread though that even its availability and deployment is not enough to keep some people honest.

  15. I was involved in a case in England where the accused infringer changed the date on the stamp on an engineering drawing, from a date later than the claim to one that was earlier. This was part of a strategy to prove the claim invalid.

    The strategy backfired, thanks to English discovery and cross-examination.

    Hence I like English fact-finding, in a FtF environment.

    I worry that parties assured of no discovery (in civil law jurisdictions) will be more tempted to do things like changing the date on the drawings. In my English case, for example, the date change was performed in Italy. However, it appears from this thread that dates on stamps are changed also in California.

  16. exercising one’s legal rights cannot be litigation misconduct unless it is part of a pattern of conduct that is itself illegal.

    That’s as ridiculous as your position that inequitable conduct can only exist if a claim is invalid over the undisclosed art.

    The main point of such remedies is to cover cases where someone is doing something that is perhaps not technically illegal (and would not otherwise have a remedy) but is nonetheless clearly abusive. You know, conduct unbecoming.

    Illegal things are already illegal. What’s the use of a rule that means “don’t do things that are illegal”?

  17. I am concerned that exercising a legal right, i.e. granting a covenant not to sue, can be considered litigation misconduct.

    I think the award might be justified based upon the unprofessional conduct of its attorneys, based upon the forgery of the invention date proofs, and the like. But exercising one’s legal rights cannot be litigation misconduct unless it is part of a pattern of conduct that is itself illegal. Enforcement of once patents is not illegal. And neither is filing an ITC complaint illegal.

  18. However, MPS provided evidence that the date-stamp had been back-dated.

    RIP FTI. Good riddance.

  19. BTW, re a comment further above, the AIA will reduce, not increase, litigation costs on subject (new) patents, by eliminating almost all such invention date evidence discovery burdens and arguments, best mode discovery and arguments, many commonly owned patent arguments, etc. The AIA “anti-joinder” provision has presumably somewhat increased some costs, but not that much if judges are going to jointly decide many issues in common anyway?

  20. You can buy commercial patent infringement insurance. So there is a way to manage the expenses. I do agree with you, however, that the patent bar is enormously expensive. And getting more so since the google sponsored AIA – the patent bar full employment act. It’s a kings game – and king google likes it that way.

  21. IMHO the california bar – in general – is full of aggressive to a fault blow hards and gamers of the discovery process. Probably a reflection of the bar in general and those practices leaching into patent practice. A faked time stamp on a document? Wow.

  22. I wonder if O2 will turn on their counsel to recover some of this if the award stands. From reading just this opinion, it looks like O2 probably bears responsibility for the false-date-of-invention issue, but couldn’t their counsel possibly be blamed for some of the ‘vexatious litigation’ decisions?

  23. Ah, it appears that I am mistaken. I was talking about special masters, appointed under FRCP Rule 53. This one appears to have been a court-appointed technical expert, appointed under FRE Rule 706. In this case, presumably he was in fact a technical expert.

  24. Ah, I see the spelling has been corrected:

    “…., the court-appointed technical expert (Prof. Perreault)……”

    Thanks LB but it was something new for me that a “Special Master” is synonymous with a “technical expert”. I had thought special masters to be used when a quantum of damages has to be assessed. I can see they are experts but are they “technical experts” I wonder.

  25. I’m certainly no litigation expert, Max, having only played a minor role from time to time. “Special masters” are not employed very often, from what I have seen, and probably not nearly often enough. Somewhere I saw a study that estimated that the court considers appointing a special master in 2-3% of cases – one is actually appointed only a fraction of those times.

    I’m a little confused by prz’s assertion that they are usually “hired by party” – I think he’s talking about expert witnesses, which are a different creature. I understand the special master to be appointed by the court, although input is usually solicited from the parties; the special master is likely ultimately paid by the parties, jointly.

  26. We get through discovery, trial, and exhuast appeals for 1/3 of that. Don’t defend such outrageous costs; it looks like you don’t know what you’re talking about when you usually seem to have a clue.

  27. It might surprise you, anon, but all I want are straight answers to my straight questions: In the USA, who in the end pays the court-appointed expert, and anyway, how often does a patents court in the USA appoint such an expert.

    I had never heard of it, you see?

    LB is not frightened to answer my simple entry level questions about patent litigation in the USA. Are you?

    Three bears? No, it doesn’t fit. The English court appoints a scientific adviser whenever it feels the need. The German court appoints a technical expert whenever it feels the need. How often does the US court feel the need?

    Sometimes the mere asking of a simple question stimulates the thread, one likes to hope, in a good way.

  28. Maybe he just want to get clear image of how US courts behave. (And give examples of UK/GER, so You will get what he want, even if his question is too ambigous… That’s why people use examples coupled with questions. :P )

  29. Very rarely.

    Its usually HIRED BY PARTY…

    Seen some panel where judges with experience with patent litigation talked about reform of Patent System, need for one, and eventual form one could take.

    Appointing expert BY COURTS was one of few items judges could agree upon.

  30. Discovery costs…

    And remember that ITC trial was proceeding normally. So district court allowed for inclusion of ITC-related costs, which related to stuff otherwise used in district court (or which would be if case would go forward).

  31. “It is somewhat amazing that the attorney fees and costs awarded here were $9 million even though no trial occurred. ”

    Yes. Sir.

    Those poor uneducated biased hateful opponents to universally beloved patent system, MUST HAVE smoked some green stuff, before they claimed that PRE-trial and EARLY-ON-trial costs are MAIN reason why extortion schemes based on poor patents and threats of litigation are so successful.

    Everybody knows that patent litigation is prohibitively expensive, and defense in such litigation is affordable to everyone, not to mention easy to use tools to fight off Patent Assertion Entities, who will bring suite, will generate huge costs to defendant to just quit the case, and leave defendand with enormous bills to pay.

    So this case MUST be exception. Thats why its so rare that courts award full attorneys damages. Patent litigation landscape is always idyllic, lawful, and civic.

    [End of Sarcasm]

    On the bright side, FTC will step in to demand HARD numbers. So we may at last see what is really going on.

  32. Are you trying to make a point with the German/England distinction? It is not clear what your comment is meant to contribute (and without snark, you appear to be attempting to contribute something, even with your soapbox).

    To me, your comment rings of the Three Bears syndrome. Germany being the papa bear, England being the momma bear, and somewhere in between (like having an expert when the court feels it needs an expert, but not elsewhen) is the ‘just right.’

  33. A couple of points on the “court-appointed technical expert”.

    First, Dennis will want to correct the spelling of his name.

    Second, who pays his fees? Are they on top of the 9m?

    Third, in Germany the courts appoint an expert at the drop of a hat, in England never (although once in a blue moon they sit with their own selected “scientific adviser”). How often do the Us courts appoint their own technical expert when managing a patents dispute?

  34. Agreed – should probably read ” it did take a major step by *assessing against* O2 Micro *MPS’* entire attorney fees and costs of $9,000,000+”

  35. “Although the court was unable to make its final invalidity ruling, it did take a major step by awarding O2 Micro its entire attorney fees and costs of $9,000,000+.”

    Did you mean to write MPS there?

  36. what a load. They wouldn’t have been out anywhere near 9mil pre trial. Either that’s totally false, or MPS deserved to get fleeced.

  37. Taking 5 years and more than 9 million dollars just to get to this point, pre-trial, in a case like this, is no judical system compliment.

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