Federal Circuit on Fee Award and Partial Stipulated Agreements

Integrated Tech Corp (ITC) v. Rudolph Tech (Fed. Cir. 2015)

Rudolph and ITC both make testers to test semiconductor chip testers (yes, layers of testing here). Basically, their equipment looks for bent and damaged probe wires that are used in the testing process. In 2006, ITC sued Rudolph for infringing its U.S. Patent No. 6,118,894 covering testing systems and methods.

At some point after being sued, Rudolph updated its software with a redesign. However, the trial court found that both the original and the redesign infringed and awarded both enhanced damages for willful infringement (on the re-design) and attorney fees. The fees were at least partially based upon changes in Rudolph’s CEO’s testimony and the eventual revelation that he knew Rudolph’s original design was infringing but continued to argue non-infringement. In an original appeal, the Federal Circuit altered the claim construction and found that the redesign did not infringe and, as a result vacated the willfulness and attorney fee issues.

On remand, the district court then reinstated the attorney fees – finding that:

[T]he record establishes the following: Rudolph hid its infringement for years, provided false discovery responses, filed summary judgment papers even though it knew its product infringed, argued a never fully explained theory that ITC did not own the underlying patent, and during and after trial played semantic games regarding what its machines did and what functions were important to it and its customers. . . . The striking weakness of Rudolph’s position regarding its pre-2007 PRVX machines, as well as the unreasonable manner in which it litigated the case through trial and post-trial motions, satisfy the Supreme Court’s standard under § 285 for awarding fees. In fact, either the substantive strength of many of Rudolph’s litigating positions or the “unreasonable manner in which the case was litigated” make this case stand out from others. An award of fees is appropriate. The parties previously stipulated to the amount of fees [as $3.25 million].

On appeal for the second time, the Federal Circuit has now affirmed that a fee award was proper – holding that the district court did not abuse its discretion in awarding fees – particularly citing Rudolph’s CEO (Ronald Seubert’s “inconsistent deposition and trial testimony”).

Stipulating the Amount of Fees: The bulk of the Federal Circuit’s opinion focused on the stipulation — Prior to the first appeal, the parties had stipulated to the amount of attorney fees as $3.25 million. The parties agreed particularly that “Rudolph will not contest the reasonableness of ITC’s request for fees in the amount of $3,252,228.” On appeal here, however, the Federal Circuit ruled Rudolph can (despite the stipulation) still challenge the amount of fees.

The Federal Circuit implicitly agreed that the stipulated fee contract is binding, but found that it inapposite to the challenge here since the stipulation occurred prior to the first appeal and the first appeal resulted in Rudolph winning on a number of important issues (e.g., the re-design is no longer considered infringing). In particular, Rudolph is not challenging the “reasonableness” of the fees that was stipulated-to but rather whether the fee award can properly be tied to the new – much more limited – scope of liability. The Federal Circuit relied upon its contractual analysis to reach its conclusion, which suggests that a well drafted contract could have fully settled the issue. However, the court also indicated that fee award must “bear some relation to the extent of the misconduct” – thus indicating that even a well drafted fee agreement stipulation would not be enforceable if not tied to the misconduct.

A general take-away here is to also take-care with regard to contractual agreements with a party in the midst of an ongoing bet-your-business litigation – it is likely to be parsed fairly tightly and given de novo review by the Federal Circuit.

3 thoughts on “Federal Circuit on Fee Award and Partial Stipulated Agreements

  1. 2

    This District Court judge here commendably responded to the first Fed. Cir. reversal by re-asserting the enhanced discretion the Sup. Ct. gave D.C. judges in Highmark Inc. v. Allcare in 2014 to punish costly patent litigation defendant abuse tactics by awarding attorney fees to the patent owner. In that Highmark Octane Fitness companion case, the Supreme Court rejected the Fed. Cir. idea that “exceptional” case determinations should be reviewed de novo on appeal. Rather, consistent with a D.C. discretionary standard the appeal should focus on whether the district court abused that discretion. Typically a more difficult threshold to meet on appeal. Nor is “clear and convincing evidence” required instead of a preponderance.

    1. 2.1

      Paul, regarding discretion in the district courts and even review of findings of fact during claim construction, there has been a long penchant in the Federal Circuit to want to conduct de novo review of virtually everything. This came out big time in the briefing surround Zurko (as I was co-counsel in the Morris case pending before the court at the time and which was identified as a related case, we got to see that briefing first hand) where the issue was review of patent office findings of fact. This penchant traces way back in time, well into the C.C.P.A. era before the Federal Circuit whereby the new court could review (nationally) decisions in infringement cases as well as appeal from the district courts.

      The court does not willing give up on these issues — perhaps because it views itself as an expert court on the issue of patent law to which the Supreme Court itself should give deference.

  2. 1

    The D.C. on this second remand will presumably be parsing the attorney fee sanctions due to the patent owner for the defendant’s AND its attorney’s litigation miss-conduct? Will the D.C. be awarding those sanctions only against the defendant or proportionally or jointly against both the defendant and its attorneys? What is the legal guidance on that issue?

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