CAFC Addresses Requirements for Award of Attorneys' Fees

In a pair of precedential opinions last month, two different panels of the Federal Circuit addressed the requirements for an award of attorneys’ fees.

The first was issued in United Cannabis Corporation v. Pure Hemp Collective Inc., No. 2022-1363 (May 8, 2023) (Lourie, Cunningham and Stark*), which involved an appeal of a denial of a motion for attorneys’ fees under 35 U.S.C. & 285, 28 U.S.C. & 1927, and the district court’s inherent authority. United Cannabis had filed suit against Pure Hemp for patent infringement in 2018, asserting U.S. Patent No. 9,730,911. In April 2020, UCANN had filed for bankruptcy, which stayed the district court litigation, and the parties had stipulated to the dismissal thereof following discharge of the bankruptcy petition in January 2021. UCANN’s infringement claim was dismissed with prejudice, and Pure Hemp’s invalidity and inequitable conduct claims were dismissed without prejudice.

In April 2021, Pure Hemp moved for an award of attorneys’ fees on the following grounds: first, UCANN’s prosecution counsel had committed inequitable conduct during prosecution of the ‘911 patent by copying text from a prior art U.S. Patent Publication (“Whittle”) but had not disclosed the reference to the PTO; and, second, UCANN’s litigation counsel took conflicting positions in representing UCANN and another client, GW Pharma (which was also the owner of Whittle). Pure Hemp did not, however, seek an evidentiary hearing or trial with respect to its motion.

The district court denied Pure Hemp’s motion, finding that Pure Hemp had failed to establish that Pure Hemp was a “prevailing party” under section 285, that the case was exceptional, or that UCANN’s counsel had acted in a vexatious or otherwise unreasonable manner. Pure Hemp then appealed, asserting three supposed errors by the district court, viz., failing to find Pure Hemp to be the prevailing party in the litigation, not concluding that the undisputed facts established inequitable conduct had occurred during prosecution of the patent-in-suit, and not recognizing that UCANN’s counsel had a conflict of interest for which they should have been sanctioned.

In an opinion authored by Judge Stark, the panel affirmed the district court’s denial of Pure Hemp’s motion for attorneys’ fees. First, with respect to the question of whether Pure Hemp was a “prevailing party” under the statute, the panel held that the district court had, in fact, erred by not finding that Pure Hemp was the prevailing party in the underlying action. The panel further held, however, that, despite this error, the district court had correctly denied Pure Hemp’s motion because it had concluded that Pure Hemp had failed to establish that the case was exceptional — an essential element of Pure Hemp’s motion. The panel therefore concluded that the district court’s error was harmless.

Turning to the issue of the alleged inequitable conduct, the panel noted that it had no findings on either materiality or intent to deceive that it could review because the district court had made no findings. The panel further noted that the district court had not been required to make any findings because Pure Hemp had voluntarily dismissed its counterclaims before any findings had been made and had expressly stated that it did not seek a further evidentiary hearing when it filed its motion.

Despite the lack of specific findings by the district court, Pure Hemp nevertheless contended that it was entitled to prevail because UCANN’s prosecution counsel had copied and pasted material from Whittle without ever disclosing that prior art reference to the PTO. The panel disagreed that undisclosed cutting-and-pasting was sufficient, noting that the district court cases on which Pure Hemp attempted to rely both included specific findings that the copied and pasted prior art disclosures were material—findings which were undeniably lacking in Pure Hemp’s appeal. The panel also declined Pure Hemp’s attempt to have the panel make the necessary findings on materiality and intent to deceive based on the undisputed facts in the record.

The panel also rejected Pure Hemp’s argument that the case should be found exceptional because UCANN’s attorney’s had a conflict of interest in prosecuting identical applications for two different clients. First, the panel found that Pure Hemp had waived this argument by failing to cite the applicable rule of professional conduct to the district court. Secondly, even considering Pure Hemp’s argument, the panel held that Pure Hemp’s challenge lacked merit. Not only was there was no evidence that the patents that UCANN’s attorney were actually identical, Pure Hemp had also failed to show that anything that counsel’s representation of UCANN was directly adverse to the interests of GW Pharma.

Finally, in response to UCANN’s contention that Pure Hemp’s appeal was frivolous, the panel held that even though Pure Hemp’s position was extremely weak, it was neither frivolous as filed nor frivolous as argued. In support of this conclusion, the panel noted that Pure Hemp had, in fact, prevailed on its appeal of the district court’s erroneous decision with respect to the “prevailing party” issue.

The second opinion was issued in OneSubsea UK Limited v. FMC Technologies, Inc., No. 2022-1099 (May 23, 2023) (Moore, Clevenger* and Dyk). OSS had originally brought suit against FMC in the United States District Court for the Eastern District of Texas in March of 2015, asserting ninety-five claims spread across ten patents. FMC countersued, alleging infringement of twenty-nine claims from two patents, and sought transfer to the Southern District of Texas where both parties maintained their respective headquarters. The case was transferred over OSS’s objections in December 2015 and assigned to Judge Atlas.

In July 2016, after conducting a Markman hearing, the district court issued a claim construction order construing the disputed claims terms. Three weeks after the Markman order was issued, FMC moved for summary judgment of non-infringement. OSS opposed, and offered the declaration of an expert to support its argument that FMC’s accused apparatus satisfied all of the limitations of the asserted claims. Before the district court could act on FMC’s motion, however, the PTO instituted IPR proceedings on three of the asserted OSS patents. Although FMC argued that a stay was unnecessary given the pending summary judgment motion, the district court nevertheless entered an order staying proceedings. That stay would remain in effect for nearly three years, during which time the PTO invalidated seventy-six of OSS’s claims (decisions which were affirmed by the Federal Circuit).

In July 2019, the district court lifted the stay and, following some additional briefing, FMC renewed its motion for summary judgment in March 2020. OSS again opposed, but, for reasons unexplained, chose to rely on a different expert to support its arguments. FMC subsequently moved to exclude this expert’s opinions under Fed. R. Evid. 702 and Daubert for allegedly failing to adhere to certain stipulations between the parties regarding the meaning of a particular claim term. In December 2020, the district court issued an order granting FMC’s motion to exclude OSS’s expert’s opinions and FMC’s motion for summary judgement of non-infringement.

In January 2021, FMC filed a motion for attorneys’ fees under 35 U.S.C. & 285, arguing that OSS’s “substantively weak infringement claims” and “litigation misconduct” satisfied the test for an “exceptional” case. In particular, FMC argued that the court’s Markman order had foreclosed any legitimate argument that FMC’s apparatus infringed the asserted claims and that OSS had engaged in litigation misconduct by, inter alia, offering the opinions of an expert who disregarded claim constructions and by filing the original complaint in the Eastern District of Texas. Two days after briefing on FMC’s motion concluded, the case was re-assigned due to the retirement of Judge Atlas.

In September 2021, the district court denied FMC’s motion for fees, stating that “[I]ndustry competitors zealously advocating their positions often results in resource- and time-intensive litigation. But that alone is insufficient to make a case ‘exceptional,’ and the prevailing competitor is not entitled to fees simply because it won the hard-fought case.” FMC appealed.

In an opinion authored by Judge Clevenger, the panel first addressed FMC’s contention that the Court should apply de novo review to the decision denying FMC’s motion, rather than the abuse-of-discretion standard required by precedent. FMC argued that such a deviation would be appropriate in this case because the judge that had denied the motion had “only briefly” been involved. The panel rejected this argument, noting the very substantial body of law in which appellate courts had reviewed discretionary decisions of successor judges for abuse of discretion.

Turning to the merits of FMC’s appeal, the panel rejected FMC’s argument that the case was objectively baseless after the district court issued its Markman order construing certain disputed claim terms. The panel noted that the district court itself had stated that it was “unclear” whether FMC would ultimately prevail on that issue when deciding to stay the case and had specifically pointed out at the time that OSS had offered the opinions of an expert that raised a disputed issue of fact. The panel also rejected FMC’s argument that OSS’s failure to produce admissible evidence to support its infringement theory alone made the case exceptional, noting specifically that FMC had cited no case either at the district court or on appeal that found a case exceptional solely because a party relied on evidence that was ultimately found to be inadmissible.