First published in LES Insights

Abstract

In determining an award of litigation costs, a California court recently held that an accused patent infringer, which won summary judgment of noninfringement, was the prevailing party despite the fact that its co-defendant supplier later mooted the case by taking a license to the patents and stipulated that there would be no "prevailing party."

In patent infringement litigation, as with other civil litigations, the "prevailing party" is usually awarded its litigation costs (litigation "costs" do not include attorney fees, which is a separate award reserved for "exceptional cases"). Determining which party prevailed is straightforward in cases where a party wins on every claim at issue. But the inquiry is more difficult in cases where each party has claims adjudicated in its favor or where each party proposes differing characterizations of how a settlement agreement should impact the prevailing-party analysis.

A patent owner "prevails" when it obtains relief that materially alters the legal relationship between the parties by modifying the accused infringer's behavior to the direct benefit of the patent owner. On the other hand, an accused infringer prevails if it removes the threat of a patent owner recovering for alleged infringement, which necessarily alters the patent owner's subsequent behavior to the accused infringer's benefit.

In a recent case, Ameranth, Inc. v. Genesis Gaming Solutions, Inc. et al.,1 the U.S. District Court for the Central District of California determined that an accused infringer, which won summary judgment of noninfringement, was the prevailing party despite the fact that its co-defendant supplier later mooted the case by taking a license to the patents and stipulated that there would be no "prevailing party."

Background

Patent owner, Ameranth, Inc., sued Commerce Club, Inc. and its supplier, Genesis Gaming Solutions, Inc., for infringement of Ameranth's casino management patents. The patents included "player management" claims and "dealer management" claims. After licensing the "dealer management" claims to Commerce during the case, Ameranth filed an amended complaint asserting infringement of only the "player management" claims. Commerce later won summary judgment of noninfringement on all such claims, but trial was scheduled to proceed on Ameranth's infringement claims against Genesis and on Commerce's invalidity counterclaims.

Ameranth then settled with Genesis, rendering moot its infringement claims against Genesis and Commerce's invalidity counterclaims. In the settlement agreement, Ameranth granted supplier Genesis a license that covered Commerce's use of Genesis's products. Ameranth also expressly waived the right to appeal the court's noninfringement determination as to Commerce, and Ameranth and Genesis stipulated that there would be no "prevailing party."

As between Commerce and Ameranth, however, each party filed opposing papers with the court arguing that it was the prevailing party. Ameranth contended that it prevailed because it extracted a license from Genesis—Commerce's supplier—that covers Commerce's use of Genesis's products. Ameranth further argued that Commerce is a third-party beneficiary to the Ameranth-Genesis agreement and should be bound by their stipulation that there would be no prevailing party. Commerce countered that it was the prevailing party because it won summary judgment of noninfringement, which cannot be appealed because Ameranth expressly waived that right in the Ameranth-Genesis agreement. The court agreed with Commerce, declaring it the prevailing party.

The Court's Decision

The court framed the question as whether the Ameranth-Genesis agreement, which rendered moot the claims remaining in the case, precluded a prevailing-party determination. According to the court, it did not. Mid-case mootness, the court explained, does not necessarily prevent a finding that a party prevailed in the case if one party already obtained substantial court decisions in its favor. Here, Commerce had already won summary judgment of noninfringement before the Ameranth-Genesis agreement. Although Ameranth, the court explained, may have waived its right to appeal because it granted a license covering Commerce's use and thereby mooted the claims, the fact remains that the court's noninfringement determination was "left untouched." The court therefore declared Commerce the prevailing party.

The court also rejected Ameranth's argument that Commerce was a third-party beneficiary contractually bound by Ameranth and Genesis's stipulation that there was no "prevailing party." Ameranth urged that because Commerce sought to secure the benefits of the Ameranth-Genesis agreement, Commerce could not simultaneously reject other portions of the agreement. According to the court, however, Commerce was not seeking to secure a benefit under the Ameranth-Genesis agreement, but instead was merely relying on Ameranth's express statement waiving appeal. In the court's view, Ameranth offered "no authority for the proposition that in the context of an ongoing litigation, the plaintiff can deprive a defendant of the ability to seek costs by settling with another defendant, even when that settlement moots the case as to the non-settling defendant." Accordingly, the court ruled that Commerce was entitled to its costs as the prevailing party.

Strategy and Conclusion

In this case, the court awarded costs to an accused infringer who prevailed on summary judgment even though its supplier subsequently settled and took a license from the patent owner, thereby mooting the case from proceeding on appeal. As a result, this decision shows that courts may be willing to award costs to a party who prevails on a point in the controversy, even when the case is subsequently settled and mooted in a way that may appear to vindicate the other party. Thus, a party who wins a disputed point in court may consider asking the court for an award of litigation costs even if the case becomes moot after the court's decision and is settled in a way that may appear to vindicate the other party.