Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc.

Addressing the degree to which litigation conduct can preclude the recovery of fees under 35 U.S. C. § 285, the U.S. Court of Appeals for the Federal Circuit vacated the denial of a fee award, finding that sloppy litigation performance does not bar a prevailing party from obtaining fee shifting. Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., Case No. 14-1174 (Fed. Cir., June 25, 2015) (Dyk, J.).

Gaymar Industries sued Cincinnati Sub-Zero Products (CSZ) alleging patent infringement. CSZ then instituted an inter partesreexamination proceeding before the U.S. Patent and Trademark Office (USPTO), which found all claims of Gaymar’s patent invalid. The USPTO’s invalidity determination resolved the merits of the Gaymar–CSZ lawsuit, and CSZ sought its attorneys’ fees under § 285, which authorizes courts to “award reasonable attorney fees to the prevailing party . . . in exceptional cases.”

In the meantime, however, CSZ had made several missteps. First, CSZ made inconsistent statements about the need for expert testimony in the case. In July 2008, CSZ told the district court that it needed to identify an expert for its case. In November 2012, however, CSZ told the court that its position throughout the case was no experts were needed. Second, CSZ misstated the basis of its expert’s testimony. The expert testified that his perspective what that of one skilled in the relevant art, but CSZ told the district court that the opposite was true. Third, CSZ stated that Gaymar denied at a hearing that it had validity-related burdens, but Gaymar actually stated (correctly) that it had no burdens unless and until CSZ introduced evidence of invalidity. Finally, CSZ stated that Gaymar did supplement its papers with validity-related material when the district court invited it to do so, but the district court had agreed to defer validity discussions until CSZ asserted an invalidity defense.

The district court—adopting the report of a magistrate—found that Gaymar’s litigation position was not objectively baseless and, therefore, that the case was not exceptional. In addition, the court found that CSZ’s “litigation misconduct” barred a fee award even if the case was exceptional.

After the Supreme Court reset § 285 jurisprudence in Octane Fitness v. ICON Health & Fitness (IP Update, Vol. 17, No. 5), diminishing the importance of the objective-reasonableness inquiry, CSZ moved for reconsideration. The district court and denied reconsideration explaining that CSZ’s “unclean hands” barred an exceptional-case finding. CSZ appealed.

The Federal Circuit affirmed the not-objectively-baseless finding, but it reversed the unclean-hands finding. The court concluded that CSZ’s errors and overstatements were neither misconduct nor sanctionable, which the Court appeared to find necessary. To gran the relief requested. In the Court’s words, “bad lawyering” is not “misconduct.”

In light of these rulings, the Federal Circuit vacated the denial of the fee award and remanded the case to the district court for an assessment of whether, applying the totality of the circumstances test (under the Octane standard), including the weakness of Gaymar’s position, a fee award was justified.