First published in LES Insights

Abstract

A Delaware court recently found that continuing to prosecute a patent infringement case without direct evidence of infringement and that had become weaker after several unfavorable evidentiary rulings did not render the case exceptional and worthy of requiring the losing party to pay the attorney fees of the prevailing party. The court found that parties should not be discouraged from presenting imperfect theories or dropping discredited positions out of a fear of being penalized for attorney fees, and that sanctions for attorney misconduct should be balanced against the ethical obligation of attorneys to zealously represent their clients.

While U.S. litigants generally bear their own costs and attorney fees, they may be ordered to pay the reasonable attorney fees and costs of prevailing parties in “exceptional cases” that stand out from other cases as to either the weakness of the losing party’s substantive position or the unreasonable and vexatious manner of the losing party’s conduct in litigating the case.

In St. Clair Intellectual Prop. Consultants, Inc. v. Toshiba, Corp., et al.,1 a jury found that Toshiba did not infringe St. Clair’s patent claims, and Toshiba filed a motion for attorney fees and costs, arguing that the case was “exceptional” and that St. Clair’s attorneys unreasonably and vexatiously pursued losing arguments thereby unnecessarily increasing the cost of the litigation.

The court first found that St. Clair’s was not acting in bad faith and the case was not exceptional due to St. Clair’s initially “weak” position being further weakened by court rulings during the litigation. The court also found that St. Clair possessed and presented sufficient proof of Toshiba’s infringement. Despite a lack of direct evidence, a reasonable jury could have determined that Toshiba infringed the asserted claims of St. Clair’s patents. In particular, St. Clair’s technical expert provided testimony that could have led the jury to infer that Toshiba’s products only functioned properly if configured in an infringing manner, and as a result, using this inference to show infringement did not make the case exceptional.

The court also disagreed with Toshiba’s arguments that it was entitled to attorney’s fees and costs in light of St. Clair’s behavior during the litigation even though Toshiba successfully demonstrated that St. Clair’s royalty calculations were incorrect, and although St. Clair changed its infringement theory to avoid summary judgment. The court found that royalty calculations in complex litigations may be expected to have a degree of imperfection, and that the changes in litigation positions were simply a reflection of the adversarial nature of litigation and did not make the case exceptional. The court held that parties should not be discouraged from presenting imperfect theories or dropping discredited positions out of a fear of being penalized for attorney fees.

Finally, the court also rejected Toshiba’s motion for sanctions based on the conduct of St. Clair’s attorneys. The court cautioned that the courts’ ability to sanction attorney misconduct was balanced against the ethical obligation of attorneys to zealously represent their clients. Although St. Clair’s attorneys knew that their case became weaker after several unfavorable evidentiary rulings, the court found that continuing to pursue the case did not constitute bad faith or intentional misconduct.

Strategy and Conclusion

This decision illustrates how courts may assess the strength of substantive litigation positions and the reasonableness of litigation conduct to determine whether to award attorney fees and may be mindful of not unduly discouraging an attorney from choosing to pursue a litigation strategy or zealously representing their clients.