Taurus IP, LLC v. DaimlerChrysler Corp.

Addressing appeals of two separate actions out of the same district court, the U.S. Court of Appeals for the Federal Circuit affirmed the vast majority of the lower court’s rulings in both cases, finding that the nature by which plaintiff conducted the litigations supported a finding of an exceptional case. Taurus IP, LLC v. DaimlerChrysler Corp., Case Nos. 08-1462, -1463, -1464, -1465 (Fed. Cir. Aug. 9, 2013) (Schall, J.)

In two separate actions, Taurus accused defendants’ websites of infringing a patent directed to a graphical computer interface where “users” created hierarchical relationships between data in a database. In one of those actions, the court issued a claim construction ruling favoring defendants, and then entered summary judgment of no infringement because everyday internet web surfers are not “users” capable of creating hierarchical relationships as required by the claims. The district court also concluded that the asserted claims were invalid. In view of these rulings, the parties to the second case stipulated to dismissal of all claims for purposes of appeal.

The first case also included counter-claims by defendants alleging Taurus and related entities, such as Orion IP, breached provisions of a prior settlement agreement involving Orion and defendants in the instant litigation. The case proceeded to trial on those counter-claims. Defendants argued that Orion violated a breach of warranty provision in an earlier 2006 licensing agreement, which resulted from a settlement of a prior 2004 litigation in Texas. In the 2004 litigation, Orion had not asserted the same patent as this case (despite owning it at that time), but transferred the patent during that litigation to a related entity. In the later (2006) agreement, Orion warranted that it had not transferred any patents “relating to the [2004] litigation.”

Taurus wound up with the patent-in-suit 10 days before filing the instant litigation. At trial, defendants argued that Orion had breached the warranty provision when it transferred the patent during the 2004 litigation, because it was sufficiently “related to” the 2004 patents given that each patent was directed to the same technology. The jury agreed, and the district court awarded attorneys’ fees and damages for breach of contract.

The district court also deemed the patent suit exceptional under 35 U.S.C. § 285 and awarded defendants more in fees. The court found Taurus’ pre-filing investigation deficient and determined that Taurus improperly “prolonged the litigation in bad faith” after claim construction. Moreover, the patent suit was carried out “vexatiously” because Taurus was established only for “jurisdictional reasons.” Taurus appealed.

On appeal, the Federal Circuit affirmed all of the district court’s findings except for the damages awarded for breach of warranty. As to the exceptional case finding, the Federal Circuit agreed that Taurus’ persistence in maintaining its tenuous infringement positions, even after an adverse claim construction, was alone sufficient to find the case exceptional. No reasonable litigant in Taurus’ position could have expected a finding that a web surfer accessing the accused external websites satisfied the requirement for a user as required by the claim. Moreover, Taurus’ claim construction positions were “unreasonably broad” and “objectively baseless” because they were “divorced from the written description.” The Federal Circuit noted that “while an adverse claim construction generally cannot, alone, form the basis for an exceptional case finding, this court’s decisions . . . do not undermine the rule that a party cannot assert baseless infringement claims and must continually assess the soundness of pending infringement claims, especially after an adverse claim construction.”

As to the breach of warranty finding, the Federal Circuit agreed that a reasonable juror could have found that the asserted patent was related to the licensed patents, because the accused websites were the same or similar to that of the earlier litigation. However, while the Federal Circuit affirmed the attorneys’ fee award, it reversed the damages award because defendants had failed to provide any evidence at trial of damages they suffered as a consequence of the breach, which was a required element for a breach of contract claim. That the parties stipulated to provide evidence of damages after trial (in the event a breach was found) was of no consequence—defendants had the burden of proof of damages at trial, but failed to meet it.