A Central District of California court ruled that a party can be considered a prevailing party for purposes of the Patent Act's fee shifting statute as to a final judgment in multi-phase litigation even where that final judgment does not dispose of the entirety of the case. Based primarily on the plaintiff's inadequate pre-suit investigation, the court declared Phase I of the litigation to be exceptional warranting an award of attorney's fees to the defendants.
Attorney's fees may be awarded in patent cases under 35 U.S.C. § 285 in cases deemed "exceptional." Fees are only available to a prevailing party and there can only be one prevailing party, even in mixed judgment cases. But what about in complex, multi-phase litigations where a single party prevails in one of the phases? In consolidated cases by Kinglite Holdings Inc. against multiple computer hardware companies, the Central District of California court ruled that each phase of a multi-phase litigation can be treated essentially as a case-within-a-case, and each phase can support an independent exceptional case determination under 35 U.S.C. § 285.
Kinglite Holdings Inc. sued several computer hardware companies for infringement of thirteen patents. Kinglite's first case was consolidated with a second case against a sole computer hardware company alleging infringement of twenty patents. Early on in the consolidated case, the Central District of California court ordered the parties to meet and confer to identify six patents to be tried in the initial phase of the case. The parties agreed on six patents and seven representative claims to comprise "Phase I" of the litigation.
The parties filed a series of competing motions during the sixteen-month long Phase I of the litigation. Among other motions, Kinglite sought leave to amend its complaint to add claims of indirect infringement for four of the six asserted patents after the deadline for amending had passed. The court denied Kinglite's request, citing a lack of good cause to warrant the late amendment. The defendants successfully moved to have some of Kinglite's claims invalidated as not being directed to patentable subject matter. After the defendants filed another summary judgment motion challenging the validity of two of the asserted patents, Kinglite agreed to dismiss with prejudice the claims of those two patents. The parties also filed dueling motions to strike portions of expert reports.
Phase I of the litigation eventually concluded when the parties entered a joint motion for entry of consent judgment. The court granted the motion and dismissed with prejudice all causes of action for infringement of the Phase I patents. The court found that the consent judgment order constituted a final judgment disposing of the causes of action for infringement of the Phase I Patents. The defendants then moved for a determination that the case was exceptional under 35 U.S.C. § 285 and sought an award of attorney's fees.
The Kinglite Order
In a patent case, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. The main issue in Kinglite was whether the defendants' request for fees was premature. Kinglite argued that although the defendants prevailed with respect to the six patents comprising Phase I of the litigation, that success was temporary because of the several other patents that remained to be litigated. Kinglite also argued that Federal Circuit precedent allows for only one prevailing party in a case, and that as a plaintiff, it could be the ultimate prevailing party in a mixed judgment case. The defendants, on the other hand, argued that they were a prevailing party for purposes of § 285 because they obtained a judgment under Rule 54 of the Federal Rules of Civil Procedure, which triggers a requirement to file a timely motion for attorney’s fees.
Considering the issue before it to be an open question at the Federal Circuit level, the Central District of California court agreed with the defendants that, in essence, each phase of a multi-phase litigation is a case-within-a-case, and each phase can support an independent determination under 35 U.S.C. § 285. The court found support in the text of Federal Rule of Civil Procedure 54, which provides that a court may, under some circumstances, direct entry of a final judgment of fewer than all claims or parties. The court also reasoned that Rule 54 requires that each motion for attorney's fees must specify "the judgment . . . entitling the movant to the award" and not multiple judgments in in multi-phase cases. Because the defendants could specify the judgment entitling them to prevailing party status, their request was not premature.
The court believed that its decision "reflects the superior policy position with regard to shifting attorney's fees in a complex, protracted patent case." According to the court, allowing determinations of prevailing party status during each phase is necessary to achieve the purposes of exceptional case determinations under § 285, including "the need in particular circumstances to advance considerations of compensation and deterrence." Citing what it considered a common occurrence of parties litigating in a manner "designed to frustrate opponents and increase the nuisance value of a lawsuit," the court found that exceptional case determinations at the conclusion of each phase could be a potential tool to curb such conduct. In particular, the court found that it could have "the salutary effect of curbing exceptional conduct in future phases," otherwise, "a litigant with many patents and an exceptionally weak substantive litigating position could continually delay the conclusion of a case, thus frustrating the ability of the Court to enter a 35 U.S.C. § 285 determination and impose meaningful sanctions." The court also reasoned that judicial economy was best served by early resolution of the § 285 motion so that any appeal of the § 285 determination could be heard with any appeal on the merits of the adjudication leading to the exceptional case determination.
The court went on to find that Phase I of the litigation was exceptional under § 285, warranting an award of fees. Considering each patent, the court found that Kinglite's claims and litigation conduct as to five of the six asserted patents contributed to this totality-of-the-circumstances finding. In particular, the court cited Kinglite's failure to conduct adequate pre-suit investigations into whether the accused products had the necessary components to support its direct infringement claims, such as processor and memory components. As to three of the patents, the court was "at a loss to explain" why Kinglite initiated and then continued to litigate its direct infringement claims where the accused products could not directly infringe because they lacked at least one necessary component.
Strategy and Conclusion
In complex cases involving many patents, courts may divide the case into several phases. In such cases, courts may consider each phase independently for the purpose of awarding attorney's fees under 35 U.S.C. § 285. This may provide a valuable tool for defendants involved in complex litigations where the circumstances warrant a finding that the case is exceptional.