Judges: Newman, Lourie (concurring), Bryson (author) [Appealed from D. Colo., Judge Matsch]
In Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersysteme GmbH, Nos. 09-1058, -1059 (Fed. Cir. Apr. 26, 2010), the Federal Circuit reversed the district court’s grant of attorney fees against Medtronic Navigation, Inc. (“Medtronic”) under 35 U.S.C. § 285 based on its continued efforts to pursue the case after an adverse claim construction decision, and alleged litigation misconduct. The Court also reversed the decision to hold Medtronic’s counsel jointly liable for the attorney fees under 28 U.S.C. § 1927 and its inherent powers.
In 1998, plaintiff Medtronic brought a patent infringement action against BrainLAB Medizinische Computersysteme GmbH (“BrainLAB”). Medtronic alleged infringement of U.S. Patent Nos. 4,722,056 (“the ’056 patent”), 5,383,454 (“the ’454 patent”), 5,389,101 (“the ’101 patent”), and 5,603,318 (“the ’318 patent”), directed to systems for tracking the location of surgical equipment in a patient’s body during surgery. The district court denied BrainLAB’s motions for SJ, and the jury returned a verdict for Medtronic, finding that BrainLAB had infringed the ’454 and ’056 patents under the DOE and the ’101 and ’318 patents both literally and under the DOE. After trial, the district court granted BrainLAB’s Rule 50(b) motions for JMOL and entered judgment of noninfringement as to all four patents. On appeal, the Federal Circuit affirmed the ruling on essentially the same grounds as the district court.
After the appeal, BrainLAB filed a petition in the district court seeking attorney fees and expenses based on 35 U.S.C. § 285, 28 U.S.C. § 1927, and the court’s inherent powers. The district court agreed with BrainLAB that the case was exceptional under 35 U.S.C. § 285 and ruled that an award of attorney fees was justified. In so doing, the district court relied on two grounds. First, the district court ruled that Medtronic should have accepted that the claim construction rules stripped the merits from its case. According to the district court, Medtronic should either have sought interlocutory appeal from the claim construction order or abandoned its case when BrainLAB filed its motions for SJ. Second, the district court ruled that Medtronic’s counsel had engaged in various forms of litigation misconduct at trial, including misleading the jury as to the district court’s claim construction, focusing on a comparison between a Medtronic product and a BrainLAB product rather than on a comparison between the patent claims and the accused products, and wrongly arguing that a statement in an FDA submission made by BrainLAB constituted an admission of infringement.
Additionally, the court invoked 28 U.S.C. § 1927 and held that Medtronic’s counsel, McDermott Will & Emery LLP (“McDermott”), was jointly responsible for the fee award. According to the district court, McDermott attorneys had proceeded cavalierly and with full awareness that their case was without merit. Finally, the district court further based its order against McDermott on its inherent authority to assess fees against counsel who engage in abusive litigation conduct and imposed an award of attorney fees, costs, expenses, and interest of $4,382,031.36. Medtronic and McDermott appealed the judgment to the Federal Circuit.
The Federal Circuit reversed on all counts, concluding that the district court had committed clear error in finding the case exceptional under § 285 and in holding McDermott jointly liable under § 1927 and under the district court’s inherent powers. The Court began its analysis by addressing the district court’s ruling that Medtronic had acted improperly in failing to abandon its claims following the district court’s claim construction order. According to the Court, the salient inquiry was whether Medtronic’s infringement claims were so lacking in merit that it was legally obligated to either abandon its case altogether or limit itself to challenging the district court’s claim construction on appeal.
The Federal Circuit found that the district court’s characterization of Medtronic’s claims as frivolous was undermined by the district court’s own denial of BrainLAB’s motion for SJ and each of its motions for JMOL during trial. According to the Federal Circuit, absent misrepresentation to the trial court, a party is entitled to rely on a trial court’s denial of SJ and JMOL, as well as the jury’s favorable verdict, as an indication that the party’s claims are objectively reasonable and suitable for resolution at trial. Slip op. at 14. Noting that the district court had not pointed to any misrepresentations made by Medtronic and its counsel at the SJ stage, the Federal Circuit determined that each of Medtronic’s infringement claims at trial was sufficiently reasonable to warrant being litigated to verdict.
“Absent misrepresentation to the court, a party is entitled to rely on a court’s denial of [SJ] and JMOL, as well as the jury’s favorable verdict, as an indication that the party’s claims were objectively reasonable and suitable for resolution at trial.” Slip op. at 14.
With respect to the ’454 and ’056 patents, the Court noted that Medtronic had revised its case in light of the district court’s claim construction ruling, withdrawing entirely its claims of literal infringement as to those patents and proceeding only with claims of infringement under the DOE. With regard to the ’101 and ’318 patents, the Federal Circuit concluded that Medtronic’s opposition to BrainLAB’s motion for SJ was well founded and that its position at trial was reasonable despite its inability to persuade either the district court or the Federal Circuit that BrainLAB’s products employed a certain claim element or its equivalent in an infringing manner. As for Medtronic’s opposition to BrainLAB’s assertion of prosecution history estoppel, the Federal Circuit determined that Medtronic’s ultimate lack of success on the merits was not determinative of whether its position was frivolous. Instead, the Court found the issue to be sufficiently ambiguous that it was reasonable for Medtronic to litigate the question to verdict. The Court noted that the district court had itself found the estoppel argument sufficiently complex to warrant postponing the issue and that it had devoted six pages of detailed analysis to the issue in its post-trial opinion granting JMOL.
Having decided that Medtronic’s claims were not frivolous and that Medtronic was not obligated to concede noninfringement in light of the district court’s claim construction, the Federal Circuit next turned its attention to whether the district court’s ruling under § 285 could be sustained by its findings of various instances of litigation misconduct. The Court held that several of Medtronic’s comments cited by the district court as constituting misconduct were, in fact, not objectionable.
First, Medtronic’s shorthand way of summarizing its theory of the case by alleging that acoustic tracking was substantially equivalent to optical tracking was unaccompanied by any suggestion, subtle or otherwise, that the jury should ignore the district court’s instructions, as had been contended by BrainLAB. Therefore, according to the Federal Circuit, this statement could not have reasonably misled the jury as to the issue of infringement under the DOE. Id. at 24-25.
Second, a comment concerning prosecution history estoppel made by Medtronic’s counsel at closing argument was innocuous because it was made in response to an argument voiced by opposing counsel and did not exceed the bounds of fair commentary on the issues. According to the Court, Medtronic’s counsel had merely suggested to the jury that the estoppel argument made by BrainLAB’s attorney was erroneous on the merits and directed to an issue that was not going to be submitted to the jury. Id. at 25-26. Noting that Medtronic’s comment had drawn no objection from BrainLAB’s lawyer at trial, the Federal Circuit found that the comment was permissible in light of BrainLAB’s focus on the issue during its closing argument.
Third, Medtronic’s recommendation that the jury compare the functions of microphones and cameras in the invention and the accused products served the legitimate purpose of supporting its case for equivalence. Similarly, testimony of Medtronic’s experts to this effect was not misleading or indicative of an intransigent adherence to rejected claim construction. Id. at 27-28.
Fourth, Medtronic’s product-to-product comparison of its product and BrainLAB’s accused product was permissible despite the district court’s concern that the comparison might confuse the jury by leading it to believe that it should focus on the similarities between the two products instead of the similarities between BrainLAB’s product and the claims. In so finding, the Federal Circuit credited Medtronic’s argument that such a comparison was necessary to prove its damages case. According to the Court, there was no reason to conclude that the district court’s repeated cautionary statements were insufficient to remind the jury of the limited purpose for which it was to consider evidence of similarity between the two products. Id. at 29.
Finally, the Federal Circuit chose not to override the district court’s determination that Medtronic had acted improperly in stating at trial that a letter BrainLAB had sent to the FDA years earlier constituted an admission of infringement under the DOE. According to the Court, deference was owed to the district court as to its determination of impropriety because Medtronic’s remarks during trial about the letter to the FDA were subject to differing interpretations. Nevertheless, the Court found that this single incident, viewed in context, was not sufficient to support the district court’s finding that the case was exceptional under § 285 and that it was plainly insufficient to support the broad attorney fee award. Id. at 35.
According to the Federal Circuit, the district court’s fee award was designed to compensate BrainLAB for the entire cost of its legal representation after the SJ phase of the case based on its conclusion that Medtronic unnecessarily prolonged the proceedings after that point. However, in light of the Court’s conclusion that Medtronic did not improperly prolong the proceedings by pursuing its claims through trial and its disagreement with most of the district court’s criticisms of Medtronic’s litigation tactics, the Court reversed the district court’s exceptional case finding and vacated the attorney fee award under § 285.
The Court next turned its attention to BrainLAB’s petition for relief under § 1927, noting that a court may require an attorney to satisfy personally the excess costs, expenses, and attorney fees reasonably incurred when the attorney multiplies the proceedings in any case unreasonably and vexatiously. Nevertheless, the Federal Circuit found that its ruling in the § 1927 claim was largely dictated by its determinations regarding the § 285 claim. Finding that it was not unreasonable for Medtronic to seek relief even in light of the court’s claim construction, the Federal Circuit concluded that McDermott, as Medtronic’s counsel, could not be held liable for continuing to represent Medtronic in that effort. According to the Court, even if McDermott had concluded that Medtronic’s prospects for ultimately prevailing in the litigation were significantly diminished by the court’s claim construction order, it was not unreasonable for McDermott to continue to press its client’s case in light of the arguments that remained available.
As for the particular instances of alleged litigation misconduct, the Court noted that it had already held that several of the items did not constitute misconduct at all. And with respect to McDermott’s comments about BrainLAB’s FDA submission, the Court noted that it had upheld the district court’s conclusion that the manner in which McDermott made its argument was improper. But just as those remarks, standing alone, were insufficient to render the case exceptional under § 285, the Court also held that the same remarks did not improperly prolong the proceedings and thus were not an appropriate basis for the entry of an award under § 1927.
The Federal Circuit concluded its analysis by addressing the district court’s invocation of its inherent authority as a basis for the award of fees, costs, expenses, and interest. Noting the Supreme Court’s admonition that a court’s inherent powers must be exercised with restraint, along with other courts’ similarly narrow view of inherent authority as a basis for imposing sanctions for attorney misconduct, the Court suggested that its determination under inherent authority was largely informed by its findings with respect to the § 285 and § 1927 claims. According to the Court, Medtronic’s conduct was not sufficiently egregious to justify the imposition of sanctions under the district court’s inherent authority.
In a concurring opinion, Judge Lourie emphasized that district court judges are entirely justified, when they encounter frivolous claims and/or excessively hard-ball tactics, in imposing sanctions on offending parties, because they are enforcing respect for the courts and the rights of innocent parties to be free of unjustified claims. Judge Lourie further noted that this case presented a number of instances where the district court felt that counsel had overstepped its bounds. Under such circumstances in the future, district court judges should not be chilled by this opinion from taking control of their courtroom and imposing sanctions when deemed appropriate.