Rolled Money

The U.S. Court of Appeals for the Federal Circuit recently considered the validity of a $600,000.00 fee award, according to the American Bar Association (ABA) Journal. Under 35 U.S.C. § 285, the prevailing party in a patent infringement action may recover reasonable attorney’s fees in “exceptional cases.”

The Case at Hand:

In Drop Stop LLC v. Zhu, the company owned a patent for a product preventing items in a car from falling between the front seat and the center console. Drop Stop sent a cease-and-desist letter to the defendants to stop selling a product similar to theirs and alleging copyright infringement. The defendants refused to comply, relying on an attorney’s informal opinion that no infringement had occurred. The defendants failed to disclose the attorney’s disclaimer regarding the informal opinion.

Consequently, Drop Stop sued and served five defendants. The defendants defaulted on the lawsuit and moved to set aside the default, arguing improper service. The district court vacated the default, however, noted defendants were unduly delaying litigation. After mediation talks were unsuccessful, defendants added a defense of patent misuse based on the confidential settlement discussions among the parties. The district court struck down the arguments after reviewing the parties’ cross-motions to dismiss. Nonetheless, the defendants raised the same stricken defenses in their cross-motion for summary judgment. They also filed numerous ex parte motions.

The district court granted Drop Stop partial summary judgment and the parties subsequently settled. The parties stipulated to entry of judgment in favor of Drop Stop on the remaining infringement claims and the court’s determination of attorney’s fees. The court awarded $600,000.00 in fees, finding the totality of defendant’s actions throughout litigation constituted exceptional circumstances.

The Appeals Court:

The federal court of appeals affirmed, relying on precedent from the Supreme Court of the United States (SCOTUS) and held a party’s unreasonable conduct may not be necessarily be independently sanctionable, however, can still be exceptional. The appeals court noted defendant’s bad behavior continued throughout every stage of litigation including their reliance on the attorney’s informal non-infringement opinion and removal of disclaimer, purposeful evasion of service, addition of defenses in motions based on confidential settlement talks, late timing of discovery, and unnecessary and prohibited ex parte motions.

Not surprisingly, the takeaway here is that when attorney’s engage in bad behavior in litigation they should expect to be on the receiving end of the consequences.

Simply put, it should be every attorney’s goal not to unnecessarily anger the judge.

The case is Drop Stop LLC, v. Zhu.