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IP Alert: Exceptional Case May Be Predicated on Litigation Misconduct Alone

August 13, 2013

Today, in Monolithic Power Systems, Inc. v. O2 Micro International Ltd., the Court of Appeals for the Federal Circuit held that a finding of “exceptional case” may be premised on litigation misconduct alone. The court rejected the patentee’s contention that a court may award sanctions under the exceptional case statute only when there is evidence that the losing party had brought objectively baseless litigation in bad faith. 

Under the pertinent portion of the patent statute, 35 U.S.C. § 285, a court may award reasonable attorney’s fees to the prevailing party in “exceptional cases.” The statute does not define what does or does not constitute an “exceptional case.” Earlier decisions of the Federal Circuit and other courts have provided guidance on when a court may find a case to be exceptional. The case law, however, has not definitively answered the question of whether litigation misconduct, in the absence of another exceptional case factor, can support an exceptional case finding.

The court today answered that question in the affirmative. In the O2 Micro case, the plaintiff, Monolithic Power Systems (“MPS”), filed a declaratory judgment against O2 Micro seeking declarations of noninfringement and invalidity of four O2 Micro patents. After learning of the complaint, O2 Micro filed a complaint under §337 of the Tariff Act of 1930 before the International Trade Commission against MPS and one of its customers. The lawsuit and ITC proceeding were hotly contested.

The Federal Circuit reported on certain testimony said to have been provided during these proceedings. Specifically, the court stated that the inventor, Dr. Lin, had testified at a deposition in an earlier lawsuit as to a date of conception of one of the patents. The court stated that O2 Micro relied on this testimony in connection with a schematic printout bearing a date that corroborated the inventor’s testimony. The date on the schematic purported to be a computer-generated date. But MPS obtained expert testimony purporting to establish that the date stamp on the schematic had not been computer-generated, but rather had been manually entered. 

The district court found that O2 Micro nonetheless continued to attempt to rely on the date of conception. Eventually, O2 Micro granted MPS a covenant not to sue and moved to dismiss the lawsuit. MPS and the customer then moved for attorney’s fees under the exceptional case statute and under Federal Rules of Civil Procedure 54(d) and 37(c)(2). The district court found the case to be exceptional based on the schematic and on O2 Micro’s associated motion practice, and on other litigation tactics it deemed vexatious. Ultimately, the district court awarded over $8 million in attorney’s fees against O2 Micro. 

On appeal, O2 Micro argued that the district court erred in applying the wrong standard under the exceptional case statute. O2 Micro argued that the district court was required to have made findings concerning exceptional case litigation under the “objectively baseless” standard announced by the U.S. Supreme Court in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc

Disagreeing, the Federal Circuit observed that “many forms of misconduct can support a district court’s exceptional case finding,” including inequitable conduct before the U. S. Patent and Trademark Office, litigation misconduct, vexatious and unjustified litigation, a frivolous suit, or willful infringement. Citing its holding in an earlier case, Beckman Instruments, Inc. v. LKB Produkter AB, (“[W]e can certainly imagine a case in which litigation misconduct would justify an award of attorney fees for the entire litigation”), the court held, “We are quite confident that this was the kind of case [Beckman Instruments] had in mind.” 

The court then reviewed and affirmed the findings of the district court regarding the exceptional case conduct. Also, the court concluded that the district court’s award of attorney’s fees was reasonable even though a portion of the fees had been incurred in connection with the ITC proceeding. 

Fitch Even expresses no statement or opinion on the correctness of the district court’s or Federal Circuit’s findings regarding the conduct alleged to have led to the exceptional case finding. Rather, the O2 Micro case is of interest for the Federal Circuit’s legal pronouncement that an exceptional case award may be predicated solely on litigation misconduct. 

For more information, please contact Fitch Even partner Allen E. Hoover


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