IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

Transcription

1 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA TECHNOLOGY PROPERTIES LIMITED LLC and MCM PORTFOLIO LLC, v. Plaintiffs, CANON INC. et al., Defendants. / No. C -0 CW ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS MOTION FOR ATTORNEYS FEES (Docket No. ) 0 Defendants Canon Inc. and Canon U.S.A., Inc. (collectively Canon) move for attorneys fees. Plaintiffs have filed an opposition and Canon has filed a reply. Having considered the papers submitted by the parties, the Court GRANTS Canon s motion in part and DENIES it in part. BACKGROUND The Court has described the background to this patent dispute previously. Docket Nos. 0,,. Plaintiffs filed this lawsuit claiming that Canon and other Defendants infringed Plaintiffs Patent Numbers,, (the ' patent) and,, (the ' patent). The patents describe technology that enables devices to read different types of removable memory cards. On March, 0, Plaintiffs filed a complaint against Canon and other Defendants in the International Trade Commission (ITC). On March, 0, Plaintiffs sued Canon and other Defendants in U.S. District Court for the Eastern District of Texas. On May,

2 0 0, Plaintiffs successfully moved to stay the lawsuit pending resolution of the proceedings in the ITC. In January 0, the parties participated in a five-day trial before the ITC ALJ. The ALJ issued a final initial determination in August 0, finding that the accused products cannot infringe because the logical assignments for the various contact pins is never mapped and is fixed. Docket No. 00-, Canon s Admin. Mot. to File Under Seal, Ex. at. Plaintiffs petitioned the ITC for review and in December 0 the ITC issued a notice of commission determination finding no violation. It found that in order for the allegedly infringing devices to communicate with the SD and MMC cards, no mapping is required and the mere use of additional signal lines in some circumstances but not others, based upon fixed assignments, does not constitute mapping. Docket No. -, Kella Dec., Ex. A at. Plaintiffs did not appeal the ITC ruling to the Federal Circuit. In February 0, Plaintiffs filed an unopposed motion to lift the stay of litigation in the Eastern District of Texas. The same month, Defendants filed a successful motion to transfer venue to this district, which Plaintiffs opposed. In August 0, the Court held a claim construction hearing and in September 0 the Court issued its Order construing disputed claim terms. In July 0, Canon filed a motion for summary judgment and in September 0 the Court granted that motion, finding Canon s products do not infringe the patents-insuit because the claimed mapping limitations are not met by the

3 0 functionality of accepting SD and MMC memory cards in the same slot using a shared set of contact pins. DISCUSSION Canon moves for fees () under the fee-shifting provision of the Patent Act, U.S.C. ; () as a sanction for improper litigation conduct under U.S.C. ; and () as a sanction under the Court s inherent authority. Canon seeks recovery of its attorneys fees and expert witness fees and seeks to hold Plaintiffs and their lawyers jointly and severally liable for those fees. I. Patent Act, U.S.C. Under U.S.C., the court in exceptional cases may award reasonable attorney fees to the prevailing party. The Supreme Court, in construing this section, has held that an exceptional case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances. Octane Fitness, LLC v. ICON Health & Fitness, Inc., S. Ct., (0). Because the exceptional case determination may be informed by the district court's unique insight into the manner in which the case was litigated, it is within the sound discretion of the district court. Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., S. Ct., (0). There is no precise formula or rule for determining whether a case is exceptional; however, courts may consider a nonexclusive list of factors, including frivolousness, motivation, objective unreasonableness

4 0 (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence. SunEarth, Inc. v. Sun Earth Solar Power Co., F.d, (th Cir. 0) (en banc) (quoting Octane Fitness, S.Ct. at n.). Pursuant to Octane Fitness, Canon contends that this case is exceptional because Plaintiffs () pursued an infringement theory that was meritless, particularly in light of an ITC ruling of noninfringement; and () engaged in various forms of litigation misconduct in order to drive up Canon s costs and extract essentially a nuisance value settlement. A. Substantive Strength of Claims The merits of Plaintiffs lawsuit were exceptionally weak for two primary reasons. First, Plaintiffs infringement theory essentially lay claim to prior art. Plaintiffs should have known that their infringement contention with regard to the mapping limitation in their patents was meritless because the accused products simply accept SD and MMC cards in a single card reader slot in compliance with the SD specification. The Court finds it was unreasonable for Plaintiffs to believe that the mapping limitations granted them rights over this functionality. In its claim construction Order, the Court warned, If the accused devices are like the device in Hung-Ju, with a single port and a shared set of contact pins for both SD and MMC cards, it may be that the accused devices do not infringe the patents-in-suit. Docket No. at. Second, the ITC issued a full commission opinion finding noninfringement. An adverse decision from the ITC does not

5 0 automatically result in fee-shifting in subsequent litigation of the same case in district court. Kaneka Corp. v. Zhejiang Med. Co., 0 U.S. Dist. LEXIS at *-* (C.D. Cal.) (refusing to award fees against plaintiff who lost in the ITC and on summary judgment in district court), affirmed in part and vacated in part on other grounds by Kaneka Corp. v. Xiamen Kingdomway Grp. Co., 0 U.S. App. LEXIS (Fed. Cir.). Nor is it enough that the case was decided on the pleadings. Linex Techs., Inc. v. Hewlett-Packard Co., 0 WL at * (N.D. Cal.). Nevertheless, the ITC decision in this case should have clearly indicated to Plaintiffs the weakness of their claims. It was unreasonable for Plaintiffs to believe that this Court would interpret the mapping limitations in some way that would lead to a different outcome than the one the ITC reached. Plaintiffs argued in their brief on claim construction that neither the ALJ s initial determination nor the ITC s commission opinion actually defined the term, mapping, and that the scope of the mapping terms remains an open issue that is key to determining infringement in this case. Docket No., Pls. Opening Br. On Claim Constr. at. Plaintiffs argued that the verb to map meant to logically assign. Docket No. at. However, the ALJ and the full ITC did construe to map as a logical function, while the Court construed to map as meaning to assign. Plaintiffs do not explain why the Court would have reached a different result if it had construed to map as necessarily a logical function, and there is no definition of to map that would reach back and grant Plaintiffs rights over prior art.

6 0 Through citations to other cases, Plaintiffs argue for a narrow interpretation of what constitutes an exceptional case under Octane Fitness. It is true that merely taking an aggressive stance while positing stretched or unsuccessful infringement theories does not, without more, warrant feeshifting. Vasudevan Software, Inc. v. Microstrategy, Inc., 0 WL 0 at * (N.D. Cal.). Plaintiffs cite Deckers Outdoor Corp. v. Romeo & Juliette, Inc., 0 WL (C.D. Cal.) for the proposition that a plaintiff will generally not be found to have advanced exceptionally meritless claims where it has set forth some good faith argument in favor of its position. Id. at *. The court in Deckers found that the infringement claim was not exceptional and permitted the plaintiff voluntarily to dismiss the claim without shifting fees. Id. The court noted that the plaintiff had moved to dismiss the claim before any claim construction ruling was issued or any discovery or dispositive motions were filed. Id. In contrast, the present case was decided on summary judgment following claim construction and an adverse ITC commission opinion. Relying on Deckers, Plaintiffs argue their case is not exceptional because they did not bring it in bad faith. Canon has not demonstrated that Plaintiffs brought their case in subjective bad faith. However, although bad faith can be evidence that a case is exceptional, Digital Reg of Texas, LLC v. Adobe Sys., Inc., 0 WL at * (N.D. Cal.) (citing Octane Fitness, S. Ct. at ), the Octane Fitness analysis does not collapse into a test of good or bad faith.

7 0 Plaintiffs also argue that fees are generally only awarded in cases where litigants have displayed egregious behavior. Docket No., Pl. s Opp. at -. Plaintiffs cite a number of representative cases. In Icon Health & Fitness, Inc. v. Octane Fitness, LLC, F. Supp. d, (D. Minn. 0) (Octane Fitness II), the district court s ruling on remand from the Supreme Court in Octane Fitness, the court found that Icon s critical arguments were particularly weak because they were wholly at odds with the patent text, prosecution history, and inventor testimony, and would have resulted in impermissibly broad claims. Id. at -. The court found those factors and Icon s own expert testimony posed major obstacles to Icon s success on the merits, and Icon must have known that the odds of winning this lawsuit were very slim. Id. at. The court also found Icon s pre-suit infringement investigation sorely lacking. Id. at. In Intex Recreation Corp. v. Team Worldwide Corp., F. Supp. d (D.D.C. 0), the court awarded fees because its claim construction foreclosed any reasonable argument that the accused product infringed. Id. at. Egregious behavior may demonstrate that a case is exceptional; however, the Octane Fitness test also is not egregiousness. Furthermore, Plaintiffs litigating position was comparable to those of the plaintiffs described in Octane Fitness II in a number of respects. For example, Plaintiffs proposed an impermissibly broad reading of their claims that effectively would have covered prior art, and Plaintiffs expert testimony posed an obstacle to success on the merits.

8 0 Plaintiffs litigating position was comparable to those of plaintiffs in other post-octane Fitness cases in which fees have been awarded. In Linex, 0 WL, the plaintiff brought unsuccessful infringement claims based on a term that a staff attorney at the ITC and the Eastern District of Texas had separately construed unfavorably. This Court granted summary judgment and ultimately awarded fees. Plaintiffs pursuit of their infringement theory following the ITC determination was even less justified here because they continued to litigate following an actual determination of non-infringement by the full ITC, as compared to merely unfavorable claim constructions. See also Segan LLC v. Zynga Inc, F. Supp. d, 0- (N.D. Cal. 0) (awarding fees against plaintiff that brought infringement suit against defendant practicing something very different from patented invention); Kilopass Tech. Inc. v. Sidense Corp., 0 WL 0 at * (N.D. Cal.) (awarding fees against plaintiff that asserted unreasonable claims and committed misconduct). Furthermore, Plaintiffs litigating position was significantly weaker than those of plaintiffs in multiple other post-octane Fitness cases in which fees have not been awarded. See Aylus Networks, Inc. v. Apple Inc., 0 WL (N.D. Cal.) (declining to award fees where infringement contention was not a simple question, but presented a more complex question with which this Court grappled and defendant does not contend that Aylus engaged in any egregious behavior beyond relying on a claim construction that the Court ultimately rejected ); Digital Reg, 0 WL (declining to award fees on claim construction

9 0 arguments that did not descend to the level of frivolousness or objective unreasonableness but awarding fees for discovery misconduct); Vasudevan, 0 WL 0 (declining to award fees against an unsuccessful plaintiff because the dispositive claim construction was not sufficiently obvious to award fees, plaintiff had merely fashioned its argument upon statements made during prosecution other than those later held to be dispositive, and the Federal Circuit had grappled squarely with the plaintiff s arguments on appeal); Site Update Sols., LLC v. Accor N. Am., Inc., 0 WL (N.D. Cal.), (declining to award fees where plaintiff s claim construction was incorrect but not so objectively unreasonable or frivolous as to be out of the ordinary and legal argument did not conflict with governing law beyond the level of misunderstanding), aff'd sub nom. Site Update Sols., LLC v. CBS Corp., F. App'x (Fed. Cir. 0); Kreative Power, LLC v. Monoprice, Inc., 0 WL (N.D. Cal.) (declining to award fees where court grappled substantially with one infringement argument and plaintiff s position on the other was not objectively baseless). For the foregoing reasons, the Court finds that, considering the totality of the circumstances, this case is one that stands out from the others with respect to the objective unreasonableness and substantive weakness of Plaintiffs litigating position. Octane Fitness, S. Ct. at. B. Manner of Litigating A case may be exceptional based on the unreasonable manner in which it was litigated. Octane Fitness, S. Ct. at. But sanctionable conduct is not the appropriate benchmark. Id.

10 0 Canon essentially argues that Plaintiffs litigated this case in such a way as to maximize Canon s expenses while minimizing their own, in an effort to preserve the possibility of settlement and increase Plaintiffs leverage in settlement negotiations. Canon does not cite to the record to substantiate its assertion, and Plaintiffs demonstrated conduct to the contrary. Plaintiffs point out that in the November 0 joint case management statement they proposed an early claim construction on the mapping terms precisely because the ITC ALJ based his non-infringement determination entirely on those terms and the issue was potentially dispositive. Canon resisted Plaintiffs attempts to focus the case on the mapping terms. Furthermore, Canon also engaged in behaviors that prolonged the litigation. For example, it unreasonably refused to designate representative products, prompting a discovery dispute. See Vasudevan, 0 WL 0 at * (finding fee-shifting for manner of litigation unwarranted where plaintiff s aggressive tactics could be interpreted as good faith effort to advance its position and defendant also engaged in maneuvers that significantly prolonged litigation). Accordingly, the Court finds the manner in which Plaintiffs litigated the case does not contribute to justifying an award of attorneys fees under in this case. C. Joint and Several Liability Canon seeks to hold Plaintiffs attorneys jointly and severally liable for attorneys fees under ; however, Canon cites no authority for its request, and both the text of the statute and applicable authority indicate the contrary. U.S.C.

11 0 ; see also Phonometrics, Inc. v. ITT Sheraton Corp., F. App'x, (Fed. Cir. 00) ( Sheraton has provided us with no legal basis for entering a fee award against the losing party's attorney under. ). Furthermore, Plaintiffs attorneys brought this suit two years before the Supreme Court s decision in Octane Fitness, which significantly altered the legal landscape concerning fee-shifting under. See Segan, F. Supp. d at (discussing mitigating effect of less notice due to filing before Octane Fitness and accordingly holding plaintiffs attorneys jointly and severally liable as Rule sanctions for frivolous lawsuit for only $0,000 worth of approximately $. million fee award). The Court does not find Plaintiffs attorneys jointly and severally liable. D. Conclusion Accordingly, Canon is eligible to recover its attorneys fees because Plaintiffs litigating position was exceptionally weak. Even in an exceptional case, the decision whether or not to award fees is still committed to the discretion of the trial judge. Kilopass, 0 WL 0 at * (quoting Modine Mfg. Co. v. Allen Group, Inc., F.d, (Fed. Cir. 0)). The Court concludes that it is a fair allocation of the burden of this litigation to award Canon its fees. II. Sanctions Under U.S.C. Title U.S.C. provides, An attorney... who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct. An imposition of sanctions must

12 0 be supported by a finding of subjective bad faith, which is present where an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purposes of harassing an opponent. In re Keegan Mgmt. Co., Sec. Litig., F.d, (th Cir. ). Canon argues that attorneys fees are warranted under because Plaintiffs multiplied the proceedings simply by pursuing the case after the ITC commission opinion. Canon alleges that doing so was reckless, thereby demonstrating the required subjective bad faith. Canon provides no evidence demonstrating subjective bad faith other than the fact of Plaintiffs loss in the ITC. Although that loss was a strong indication of the weakness of Plaintiffs infringement theory, it alone is insufficient to demonstrate recklessness. In the only case Canon cites for an award of fees in the patent litigation context, the award was based on far more troubling behavior than any in the present case. Phonometrics, Inc. v. Westin Hotel Co., 0 F.d, (Fed. Cir. 00) (awarding fees where plaintiff attempted to slide around precedential dispositive claim interpretation and never accused defendant of infringing the patent-in-suit as it had been defined by the Federal Circuit).. Accordingly, the Court will not award attorneys fees under Plaintiffs decision not to appeal the ITC commission opinion to the Federal Circuit is not evidence that they knew their claims would fail. Plaintiffs sought a jury trial and money damages, neither of which the ITC could provide.

13 0 III. Sanctions Under the Court s Inherent Authority Canon argues that its attorneys and expert fees are warranted under the Court s inherent authority. Here, Canon primarily argues for its expert fees, which are not available under or. A district court has inherent authority to impose sanctions for bad faith, which includes a broad range of willful improper conduct. Fink v. Gomez, F.d, (th Cir. 00). The court may award reasonable attorneys fees to a successful party when his opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. F.D. Rich Co., Inc. v. U.S. for Use of Indus. Lumber Co., Inc., U.S., (). Because of their very potency, inherent powers must be exercised with restraint and discretion. Chambers v. NASCO, Inc., 0 U.S., (). As the Federal Circuit has explained, Use of this inherent authority is reserved for cases where the district court makes a finding of fraud or bad faith whereby the very temple of justice has been defiled. MarcTec, LLC v. Johnson & Johnson, F.d 0, (Fed. Cir. 0) (quoting Chambers, 0 U.S. at ). Canon cites Takeda Chem. Indus., Ltd. v. Mylan Labs., Inc., F.d (Fed. Cir. 00), for the rule that even for conduct [that does] not amount to fraud, courts may use sanctions in cases involving bad faith that cannot be otherwise reached by rules or statutes. Id. at (citing Chambers, 0 U.S. at ). As discussed above, however, the Court does not find Plaintiffs acted recklessly or in subjective bad faith. Accordingly, the Court will not award attorneys or expert fees under its inherent authority.

14 IV. Reasonableness of Attorneys Fees 0 A fee petition must provide sufficient detail to allow for a fair evaluation of the time expended and the nature and need for the service. United Steel Workers of Am. v. Ret. Income Plan, F.d, (th Cir. 00). In moving for attorneys' fees, Canon submits a declaration by its lead trial counsel in which he provides the hourly rate and number of hours worked of each employee whose fees Canon seeks, along with a short professional background description of each. The declaration does not provide any detail as to the nature of each biller's work. The Court finds Canon s attorneys rates reasonable. Chalmers v. City of Los Angeles, F.d 0, (th Cir.). However, Canon has not adequately substantiated the number of hours worked for which it seeks recovery. CONCLUSION For the reasons set forth above, Canon s motion for attorneys fees (Docket No. ) is GRANTED to the extent that it is entitled to fees from Plaintiffs under, in an amount to be determined, incurred defending this lawsuit. The motion is DENIED with respect to expert witness fees and all other bases for awarding fees. Within two weeks of this order, Canon must file a supplemental declaration summarizing the services rendered by each person for whose services fees are claimed together with a summary of the time spent by each person, and a statement describing the manner in which time records were maintained. See Civil L.R. - (b). Plaintiffs may file an opposition of not more than eight pages no later than one week thereafter in which they may address

15 only the reasonableness of the number of hours sought. Canon may file a response to Plaintiffs opposition of up to five pages no later than one week thereafter. The matter will be decided on the papers. IT IS SO ORDERED. Dated: January, 0 CLAUDIA WILKEN United States District Judge 0