Let’s face it, any litigation is expensive and a defendant that finds itself spending money battling claims against it only to have those claims later dismissed by the plaintiff is likely going to want to try to recoup the costs of the litigation. However, to be awarded attorneys’ fees under 35 U.S.C. § 285 and/or 15 U.S.C. § 1117(a), the case must be found to be “exceptional.” Rare, unusual, and extraordinary are words that come to mind when one thinks of the definition of the exceptional. These are exactly the qualities that the Court of Appeals for the Federal Circuit found lacking when it reversed the lower court’s award of attorneys’ fees in the infringement suit brought by Munchkin against Luv n’ Care in the Central District of California. While the opinion in Munchkin, Inc. v. Luv n’ Care, Ltd. is far from a complete guide to drafting a successful motion for attorneys’ fees in a patent and/or trademark infringement case, the admonishment given here to the lower court (and Luv n’ Care) delivers some helpful pointers as to what level of detail is necessary to obtain and sustain a fees award.
First, a little bit of background. Both Munchkin and Luv n’ Care sell sippy cups. At the time it filed suit against Luv n’ Care for trademark infringement and unfair competition, Munchkin marketed its sippy cups with its registered (original) Click Lock logo. Despite Luv n’ Care’s opposition, Munchkin was allowed to amend its complaint to replace the original Click Lock logo used as the basis for the trademark infringement and unfair competition claims with a more current, not yet registered, version. In addition, the amended complaint tacked on a trade dress infringement claim and alleged infringement of recently issued U.S. Patent No. 8,739,993.
In turn, Luv n’ Care filed an inter partes review (IPR) challenging the validity of the ʼ993 patent before the USPTO (ʼ993 IPR). Before the ʼ993 IPR was instituted, Munchkin dismissed all but its patent infringement claim in the district court case. Once the Patent Trial and Appeal Board (PTAB) found the claims of the ʼ993 patent unpatentable (and the Federal Circuit affirmed that finding), Munchkin had no choice but to dismiss the remaining patent infringement claim in the district court case. Luv n’ Care filed and was granted a motion for attorney’s fees on the basis that Munchkin’s claims were so substantively weak that the case was exceptional. As part of the award, the district court allowed Luv n’ Care to recoup its fees related to the ʼ993 IPR even though the proceedings took place before the PTAB rather than in district court.
Munchkin turned to the Federal Circuit for relief arguing that the district court abused its discretion in awarding Luv n’ Care attorneys’ fees. Unfortunately for Luv n’ Care, the Federal Circuit agreed with Munchkin. The court explained that, while a district court has wide latitude to consider issues that have not been fully litigated before it as a basis for a fee award, when the basis of the award rests on such issues, it must be accompanied by a “fuller explanation of the court’s assessment of a litigant’s position.” In short, since the patent, trademark, and trade dress claims were not previously adjudicated by the lower court, the appellate court found that the lower court failed to adequately support its exceptional determination and fees award.
The court particularly took issue with what it deemed to be an unexplained conflict between the lower court’s previous orders and the exceptional determination. For example, the determination was based, in part, on Munchkin’s alleged unreasonableness in defending the validity of the ʼ993 patent, especially in light of the claim construction adopted by the PTAB during the ʼ993 IPR. The appellate court explained that the pertinent question here was not whether Munchkin’s claim construction position was correct, but rather whether Munchkin’s reliance on the claim construction was unreasonable (especially when the district court accepted Munchkin’s construction during the Markman phase of the litigation). Similarly, the Federal Circuit pointed out that the district court itself had allowed Munchkin to amend its complaint to use the current Click Lock logo for the trademark infringement claim and to add a trade dress infringement claim, so it did not make any sense that the lower court reversed its course and used the logo substitution and additional claim as a basis for support of the fee award. In the words of the court, “Munchkin cannot be faulted for litigating a claim it was granted permission [by the district court] to pursue.”
In addition, the Federal Circuit explained that Munchkin’s dismissal of its claims with prejudice was also not sufficient by itself to show that Munchkin’s litigating position was so substantively weak that the case should be deemed exceptional. Indeed, the court noted a number of other reasons why a party would choose to dismiss one or more claims in a litigation (including streamlining the issues before the court and between the parties). Finally, the district court was chastised for buying into Luv n’ Care’s argument that Munchkin was unreasonable in continuing to pursue its patent infringement claim after the ʼ993 IPR was instituted. The Federal Circuit explained that statistics of invalidity after IPR even when combined with a finding of invalidity by the PTAB were not enough to conclude that a party’s continued defense of the patent was unreasonable. In fact, the court opined that reliance on such a position was “wholly incompatible with Octane Fitness’s fact-dependent, ‘case-by-case’ requirement” because it would effectively subject every patent owner to paying a fees award if the patent at issue was cancelled in a co-pending IPR without regard for the strength of the patent owner’s litigating position. The court also evaluated Munchkin’s purported failure to disclose particular prior art during prosecution of the ʼ993 patent and found that this basis (adopted by the district court from Luv n’ Care’s motion) was not well supported.
So, if you decide to file a fees motion on never-adjudicated claims that are dismissed, what should your motion look like? The court here indicates that the motion must clearly explain, in a fact-intensive manner, why the plaintiff’s position on each claim was weak and/or fundamentally meritless and, thus, unreasonable. While this type of detail may seem burdensome if the claims were not fully litigated, it is not an impossible task (as noted by the Federal Circuit in its opinion). On the patent side, explain why the prior art invalidates the claims and why it would be unreasonable to take any other position. Detail how the failure of the patent owner to bring prior art to the attention of the examiner during prosecution of the patent amounted to inequitable conduct. On the trademark side, articulate in your motion why there was no actual confusion. Or, if you are arguing that it was entirely unreasonable for the trademark owner to believe that there was any likelihood of confusion, provide an argument on all of the factors – not just one or a few – to show that that plaintiff’s claim was substantively unreasonable from day one. With trade dress, incorporate a detailed showing of how the prior products or designs affect the scope of the asserted trade dress, including a clear identification of the features of the alleged trade dress that were present on prior products. In other words, steer clear of conclusory and speculative arguments. Dive into the detail. And, make sure you articulate why your case stands out from others with respect to the substantive strength of your opponent’s litigating position or the manner in which the case was litigated.
As an aside, since the court reversed the fees award, it did not opine on whether the circumstances of this case would have permitted recovery of attorneys’ fees under § 285 for a parallel IPR proceeding. But the court did cite to its very recent opinion in Amneal Pharmaceuticals LLC v. Almirall, LLC, where it was decided that attorneys’ fees and an exceptional case determination were not available when a patent owner defended an IPR challenge before the PTAB. However, the court in Amneal did not completely close the door on the question of whether a prevailing party could recover its fees related to the IPR if the resolution of the district court case depends on the outcome of the IPR. Thus, this footnote may be an indication that a fees award (if properly supported) could include fees generated from an IPR as long as that work was intimately tied to the district court case.