In a dispute between golf cart manufacturers E-Z-GO and Club Car, Judge J. Randal Hall of the Southern District of Georgia has denied Club Car's motion seeking attorney fees pursuant to 35 U.S.C. § 285, holding that under the Federal Circuit's standard E-Z-GO's suit and litigation conduct did not warrant finding the case exceptional.

Background

Club Car's "Carryall 2 LSV"

E-Z-GO (a division of Textron Inc.) and Textron Innovations, Inc. (collectively, "E-Z-GO") brought suit against Club Car, Inc. ("Club Car") on October 1, 2009, alleging that Club Car's Carryall 2 LSV and Carryall 6 LSV vehicles infringed U.S. Patent No. 7,332,881 ("the '881 patent"), titled "AC Drive System for Electrically Operated Vehicle."  Before filing an answer to the complaint, Club Car shared with E-Z-GO a draft inter partes examination request it had prepared, along with prior art references which Club Car contended invalidated the '881 patent.  E-Z-GO disagreed and refused to drop the suit, prompting Club Car to file the reexamination request and a motion to stay the litigation on December 7, 2009.  Despite E-Z-GO's opposition to the motion, the Court granted the motion to stay even before the USPTO granted the request.  

The PTO granted the reexamination request and the Examiner issued an Action Closing Prosecution, rejecting the claims 32 through 38 of the '881 patent.  E-Z-GO appealed to the Board of Patent Appeals and Interferences ("BPAI"), which affirmed the Examiner's rejections.  E-Z-GO appealed to the Federal Circuit but later withdrew its appeal.  Club Car then moved the Court to lift the stay, dismiss the action with prejudice, and award attorney fees under 35 U.S.C. § 285.  After reviewing the briefing, the Court viewed the parties as agreeing to a dismissal with prejudice under Federal Rule of Civil Procedure 41(a)(1)(A)(ii).  The Court held oral argument on November 27, 2012 to address the motion for attorney fees.

Standard for Finding of Exceptional Case Under 35 U.S.C. § 285

35 U.S.C. § 285 states that a "court in exceptional cases may award reasonable attorney fees to the prevailing party."  A determination whether to award attorney fees under § 285 involves a two-step process.  First, a court must determine whether the prevailing party has proved by clear and convincing evidence that the case is exceptional.^[1]  Second, if the court finds the case to be exceptional, the court must then use its discretion to determine whether an award of attorney fees is warranted and, if so, the proper amount of the award.^[2]  

The Federal Circuit has adopted a two-pronged approach for determining whether a case is exceptional under § 285.  Under the first prong, a court must look to whether "there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates [Federal Rule of Civil Procedure] 11, or like infractions."^[3]  Absent litigation or prosecution misconduct, the second prong allows an award of attorney fees if (1) the patentee brought the litigation in bad faith, and (2) the litigation is objectively baseless.^[4]  Courts recognize a presumption that the assertion of infringement of a duly granted patent is made in good faith.^[5]

Analysis

The Court acknowledged that Club Car was clearly the prevailing party, and thus it considered whether Club Car had proved by clear and convincing evidence that the case should be deemed "exceptional" under either prong.  

First Prong: Material Inappropriate Conduct

The Court first examined whether E-Z-GO engaged in material inappropriate conduct under the first prong.  Club Car argued that the case was unjustified and baseless because E-Z-GO "brought the lawsuit in the face of clear evidence that the asserted claims were invalid."  Club Car pointed out that it presented the draft reexamination request and prior art to E-Z-GO soon after the complaint was filed, that E-Z-GO pressed on with the litigation, and that the PTO completely invalidated the claims based on the prior art Club Car presented.  E-Z-GO maintained that it analyzed the prior art but simply disagreed with Club Car's contention that it invalidated the '881 patent's claims.  The Court stated that it would not hold a plaintiff liable for "vigorously enforcing a presumptively valid patent."  At best, the Court held, E-Z-GO was negligent in continuing the litigation, but negligence alone is not enough to conclude the litigation was unjustified.  Further, E-Z-GO promptly dismissed the case with prejudice after withdrawing its appeal of the BPAI's ruling, an action that belies unjustified litigation. 

Second, Club Car contended that E-Z-GO committed inequitable conduct in failing to cite its own manual during prosecution of the application that became the '881 patent.  The Court said that it was "peculiar" that E-Z-GO did not cite its own manual, but held that there was "simply no evidence showing Plaintiffs' intent to deceive the PTO."  E-Z-GO argued that it believed the reference to be cumulative of what had already been disclosed, and while the Court considered that justification "weak," it found that Club Car had not shown that E-Z-GO's conduct was inequitable.

Finally, Club Car argued that E-Z-GO engaged in misconduct during litigation by mischaracterizing the meaning of 35 U.S.C. § 318 in its brief opposing Club Car's motion to stay the litigation.  E-Z-GO cited § 318 and a case from the Eastern District of Virginia for the proposition that the Court was precluded from granting a stay until after the PTO granted the request for reexamination.  The Virginia case stated in part: "Because Escalade's request for reexamination is still pending, a stay is premature. ... Should the PTO grant Escalade's request for reexamination, defendant may again request a stay of this case pending the conclusion of those proceedings."^[6]  § 318 and the balance of case law do not support this position, so the Court found E-Z-GO's argument "deeply concern[ing]" and "troubling."  Nevertheless, the Court held that E-Z-GO's mischaracterization, in light of its reliance on the Virginia case, to fall short of rendering the case exceptional.  

Second Prong: Objectively Baseless Litigation Brought in Bad Faith

Having found no misconduct during litigation or in securing the patent, the Court turned to whether the litigation was brought in bad faith and was objectively baseless.  For objective baselessness to exist, the infringement argument must be so unreasonable that no reasonable litigant could expect it to succeed.^[7]  To prove objective baselessness, Club Car repeated the arguments it made regarding unjustified litigation, namely, that E-Z-GO had access to the prior art and reexamination request that ultimately led to its patent's invalidation, yet it pressed ahead.  E-Z-GO pointed out that even once the reexamination had been granted, there were multiple possibilities for how the proceedings would play out.  The PTO could have found that the cited art did not invalidate the patent, the PTO could have found amended claims to be patentable, or the BPAI or Federal Circuit could have reversed the Examiner's decision that the claims were unpatentable.  The Court found that Club Car had simply not produced enough evidence for the Court to conclude that the litigation was objectively baseless.

"Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation."^[8]  Having found that Club Car did not meet its burden of showing that the litigation was objectively baseless, the Court did not address the issue of bad faith.  Thus, the Court denied Club Car's motion for attorney fees and ordered the clerk to close the case.

The case, now closed, was E-Z-GO et al. v. Club Car, Inc., 1:09-cv-119-JRH-WLB, United States District Court for the Southern District of Georgia, Augusta Division. 

_{[1] Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1327 (Fed. Cir. 2003)}

_{.[2] Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454-55 (Fed. Cir. 1998) (en banc).}

_{[3] Brooks Furniture Mfg. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).}

_{[4] Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1324 (Fed. Cir. 2011).}

_{[5] Golan v. Pingel Enter., 310 F.3d 1360, 1371 (Fed. Cir. 2002).}

_{[6] Heinz Kettler GMBH & Co. v. Indian Indus., 592 F. Supp. 2d 880 (E.D. Va. 2009).}

_{[7] iLor, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011).}

_{[8] Id.}