Federal Circuit Decision in Medical Device Case Sheds Light on “Exceptionality” Analysis for Attorney Fees
In Stone Basket Innovations, LLC v. Cook Medical LLC, a recent case involving the enforcement of a medical device patent, the Federal Circuit affirmed a district court’s denial of attorney fees under 35 U.S.C. § 285. In its opinion, the court provided helpful guidance regarding the factors that impact a potential award of attorney fees and how a party can position itself for success on a § 285 motion.
In April 2015, Stone Basket Innovations (Stone Basket) filed a patent infringement lawsuit against Cook Medical (Cook), alleging infringement of U.S. Patent No. 6,551,327, a patent directed to a basket-type device used to remove stones from biological systems. In March 2016, Cook filed a petition for inter partes review (IPR) of all claims of the patent. The IPR was instituted as to all claims of the patent and the district litigation was stayed pending the IPR. In December 2016, Stone Basket filed a motion requesting an adverse judgment in the IPR proceeding. The PTAB granted the motion and cancelled all claims of the ‘327 patent. At Stone Basket’s request, the district court litigation was dismissed with prejudice. Following the dismissal, Cook filed a § 285 motion, which was denied because the district court determined that the case was not “exceptional.” The Federal Circuit affirmed.
In a June 11, 2018 opinion, the Federal Circuit reiterated the standard announced in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014) 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.” The Federal Circuit found that the lower court did not err in its assessment of: (1) the substantive strength of Stone Basket’s litigating position, or (2) the alleged pattern of vexatious litigation by Stone Basket.
On the substantive strength of Stone Basket’s litigating position, Cook relied on two main items to support exceptionality: the invalidity contentions it served during the district court litigation and the patent inventor’s deposition testimony that “there was nothing novel about” an element added to claim 1 to overcome an examiner’s rejection. According to the Federal Circuit, the district court did not err in finding that this evidence did not warrant a finding of exceptionality. The Federal Circuit found that Cook’s invalidity contentions did not provide the level of detail contemplated by the district court’s local rules. The court further found that the main invalidity reference on which Cook based its arguments on appeal was listed on the face of the patent and thus had already been considered by the examiner. The court also explained that an inventor’s testimony “taken alone, neither ‘establishe[s] the invalidity of the patent on obviousness grounds’ nor constitutes a ‘material false statement to the [US]PTO.’”
In denying the fees motion, the district court also factored in its determination that Cook did not inform Stone Basket that it believed the lawsuit to be frivolous or demand that Stone Basket drop the lawsuit. The Federal Circuit explained that the conduct of the movant is relevant to the totality-of-the-circumstances inquiry. The Federal Circuit concluded that “failure to provide early, focused, and supported notice” of the belief that one was being subjected to exceptional litigation behavior supports the conclusion that the opposing party’s litigating position does not stand out from the litigation behavior of others as “exceptional.”
The Federal Circuit then turned to Cook’s allegations of a pattern of vexatious litigation by Stone Basket. Specifically, Cook alleged that Stone Basket’s managing members had filed more than 400 lawsuits for the purpose of extracting nuisance settlements, and that Stone Basket’s lawsuit against Cook was filed for the same purpose. The Federal Circuit explained that while a party’s similar conduct in other litigation is relevant to the totality-of-the circumstances in a § 285 motion, the district court did not abuse its discretion in this case, finding that”[t]he record lack[ed] evidence that the number of settlements or type of settlement Stone Basket proposed rises to what [the court has] previously considered exceptional.” Further, the court found there was no evidence of an immediate settlement demand in this case and “[i]nstead, Stone [Basket] litigated its position on the merits for nearly two years, presenting claim construction arguments before the District Court and responses to the IPR petition before the PTAB.” The Federal Circuit reiterated the Supreme Court’s caution that “fee awards are not to be used as a ‘penalty for failure to win a patent infringement suit.’“
The case provides several lessons for litigants who may want to pursue attorney fees:
Lack of detail in contentions or failure to comply with the district court’s contention requirements may undercut an argument that the opposing party took an exceptionally weak substantive position.
To position oneself for a fees motion, a litigant should “provide early, focused, and supported notice of its belief that it [is] being subjected to exceptional litigation behavior.”
If relying on a pattern of alleged conduct, a litigant should thoroughly develop the record with details about such conduct and provide an explanation for how the case at issue fits that pattern.