On January 25, 2017, the Federal Circuit ruled a district court did not abuse its discretion when it awarded the prevailing party’s attorneys’ fees under 35 U.S.C. § 285 based upon the losing party’s conduct with respect to responding to one particular issue in discovery. In National Oilwell Varco, L.P. v. Omron Oilfield & Marine, Inc., No. 2015-1406, the Federal Circuit affirmed the district court’s determination that plaintiff’s responses to discovery relating to the issue of standing was “unreasonable” and “extremely weak.” (CAFC Opinion). The Federal Circuit held that even though the plaintiff did not act in bad faith, the plaintiff’s position on standing and its delay in responding to discovery regarding standing warranted a finding that the case was “exceptional” and justified a partial award of attorneys’ fees.
In 2012, National Oilwell Varco, L.P. (“NOV”) sued Omron Oilfield and Marine, Inc. (“Omron”) in the Western District of Texas for infringing U.S. Patent No. 5,474,142 (’142 Patent). Omron moved to dismiss the complaint and, in the alternative, for summary judgment of invalidity and noninfringement. The district court granted Omron’s motion to dismiss, with prejudice, finding that NOV lacked standing to assert the ’142 Patent, and awarded attorney fees to Omron based on the exceptional nature of NOV’s litigation conduct. The district court also granted Omron’s alternative motion for summary judgment of invalidity and noninfringement.
The case-dispositive issue of standing was affirmed by the Federal Circuit. At issue was the proper interpretation of an asset transfer agreement between two companies, one of which was NOV.
In 2001, the named inventor assigned the ’142 Patent to Wildcat Services, L.P. In 2004, Wildcat assigned the ’142 Patent to MD/Totco, a Division of Varco, L.P (“Varco”). NOV and Varco are both subsidiaries of National Oilwell Varco, Inc. The USPTO records reflect no assignment of the ’142 Patent to NOV.
During discovery, Omron issued an interrogatory relating to NOV’s standing to assert the ’142 Patent. NOV responded that in 2006, it purchased the ’142 Patent from Varco pursuant to an “Asset Contribution Agreement” (“ACA”). In its interrogatory response, NOV represented that it would produce documents sufficient to substantiate the asset purchase and patent assignment, however, it failed to do so. NOV took the position that the ACA was “not relevant to any claim or defense in this lawsuit” and it represented that a different document that was produced (a so-called “Assistant Secretary’s Certificate” was sufficient because that document purportedly showed that all assets of Varco were sold to NOV. Contrary to NOV’s assertion, however, the “Certificate” assigned only “physical assets” and it made no mention of the ’142 Patent.
The district court granted Omcron’s motion to dismiss, finding that NOV could not prove it owned the ’142 Patent as of the date the lawsuit was filed. The court also granted Omcron’s motion for summary judgment of invalidity and non-infringement. Finally, the district court granted in part Omcron’s motion for attorneys’ fees, finding that NOV’s refusal to produce the ACA and its litigation conduct was “exceptionally unreasonable.”
The Federal Circuit affirmed the dismissal and partial award of attorney’s fees, but vacated the substantive decision regarding infringement and invalidity. The Court’s decision was based upon its finding that NOV lacked standing to sue.
The Court explained that standing is a “jurisdictional issue that implicates the case-or-controversy requirement of Article III.” The Court held that the ACA upon which NOV relied to support its claim to standing contained no reference to patents except for an Exhibit A, which was a spreadsheet with columns corresponding to various divisions of Varco and rows corresponding to various assets, liabilities, equities, and revenues. No mention was made in Exhibit A, or anywhere else in the ACA, of the ’142 Patent. The Federal Circuit thus agreed with the district court that the ACA failed to assign the ’142 Patent to NOV. Since, as the Federal Circuit found, the plaintiff lacked standing to sue, the district court’s dismissal was appropriate.
The Federal Circuit further found that while dismissal for lack of standing is normally without prejudice, a dismissal with prejudice was warranted in this case. Three reasons supported dismissal with prejudice: (1) the USPTO’s records; (2) the plaintiff’s conduct in the present case; and (3) prior inconsistent litigation positions taken in other cases, post-ACA, in which Varco alleged that it owned the ’142 Patent.
Attorneys’ Fees Ruling
With respect to Omcron’s motion for attorneys’ fees, the Federal Circuit, following the standard in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), found that the district court did not abuse its discretion in finding the case exceptional. Interestingly, the district court did not find that NOV’s initial filing of the lawsuit to be exceptional—a ruling that could certainly have been attacked based upon the plain language of the purported assignment document. The Federal Circuit found no abuse of discretion in the district court’s decision that the initial filing of the lawsuit was not exceptional.
The Federal Circuit, like the district court, focused on NOV’s conduct in discovery as justifying its exceptional case finding. The district court found that NOV’s refusal to produce the ACA when Omcron specifically requested the document, and its maintenance of the lawsuit once it was clear NOV lacked standing, to be “exceptionally unreasonable.” The district court further found (and the Federal Circuit affirmed) that NOV’s “legal arguments” regarding standing were “remarkably weak” and chastised NOV for withholding the ACA by “unreasonably claiming it was not relevant to any claim or defense in this case.”
The Federal Circuit awarded all attorneys’ fees that Omron incurred starting from the date that NOV refused to produce the ACA—as opposed to the time between when NOV objected to this discovery until it actually produced the ACA. The district court found, and the Federal Circuit agreed, that the standing issue “was not a close call” and that NOV presented “no credible arguments” to establish standing.
No Standing Means No Jurisdiction
The Federal Circuit also held that because NOV lacked standing, the district court lacked jurisdiction to rule on Omron’s motion for summary judgment of noninfringement and invalidity. Citing black letter Supreme Court precedent, the Federal Circuit explained that, “Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause.”
Since NOV lacked standing to sue, the district court lacked power to reach any merits decision—its only authority was to dismiss the case. Consequently, the Federal Circuit vacated the district court’s decision granting summary judgment of noninfringement and invalidity.
Import of Attorneys’ Fees Ruling
The Court’s ruling in NOV may provide further incentive for prevailing parties to seek attorneys’ fees pursuant to 35 U.S.C. § 285. Given the abuse of discretion standard, the district courts have considerable latitude in determining whether a case is exceptional, and the Federal Circuit appears to be less inclined to depart from a well-reasoned and rational exceptional case decision.
What is perhaps even more interesting in this case is that the award of attorneys’ fees was not an “all or nothing” proposition. While an argument certainly could have been made that the case was “exceptional” from the date it was filed—especially since a plaintiff has a Rule 11 pre-filing obligation to confirm, among other things, that it owns the patents and has the right to bring suit—the district court more narrowly tailored the temporal scope of its exceptional case finding.
As the Federal Circuit made clear in this case, even a case that starts off as unexceptional can become exceptional based upon a party’s unreasonable litigation conduct. Especially for important, potentially case dispositive issues, a party’s delay in providing discovery on such issues, or taking an unreasonable position regarding an important issue, may alone be grounds for an award of attorneys’ fees.
Is USPTO Ethical Discipline Possible?
This was not an ethics case. However, it may turn into one.
Bad results in litigation may lead to an ethics investigation by appropriate Bar Counsel. IP attorneys who take unreasonable positions in litigation and are ultimately called out by a judicial officer may find themselves surprised to receive an ethics inquiry from the USPTO’s Office of Enrollment and Discipline.
Some members of NOV’s litigation team are registered to practice before the USPTO. Practitioners who are within the USPTO’s disciplinary jurisdiction have an ethical duty not to “bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous.” 37 C.F.R. § 11.301. In addition, the OED is proactive in investigating whether patent and trademark attorneys’ conduct in litigation is “prejudicial to the administration of justice,” in violation of 37 C.F.R. § 11.804(d).
The OED is not limited to investigating conduct that occurs only within or before the USPTO. Therefore, litigating practitioners who are on the receiving end of a sanctions order, or whose conduct during litigation forms the basis for an Octane Fitness fee award, should be aware that the OED or other appropriate disciplinary authority may open an investigation to determine whether any conduct during litigation warrants professional discipline.