Opinion
CASE NO. 02CV0046-B (JMA), [Docket Nos. 736, 739, 747, 759].
May 1, 2006
ORDER RE: PLAINTIFF'S POST-JUDGMENT MOTIONS
After four years of active litigation, the Court entered final judgment in this patent infringement case. The jury in the damages phase concluded that Plaintiff Nichols Institute Diagnostics, Inc. had not proven by clear and convincing evidence that Defendants Scantibodies Clinical Laboratory, Inc. (the subsidiary corporation) and Scantibodies Laboratory, Inc. (the parent) willfully infringed United States Patent No. 6,030,790. On Plaintiff's request for compensatory damages pursuant to the theory of a reasonable royalty, the jury found that the parent company would have made a one million dollar up-front payment, and would have paid a 7% royalty on its sales of its infringing kits (a royalty base of $1.7 million). The jury found that the subsidiary, which actually performed the testing services, would have paid the same 7% royalty on sales of $17.6 million. Plaintiff Nichols filed five post-judgment motions. This Order resolves most of those motions.
I. Judgment as a Matter of Law and New Trial Motions
Plaintiff filed two motions to overturn the jury's verdict. Fed.R.Civ.P. 59(a). The first motion challenges the jury's conclusion that Defendants did not willfully infringe the `790 patent, and in the alternative, asks the court to order a new trial. Fed.R.Civ.P. 50(b). The second challenges the jury's award of damages as being unsupported by the evidence.
In patent cases, the district court applies Ninth Circuit standards to resolve post-judgment motions. Seachange Int'l, Inc. v. C-COR, Inc., 413 F.3d 1361, 1367-68 (Fed. Cir. 2005) (JMOL and new trial motions determined by regional circuit law); Union Carbide Chemicals Plastics Tech. Corp. v. Shell Oil Co., 308 F.3d 1167, 1182 (Fed. Cir. 2002) (collecting cases that "motion for new trial is a procedural issue not unique to patent law").
"Judgment as a matter of law ["JMOL"] is proper if the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to the jury's." Scott v. Ross, 140 F.3d 1275, 1281 (9th Cir. 1998). "A motion for judgment as a matter of law should be granted only if the verdict is against the great weight of the evidence, or it is quite clear that the jury has reached a seriously erroneous result." McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1036 (9th Cir. 2003) (quotation marks and citations omitted); accord Perkin-Elmer Corp. v. Computervision Corp., 732 F.2d 888, 893 (Fed. Cir. 1984) (applying Ninth Circuit law). "Substantial evidence is such relevant evidence as reasonable minds might accept as adequate to support a conclusion even if it is possible to draw two inconsistent conclusions from the evidence." Landes Constr. Co., Inc. v. Royal Bank of Canada, 833 F.2d 1365, 1371 (9th Cir. 1987). When reviewing the jury's decision under the JMOL rule, the district court cannot weigh the evidence and cannot assess the credibility of witnesses. Id.; accord Perkin-Elmer, 732 F.2d at 893.
A new trial may be granted to correct a verdict that was "contrary to the clear weight of the evidence," or that are a result of errors of law, such as an erroneous jury instruction. Fed.R.Civ.P. 59; Murphy v. City of Long Beach, 914 F.2d 183, 187 (9th Cir. 1990) (quotation omitted). In making this evaluation, the district court may weigh the evidence as a whole and assess the credibility of witnesses. Murphy, 914 F.2d at 187. The court need not view the evidence in the light most favorable to the party who prevailed at trial; but instead, when the court has a "definite and firm conviction that a mistake has been committed," the court may set aside the jury's verdict. Id.; Landes, 833 F.2d at 1371 (court must also consider "a decent respect for the collective wisdom of the jury, and for the function entrusted to it in our system").
A. Willful Infringement
Nichols bore the burden of proof by the clear and convincing evidence standard to show willfulness. The jury found that Nichols had not proven willful infringement.
1. Evidence
Nichols cites a recent Federal Circuit case that clarifies that once the plaintiff "present[s] threshold evidence of culpable behavior," then "the burden of proof of production shifts to the accused to put on evidence that it acted with due care." Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354, 1368 (Fed. Cir. 2006) (quoting Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1332 (Fed. Cir. 2004)). Nichols argues that it met its initial burden, and that Scantibodies failed to produce evidence that it acted with due care. Nichols emphasizes that the defendant's good faith belief must be objectively reasonable, but that Tom Cantor's self serving statements do not meet that test. Underwater Devices Inc. v. Morrison-Knudsen Co., Inc., 717 F.2d 1380, 1389-90 (Fed. Cir. 1983). Nichols' brief fully discusses the detailed evidence that it contends demonstrates that it is entitled to judgment as a matter of law. Pl.'s JMOL Willfulness Br. at 3-15.
The Court denies this motion because the jury's verdict was categorically reasonable. Plaintiff failed to prove willful infringement by a preponderance of the evidence, let alone by the higher standard required to establish the culpability of a defendant's actions. Willfulness is an intensely factual question, and the jury was well within its power to interpret the evidence to conclude that Cantor's honestly believed the `790 patent was invalid and that he was not infringing it. Cantor relied on advice from scientists. Biotec Biologische Naturverpackungen GmbH v. Biocorp, Inc., 249 F.3d 1341, 1356 (Fed. Cir. 2001) (relied on employee with expertise); Rolls-Royce Ltd. v. GTE Valeron Corp., 800 F.2d 1101, 1109-11 (Fed. Cir. 1986) (defendant did not seek advice of attorney, but did talk to two in-house engineers, and that was sufficient to defeat willfulness charge). By analogy, a defendant's failure to obtain an attorney's advice does not in itself establish willfulness. E.g., Union Carbide Chems. Plastics Tech. Corp. v. Shell Oil Co., 425 F.3d 1366, 1380 (Fed. Cir. 2005). This jury believed Defendants' evidence, and the Court will not disturb its conclusion based upon Nichols' disagreement with the weight and import of the evidence. No re-trial is necessary.
2. Attorney-Client Privilege and Knorr-Bremse
Nichols argues that the jury's no willful infringement verdict was tainted by a legal error concerning the Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc) decision.
In seeking to overturn the jury's verdict or obtain an new trial, Nichols focuses on the unfairness of using the privilege as a sword at trial after depriving Nichols of any information on the content or competence of the legal opinions. See Columbia Pictures Indus. Inc. v. Krypton Broadcasting of Birmingham, Inc., 259 F.3d 1186, 1196 (9th Cir. 2001). Defendants invoked the privilege as a shield in the pre-trial stage of litigation. At the damages trial, Cantor repeatedly volunteered that he discussed licensing the `790 patent with an attorney. E.g., RT Vol. II at 173-74, 185, 188, 196 (Dec. 6, 2005). Even after the Court instructed Cantor not "to mention anything that was told to you by your attorney, any of your attorneys, with respect to any questions asked of you in this case," RT Vol. III at 38-39 (Dec. 7, 2005), Cantor interjected his consultations with counsel. When Plaintiff asked Cantor not "how" or "who," but "when" did he learn about the `790 patent, Cantor mentioned his "outside counsel." RT Vol. III at 118-19.
Nichols argues that Cantor's testimony confused the jury because the only relevance of the "advice" was to defend against the willfulness allegation. Nichols contends that Cantor's non-responsive answers to volunteer that he had discussions with an attorney were "manipulative" because "Scantibodies wanted the inference of a competent opinion of counsel without the stigma of its delayed procurement and without revealing the true content of the opinion." Pl.s' Br. at 5-6.
Nichols tries to distinguish the Knorr-Bremse case (which eliminated the "adverse inference" from a defendant's assertion of the privilege) with the following argument: "Scantibodies allegedly obtained some form of a legal opinion, but it expressly elected not to rely upon that opinion in this litigation. Yet, at trial, Scantibodies intentionally and in bad faith attempted to confuse the jury into misapprehending that it had reasonably relied upon the advice of counsel in deciding to continue its infringement." Pl.'s JMOL Willfulness Br. at 4. "The only conceivable purpose of [Cantor's] unsolicited remarks was to improperly influence the jury into believing that Scantibodies satisfied its affirmative duty of due care." Id. at 5. The evidence at trial was limited to "consulting" but no evidence suggests it was "competent," or that it related to the question of infringement or validity of the `790 patent. "Without establishing the credibility of the advice it received, that advice cannot, as a matter of law, help establish that Scantibodies satisfied its affirmative duty of due care." Id.
Nichols argues that the confusing jury instruction compounded the problem. It allowed the jury to find no willful infringement simply because Cantor "consulted" an attorney in some unknown way. It is unfair for Scantibodies to get the benefit of this evidence when it refused to expose the attorney's advice to scrutiny. The jury instruction should have included the criteria for evaluating an attorney's opinion so the jury had all of the information to test if the advice was competent and credible. Instead, all the jury heard was that Cantor consulted with attorneys, but the instructions did not provide the proper legal context for the jury to understand the proper role of advice of counsel in the willfulness analysis.
The Court thoroughly explored the Knorr-Bremse issue throughout the damages trial. The Court incorporates those comments as a part of this Order, e.g., RT (Dec. 2 9, 2005), and concludes that Nichols is not entitled to the relief it seeks. In short, Nichols fails to appreciate that the fact of consulting an attorney is different than the content of the advice. Because Scantibodies invoked the attorney-client privilege on the content, it is true that Nichols was at a disadvantage in discovering evidence that would show the jury that defendant willfully infringed the `790 patent. Nonetheless, Nichols cannot attack the competence of advice that is protected by the privilege. When asked what steps were taken once Defendants learned of the `790 patent, Nichols would have Cantor falsely testify that he did not contact an attorney and the judicial system does not permit such false impressions. The Court has carefully reviewed the transcript, and while Cantor was defiantly manipulative, his answers were on tangential matters and vague allusions. In short, Scantibodies did not introduce evidence of the substance of any legal opinion, thus, no jury instruction concerning the measures to evaluate the competence of the legal opinion was necessary. The Court denies the motion to set aside the jury's verdict or to order a new trial on this basis.
3. Willful Infringement Jury Instruction
Nichols alleges another legal flaw in the damages trial. After the jury instruction conference, the Court added language to the willfulness instruction that there must be "reckless disregard" of patent rights, which was defined as "complete indifference" to those rights. The addition arose out of dissenting and concurring opinion in Knorr-Bremse by Judge Dyk, in which he noted that the standard measuring a defendant's "reasonable" belief was inconsistent with the recent Supreme Court cases discussing punitive damages. E.g., State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). In light of the Supreme Court's rule requiring "reprehensible conduct" to establish punitive damages, Judge Dyk concluded that a defendant cannot be held to have willfully infringed a patent merely by failing to satisfy a duty of "due care," as that is simple negligence. Knorr-Bremse, 383 F.3d at 1350-51 (Dyk, J, concurring and dissenting). Nichols argues the Court changed the rule at the last minute and after Nichols had submitted its evidence and presented its theory of the case. Nichols argues that the change was error because the punitive damages standard of reckless disregard is inconsistent with the affirmative duty of care to respect patent rights.
The Court is not persuaded by Plaintiff's argument. The final jury instruction was consistent with Supreme Court and Federal Circuit law that "willfulness" does not equate with mere negligence but requires a "kind of egregious and reckless conduct." Knorr-Bremse, 383 F.3d at 1342; Union Carbide, 425 F.3d at 1381; Georgia-Pacific Corp. v. United States Gypsum, 195 F.3d 1322, 1334 (Fed. Cir. 1999). An intervening decision by the Supreme Court allows the district court to modify its reliance on Circuit decisions. Miller v. Gammie, 335 F.3d 889, 899-900 (9th Cir. 2003) (district court can re-evaluate circuit authority when that precedent has been undermined by or is irreconcilable with an intervening Supreme Court decision). The jury instruction does not compel the reversal of the jury's verdict or require a new trial.
B. Reasonable Royalty Damages
1. Legal Argument: "Second" or "Renegotiation" in October 2001
This second JMOL motion returns to the issue of the hypothetical negotiation tool to measure damages when a patentee seeks a reasonable royalty. This issue was comprehensively explored before and during the trial, and the Court incorporates its prior comments into this ruling. E.g., Order on Calculation of Reasonable Royalty (Doc. No. 623 filed Aug. 30, 2005); RT (Nov. 7, 2005, Dec. 2, 2005, Dec. 12, 2005).
The Court's August 30, 2005 Order at pages 4-5 used an unfortunate phrase and described this October event as a "second stage"; however, in later discussions with counsel, the Court clarified that there was no second hypothetical negotiation. Instead, the Court ruled that Nichols could introduce underlying evidence of the actual, real events and argue to the jury that the fact that Nichols subsequently acquired exclusive rights would cause an increase in the reasonable royalty rate.
The Court set February 1, 2001 as the date of hypothetical negotiation, as matter of law, because this was date of first infringement. Order on Calculation of Reasonable Royalty (Doc. No. 623 filed Aug. 30, 2005). As of that date, Pharis owned the patent. Thus, the parties to the "hypothetical" royalty negotiations were Pharis — not Nichols — and Scantibodies. Scantibodies' expert witness used the February date and those parties to opine that the up-front payment would be $500,000. The expert based this on the offers Pharis made to other interested companies, and from the actual agreements made with Nichols.
A subsequent event occurred on October 1, 2001. On this later date, Nichols obtained exclusive rights to enforce patent from Pharis. Nichols calls this a "re-negotiation." Nichols' expert used the October 2001 date to opine that once Nichols obtained all rights to the `790 patent, Scantibodies would be forced to negotiate with Nichols to continue its business. He reached the extravagant conclusion that this would increase the up-front royalty payment to $10 million, and the royalty rate to 10 or 20% (creditable against the lump sum).
In this post-judgment motion, Nichols repeats its argument that the district court opinion by Circuit Judge Easterbrook, who was sitting by designation, in 1995 in the Grain Processing Corp. v. American Maize-Prods. Co., 893 F.Supp. 1386 (N.D. Ind. 1995), aff'd in part vacated in part, 108 F.3d 1392 (Fed. Cir. 1392), on remand, 979 F.Supp. 1233 (N.D. Ind. 1997), aff'd, 185 F.3d 1342 (Fed. Cir. 1999), litigation shows how to handle a situation when the infringement begins, and then later, the plaintiff acquires the right to enforce the patent.
Grain Processing was litigated for eighteen years, during which time, one judge died, and eight opinions were issued. Circuit Judge Easterbrook, a well-respected jurist and an expert on economics sat by designation in the district court, took over the damages question after the original trial judge retired. He found there were no lost profits; then he calculated a reasonable royalty using the hypothetical negotiations model, and found a 3% royalty rate. Judge Easterbrook's analysis of the reasonable royalty is in his 1995 decision, which was appealed. The Federal Circuit remanded for further evaluation of the lost profits issue. Judge Easterbrook provided that in a 1997 opinion, and it was on that appeal that the Federal Circuit noted that the appeal had not raised the reasonable royalty issue.
The facts of the Grain Processing case were that, in 1974, the patent issued to a third party, and the defendant began to infringe the patent. In 1979, plaintiff bought the patent rights but the contract did not transfer "any right to recover damages for periods before assignment of the patent." Judge Easterbrook held that the hypothetical negotiation began in 1979 — the later date, or five years after date of infringement — because that was when plaintiff gained the right to recover damages. The expert testified that a 28% royalty rate applied between 1974 to 1991. Judge Easterbrook rejected that opinion and observed that "if" defendant had entered into a licensing agreement in 1974, by the time 1979 rolled around, defendant "could have" designed around plaintiff's patent and therefore "dropped the license," or it "might have" re-negotiated the terms by showing that it could have made a non-infringing product. Id. at 1391-92.
The Court concludes that Judge Easterbrook's analysis is not applicable to the instant case. The Grain Processing case concerns the changes in the market — real events that affected the economic value of the patent — as opposed to the assignment of the patent rights to plaintiff at that later date. The critical fact was that by 1979 the industry had advanced so that there was an equivalent product available, which would have eliminated the demanded for the patented product. Judge Easterbrook reasoned that defendant would not pay a royalty more than 3%, because, in 1979, it could have manufactured the alternative product at an increased cost of 2.3%.
Judge Easterbrook applied the 3% royalty on sales from 1981, when plaintiff filed the suit, to 1991, when defendant produced its own non-infringing product. See Grain Processing, 185 F.3d at 1560.
Plaintiff appealed Judge Easterbrook's conclusion that there were no lost profits. The Federal Circuit affirmed the lost profits decision in a published opinion, but noted that the parties had "forego[ne] an appeal on [reasonable royalty] issue." Grain Processing, 185 F.3d at 1567 n. 5. The Federal Circuit did comment that the district court's analysis of the royalty issue was "thorough" and supported by "sound economic data and with actual, observed behavior in the market." Id. But the Federal Circuit did not comment on Judge Easterbrook's reference to a "renegotiation," or his use of a date other than the date of infringement. Thus, the Grain Processing decisions provide meager support for Nichols' assertion.
By contrast, and more importantly, the Federal Circuit has repeatedly and expressly directed that the date of infringement controls the date of the "hypothetical" license negotiations. Applied Med. Res. Corp. v. United States Surgical Corp., 435 F.3d 1356, 1361 (Fed. Cir. 2006) (citing Hanson, and confirming the Wang "rule that the hypothetical negotiation relates to the date of first infringement."); Harris Corp. v. Ericsson, Inc., 417 F.3d 1241 (Fed. Cir. 2005); Wang Labs., Inc. v. Toshiba Corp, 993 F.2d 858, 870 (Fed. Cir. 1993) (date when damages accrue controls measure of hypothetical royalty); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1079 (Fed. Cir. 1983) (emphasis added) (Federal Circuit noted that "[t]he key element in setting a reasonable royalty . . . is the necessity for return to the date when the infringement began."). Pursuant to these explicit Federal Circuit holdings, regardless of limitations on Nichols' right to enforce the patents as of February 2001, the date of the hypothetical negotiations remains at the date when infringement began, which was February 2001.
In Harris, defendant began to infringe in 1992. Plaintiff's expert testified that a 1.75% royalty would apply, and that the hypothetical license would have had a five year period. Then, as of 1997 — at end of hypothetical five year license — the expert said that the hypothetical re-negotiation would have resulted in a reduced royalty rate of 0.5%. In 1998, plaintiff provided statutory notice of the patent. The jury awarded damages using the high rate, 1.75% for the entire period. The district court modified that calculation and averaged the two royalty rates to arrive at a 1.24%.
The Federal Circuit held averaging the rates was error because "the statutory damages period did not begin until [defendant] received notice of the patent on August 17, 1998." Because that statute controlled the time that plaintiff was entitled to collect damages, and because the expert testified that the hypothetical agreement after-1997 would have been 0.5%, that was the rate to use to calculate damages. The Federal Circuit agreed that the district court correctly considered "evidence of subsequent event," but held that it should have used the royalty rate that would have been in effect "when all of the infringement for which damages are available" occurred. Harris, 417 F.3d at 1257.
In Wang, the patent issued and defendant infringed it in 1987. Some years later, in 1990, plaintiff gave notice of the patent. The district court selected the 1990 date as the mostly likely date on which the hypothetical negotiations would have occurred, and applied a 2.75% royalty rate. Plaintiff appealed and argued that "negotiations should have been hypothesized at the start of infringement." Id. at 869. The Federal Circuit agreed that the district court committed legal error by choosing 1990 as the date of hypothetical negotiations. The Federal Circuit relied on the patent damages statute that required adequate compensation "but in no event less than a reasonable royalty for the use made of the invention by the infringer." Id. at 870 (quoting 35 U.S.C. § 284) (emphasis added). While it was "not illogical to hypothesize a negotiation at the time of notice, . . . this case is governed by the rule in Fromson [ v. Western Litho Plate Supply Co., 853 F.2d 1568, 1575 (Fed. Cir. 1988)], in which hypothetical negotiations were determined to have occurred when the infringement began, which was the date the patent issued, even though, under 35 U.S.C. § 286, the infringer was only liable for damages for the six years prior to the filing of the infringement action." Id. The Federal Circuit distinguished statutory provisions that limited the periods "for which damages may be recovered," for example, the notice requirement of § 287. "However, the [district] court confused limitation on damages due to lack of notice with determination of when damages first began to accrue, and it is the latter which is controlling in a hypothetical royalty determination." Id. (emphasis added).
B. Evidence
Nichols argues that the jury had no alternative but to accept plaintiff's expert opinion of the value of the license to Scantibodies, and that would take into account the anticipated revenue of $820 million per year (or $284 million in profit per year) that Scantibodies thought it would make and to award a $10 million dollar payment with a 20% royalty.
The Court is not persuaded. The jury rejected the extraordinary opinion, and properly awarded a more realistic $1 million up-front payment and a 7% royalty rate. This was higher than the calculation proposed by Scantibodies. The jury's calculation of damages was supported by the evidence that Scantibodies expected it would profit on its antibodies (e.g., the e-mails by Gao and sales staff), and the K/DOQI guidelines, which suggest that the testing market could grow as more doctors conduct tests on more kidney patients. The verdict shows that the jury thoughtfully considered the totality of circumstances and used the "hypothetical negotiation" tool appropriately.
II. Nichols' Motion for Treble Damages, § 284
The patent statute authorizes the district court to increase up to three times the amount of compensatory damages. 35 U.S.C. § 284. First, the court determines if the defendant was guilty of conduct that justifies enhancing the damages. Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570 (Fed. Cir. 1996). In the second step, the court determines whether and by how much to increase the damages under the totality of circumstances. Id.
Though the Federal Circuit often includes the term "bad faith" conduct when discussing the treble damages statute, the first question traditionally depends upon a finding of willful infringement. Since this jury found Scantibodies did not act willfully, Nichols argues that the circumstances show sufficient "bad faith" conduct. Nichols concedes that it has not found a Federal Circuit case in which a bad faith finding was the sole basis for enhanced damages under § 284, but it argues that there is room for interpretation that such conduct may justify increased compensatory damages.
In Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268, 277 (Fed. Cir. 1985) (emphasis added), the Federal Circuit stated "[i]t is well-settled that enhancement of damages must be premised on willful infringement or bad faith." Cited with approval in Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1574 (Fed. Cir. 1996). In SRI Int'l Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1468-69 (Fed. Cir. 1997), the Federal Circuit stated "[w]hen willful infringement or bad faith has been found" then enhanced damages punish and deter, but also quantifies the equities between the parties. In Delta X Corp. v. Baker Hughes Prod. Tools, Inc., 984 F.2d 410, 413 (Fed. Cir. 1993), the Circuit said that "[a] showing of willful infringement or bad faith must support an award of enhanced damages."
The law at least does not favor enhanced damages in the absence of willful infringement of the patent. Absent willful infringement, enhanced damages are usually not warranted. Shatterproof Glass Corp. v. Libbey-Owens Ford Co., 758 F.2d 613, 628 (Fed. Cir. 1985), cited in Sensonics, 81 F.3d at 1574. In fact, several district court opinions have concluded that willful infringement is a "prerequisite" to enhanced damages. Cargill, Inc. v. Sears Petroleum Trans. Corp., 388 F.Supp.2d 37, 75 (N.D.N.Y. 2005); Maxwell v. J. Baker, Inc., 879 F.Supp. 1007, 1011 (D. Minn. 1995); Jenn-Air Corp. v. Penn Ventilator Co., Inc., 394 F.Supp. 665, 676 (E.D. Pa. 1975). The Federal Circuit has declined to increase damages when the jury found no willfulness. E.g., Shiley, Inc. v. Bently Labs., Inc., 794 F.2d 1561, 1568 (Fed. Cir. 1986) (if the jury finds willful infringement did not occur, there is no basis for assessing increased damages). In Jurgens, 80 F.3d at 1570, the Federal Circuit noted the confusing "bad faith" language in connection with the treble damages statute, and clarified that misconduct during litigation, is a factor in the second step — when the court evaluates whether and by how much to treble damages. This suggests that the first step — was there conduct that warrants punishment — would not be satisfied by litigation misconduct in the absence of a finding of willful infringement.
Both parties cite Yarway Corp. v. Eur-Control USA, Inc., 775 F.2d 268 (Fed. Cir. 1985). There, the trier of fact concluded that defendant had not willfully infringed the patent. The district court exercised its discretion to increase the damages by finding that defendant had acted in bad faith to circumvent the license agreement. Id. at 272-73. The Federal Circuit reversed because it found that the defendant's conduct — to try to design around the patent — did not constitute bad faith. This was a legal conclusion because the policy of patents is to encourage inventors to design around patents, not punish them for these attempts to respect the patent rights. Id. at 277. Nichols cites the Yarway case because the Federal Circuit did not expressly reject the principle that increased damages could be imposed when there is no willful infringement, but when the defendant acts in bad faith. Rather, the Circuit disagreed with the district court's evaluation of the defendant's behavior. By contrast, Scantibodies argues the Yarway case does not help because the legal theory of the district court is no longer good law.
There is an early Tenth Circuit case holding that defendant's tactics of stonewalling, raising meritless defenses, and dilatory tactics was a reason to treble damages. Lam, Inc. v. Johns-Mansville, Corp., 668 F.2d 462, 474-75 (10th Cir. 1982) (distinguishing that attorney misconduct or the party's behavior in litigation was not relevant to willful infringement). In Lam, however, there was also the prerequisite finding of willful infringement. Id. at 474 (district court found willful infringement). As authority, Lam cited a district court opinion by Judge Bechtle. Jenn-Air Corp., 394 F.Supp. at 676. But even in that case, the district judge held that litigation misconduct, sometimes called bad faith, was a consideration for the court only after the jury had found willful infringement. Then the court could rely on the "protracted, vexatious and expensive litigation," the hindrance of discovery, and the weak defenses as reasons to treble damages. Id. at 676-77.
Even assuming that the Court has legal authority to increase damages for bad faith conduct when the jury has not found that the defendants willfully infringed the patent, this is not a case in which the Court would find sufficient bad faith litigation conduct or that enhancement of damages was necessary to deter misconduct. Nichols lists numerous factors to show Scantibodies acted in "bad faith," including the factors identified for willful infringement at the time Scantibodies learned of the `790 patent, and some additional facts from the trial, such as Cantor's volunteered statements about consulting attorneys as well as defense counsels' alleged defiance of the Court's claim construction ruling, tendency to make uncivil personal attacks, and misrepresentation regarding Cantor's unavailability for deposition and trial. Having presided over these proceedings for several years, the Court is aware of the vigorous litigation tactics and the background facts of Plaintiff's complaints. But the Court is not persuaded, taking into account the entire history of the litigation, that they are deserving of enhanced damages based on bad faith litigation conduct of Defendants.
III. Nichols' Motion for Attorney's Fees
A. "Exceptional Case" Finding. § 285
Section 285 of the patent statute states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. "The prevailing party must prove the exceptional nature of the case by clear and convincing evidence." Ruiz v. A.B. Chance Co., 234 F.3d 654, 669 (Fed. Cir. 2000).
The statute does not define "exceptional case." The criteria for enhancement of damages (i.e., up to treble damages, § 284, just discussed) and for the award of attorney's fees (i.e., exceptional case, § 285) "are not necessarily the same, although the contributing factors often overlap." Sensonics, 81 F.3d at 1574. "Bad faith and willful infringement are not the only criteria whereby a case may be deemed to be `exceptional,' although when either is present the requirement is more readily met. Litigation misconduct and unprofessional behavior are relevant to the award of attorney fees, and may suffice to make a case exceptional under § 285." Id. "Litigation misconduct and unprofessional behavior may suffice, by themselves to make a case exceptional under § 285" — the attorney's fee provision. Rambus Inc. v. Infineon Tech. AG, 318 F.3d 1081, 1106 (Fed. Cir. 2003); accord Epcon Gas Sys., Inc. v. Bauer Compressors, Inc., 279 F.3d 1022, 1034 (Fed. Cir. 2002); Hoffmann-La Roche Inc. v. Invamed Inc., 213 F.3d 1359, 1365 (Fed. Cir. 2000); Sensonics, 81 F.3d at 1574; Rolls-Royce, 800 F.2d at 1110-11; Kloster Speedsteel, 793 F.2d at 1580.
Nichols' brief contains a comprehensive list of the allegations that show Scantibodies and its attorneys acted in bad faith both before and during the patent litigation. Pl.'s Atty Fees Br. at 3-15. The Court is familiar with the facts and has carefully considered the bases of Nichols' request. The Court paid particular attention to the facts showing that defense counsel "played games" regarding Cantor's availability for deposition in August 2003 and for the liability trial in May 2005. Taking into consideration the totality of the circumstances, however, the Court finds that this not a sufficiently "exceptional" case that would warrant shifting some or all of the legal fees.
B. Attorney's Fees for Vexatious Litigation
Nichols cites another statute that would allow the Court to award fees and expenses. Under 28 U.S.C. § 1927, the Court may order an attorney to reimburse attorney's fees incurred as a result of an attorney's conduct to multiply the proceedings "unreasonably and vexatiously." Gomez v. Vernon, 255 F.3d 1118, 1134 (9th Cir. 2001). Nichols cites the unsuccessful motions, the failed defenses, and the requests to stay or continue trial to charge Scantibodies with unreasonably and in bad faith extending the litigation. Again, based upon the totality of the circumstances, this is not an appropriate case for shifting plaintiff's legal fees to defense counsel. E.g., B.K.B. v. Maui Police Dep't, 276 F.3d 1091, 1107 (9th Cir. 2002), cited in MEMC, 420 F.3d at 1382.
This Court applies Ninth Circuit law to the interpretation and application of a this issue. MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1382 (Fed. Cir. 2005).
C. Refusal to Admit Facts in Discovery
Nichols also seeks fees pursuant to Federal Rule of Civil Procedure 36(a) and 37(c), regarding requests for admission. The Court will issue a separate order to resolve this part of Nichol's motion for attorney's fees.
IV. Prejudgment Interest
The parties agree that Nichols is entitled to prejudgment interest, but dispute the calculation. The Court will resolve this motion in a separate order.
CONCLUSION
Upon due consideration of the parties' memoranda and exhibits, the arguments of counsel, a review of the record, and for the reasons set forth above:1. The Court DENIES both Plaintiff's motion for judgment as matter of law or a new trial on willfulness, and the motion for judgment as a matter of law on damages. [# 739-1, 739-2, 736]
2. The Court DENIES Plaintiff's motion for enhancement of damages [# 747].
3. The Court DENIES IN PART Plaintiff's motion for award of attorney's fees pursuant to exceptional case or 28 U.S.C. § 1927 [# 759]. The Court will issue a separate order resolving Nichol's request for fees pursuant to Federal Rule of Civil Procedure 37(c), as well as the motion for prejudgment interest.
IT IS SO ORDERED.