Docket No. 2017-1784
O’MALLEY, MAYER, REYNA
August 15, 2018
Brief summary: DC finding this litigation exceptional under § 285 affirmed; $51 million fee award vacated and remanded as the DC “awarded all fee fees with no explanation whatsoever of a..causal connection” (Rambus, FC 2013).
Summary: This originally-sealed opinion (decided on July 27, 2018) explains that this appeal “derives from a multitude of patent infringement actions Rembrandt…filed in the mid-2000s against dozens of cable” and other companies, involving nine patents related to “over-the-air signals”, that were consolidated and ultimately decided against Rembrandt. “Many of the defendants…filed a motion requesting attorney fees under 35 U.S.C. § 285” which was granted with the DC “declaring the case exceptional” and awarding “Appellees more than $51 million in fees.” This opinion relates to Rembrandt’s appeal. The DC determined this case was exceptional because “Rembrandt: (1) wrongfully gave fact witness payments contingent on the outcome of the litigation” (to former Paradyne employees); “(2) engaged in, or failed to prevent, widespread document spoliation by Zhone” (Zhone acquired the disputed patents from original owner Paradyne with which Rembrandt had “a joint ‘patent assertion team’”); and “(3) should have known that the revived patents were unforceable” for inequitable conduct (IE) (e.g., two patents were allowed to lapse “Paradyne decided that the expected value…did not justify paying their maintenance fees” but later revived the patents). The FC panel reviewed the DC decision for an abuse of discretion, “a deferential standard” (Lumen View, FC 2016; Highmark, US 2014 and Bayer, FC 2017 (“a clear error of judgment in weighing relevant factors…or basing its decision on an error of law or on clearly erroneous factual findings”)). The FC panel first found that the DC’s factual findings were not “based ‘on an erroneous view of the law or on a clearly erroneous assessment of the evidence.’” The FC panel also found the DC’s finding that the witness payments were improper was not clearly erroneous (e.g., the DC “reasonably cound have found that when Rembrandt signed the consulting agreement, it was likely that the consultants would play a role in litigation” and “forseeable, at the very least, that the consultants would become fact witnesses” (which did occur); discussing Ethicon, FC 1998 “did not upend the longstanding ethical rule in Delware and other jurisdictions that fact witnesses…should not be paid contingent on the outcome of the suit” except “when the contingent payment accompanies the assignment or license of patent rights” as it “makes sense..to give…an incentive ‘to defend the property’”)). Under Third Circuit law, the FC panel found no clear error in the DC’s finding of spoilation (e.g., the DC “reasonably could infer that Rembrandt, not Paradyne or Zhone, actually had control over the documents that Zhone destroyed…[t]wo facts in the record suggest…that Rembrandt knew that document desctruction was a significant risk” and “did not issue a formal document retention notice until” documents had already been destroyed). The FC panel also found the DC’s finding of IE not to be erroneous since, e.g., “the PTO would not have revived the patents if it had known that Paradyne consciously allowed them to expire”, explaining that “Paradyne’s alleged mistake of fact is no defense”, IE is “the single most reasonable inference able to drawn from the evidence”, and the DC “reasonably could have found that Rembrandt know that the ‘858 patent had been abandoned and chose not to investigate how it had been revived” (Therasense, FC 2011 (which the FC found “does not apply” to the exceptionality determination); Network Signatures, FC 2013; Brasseler, FC 2001 (“[p]revailing on” IE “often makes a case ‘exceptional’”)). The FC panel also concluded the DC followed the proper procedures in making its exceptional-case determination and that it did not abuse its discretion (Octane Fitness, US 2014). However, the FC panel did vacate and remanded the DC’s fee award as it awarded all fee fees with no explanation whatsoever of a..causal connection” (Rambus, FC 2003 (“the amount of the award must bear some relation to the extent of the misconduct..the claimed misconduct affected only some patents asserted”).