United States: When It Rains, It Pours: Waiver Of Privilege, Claim Disavowal, And On The Hook For Attorneys’ Fees

Last Updated: September 3 2014
Article by Cam Phan

Kilopass Technology Inc v. Sidense Corporation, No. C 10-02066 (Judge Susan Illston, August 12, 2014)

Judge Illston recently granted defendant Sidense's motion for attorney's fees under Section 285 of the Patent Act, which authorizes a district court to award attorney's fees in patent litigation in exceptional cases.  While that itself is worth reporting, there are three other issues related to this order that are noteworthy as well: waiver of attorney-client privilege and taking an inconsistent claim construction position (as well as pursuing a belated infringement theory).

But let's start with the granting of attorney's fees. Kilopass filed suit against Sidense, accusing it of infringing 3 patents. Judge Illston granted Sidense's motion for summary judgment of non-infringement, but denied Sidense's motion for attorneys' fees under Section 285. On appeal, the Federal Circuit affirmed the summary judgment motion but vacated the denial of attorneys' fees, requiring the district court to take into account the totality of the circumstances to determine whether Kilopass acted in bad faith in bringing the lawsuit. After the case was remanded, the Supreme Court issued its decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., setting forth the standard for determining whether a case is exceptional under 25. U.S.C. § 285. Judge Illston held that this case is one that stands out from other cases, i.e., exceptional, because Kilopass failed to conduct an adequate pre-filing investigation and litigated the action in an unreasonable manner, including shifting its theories of infringement late in the game without following proper procedures and engaging in gamesmanship.

1) Inadequate pre-filing investigation

  • The Court noted that Kilopass asserted claims of literal infringement despite receiving advice from previous counsel, Perkins Coie, that Sidense did not literally infringe. Although its second counsel, MoFo, speculated that Kilopass might have a reasonable argument for literal infringement, MoFo cautioned that further investigation is necessary to properly assess the potential viability of this argument. Kilopass instructed MoFo to -stop working instead.
  • The Court also concluded that there was no basis for Kilopass to assert infringement under the doctrine of equivalents. Perkins Coie did not analyze whether Sidense' technology infringed under the doctrine of equivalents. And although MoFo concluded that Kilopass had a basis under the doctrine of equivalents, Judge Illston dismissed Kilopass's reliance on this opinion because there was no evidence that Kilopass considered MoFo's preliminary infringement chart in bringing suit against Sidense and, additionally, MoFo's analysis appeared incomplete. The Court reviewed the billing record of MoFo's counsel and concluded that it was obvious that they were in the midst of investigating when Kilopass told MoFo to stop working. The Court also rejected Kilopass's reliance on its engineer's opinion that Sidense infringed under the doctrine of equivalents because the engineer was not an attorney.

2) Gamesmanship

  • The Court concluded that Kilopass's "attempt to argue one thing to this court, then argue a different thing to the BPAI, and then attempt to change its position before the BPAI only after it resulted in an unfavorable ruling from this Court amounted to 'gamesmanship.'" Kilopass obtained a favorable claim construction ruling that, according to Judge Illston, gave Kilopass a reasonable argument for arguing literal infringement. Kilopass threw all that away when it took a contrary position before the BPAI to avoid invalidating its patent. Instead of admitting that it was a "mistake," Kilopass vehemently argued that its position with BPAI was consistent with its position in the district court. Judge Illston did not buy that argument, and ruled that Kilopass had disavowed the claim scope. Only after receiving this death sentence did Kilopass change its tune and admit that it made a mistake before the BPAI by taking a position that was inconsistent with its claim construction position in the district court (because the protective order in the case forbade litigation counsel from communicating with prosecution counsel). But it was too little too late.
  • Kilopass changed its infringement theory at the expert discovery stage without asking leave of court and again attempted to present a new theory of infringement at the summary judgment stage. The Court concluded that Kilopass's reliance on three different theories of infringement is another example of gamesmanship.

As you're reading this, the question that probably comes to mind is how did the Court have access to communications between Kilopass and its attorneys that appear privileged on its face? As it turns out, when Kilopass produced 55,000 documents during discovery, it inadvertently produced 1,139 privileged documents. Judge Illston noted that 1 in 50 documents produced were purportedly privileged. Judge Ilston relied on this fact to reach the conclusion that Kilopass failed to take reasonable steps to prevent disclosure and therefore waived the attorney-client privilege. (See May 1, 2012 order.) The moral of the story? Don't play games with litigation or legal counsel or the Court – lest you end up paying the price alone.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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