Abstract
In considering the totality of the circumstances, a Maryland court recently deemed a case "exceptional" and awarded attorney's fees against a company that displayed a pattern of threatening or instituting litigation to induce nuisance-value licenses or settlements, delayed disclosure to the USPTO of material prior art in its possession, and exhibited questionable litigation conduct, including being uncommunicative and uncooperative in the face of its opponent's reasonable attempts to conclude the dispute and making spurious arguments to avoid paying costs or fees. The court also found that the patent owner's dissolution did not shield it from paying the award of attorney fees, noting that the terminated entity continues to survive for purposes of the action until all judgments, orders, and decrees have been fully executed.
In United States patent-infringement cases, a fee-shifting
provision enables courts to award attorney's fees to prevailing
parties in "exceptional cases." District courts use their
discretion to determine when a case is exceptional by analyzing the
totality of the circumstances surrounding a case.
Recently, in Novartis Corp. v. Webvention Holdings
LLC,1 the U.S. District Court for the District of
Maryland deemed the case "exceptional" and awarded
attorney's fees to Novartis Corp., concluding that Webvention
LLC's conduct created inferences of improper motivation,
litigation misconduct, and a need for deterrence. The court looked
to the totality of the circumstances and found that Webvention: 1)
threatened or instituted litigation to induce nuisance-value
licenses or settlements; 2) delayed disclosure to the United
States Patent and Trademark Office (USPTO) of material prior art in
its possession during a patent reexamination; and 3) was
uncooperative and unresponsive toward Novartis during the course of
the litigation.
Background
After acquiring a patent covering webpage "mouse-over"
functionality—where an image or graphic changes once a user
places the mouse-pointer in a specific
location—non-practicing entity Webvention began demanding
five-figure licensing fees from companies it said were infringing
the patent. Within two years, Webvention claimed to have licensed
the technology to over 350 companies. When companies refused to pay
the licensing fee, Webvention would file suit and eventually sued
88 defendants in 21 different lawsuits. Many cases settled before
reaching the expensive discovery phase of litigation.
After receiving a demand letter from Webvention offering it a
license to use the patented technology for $80,000, Novartis filed
a declaratory judgment action asking the court to declare that
Novartis did not infringe and that the patent was invalid.
During the litigation, the USPTO reexamined the patentability of
Webvention's invention based on requests from anonymous third
parties. The reexamination triggered a duty on Webvention to
disclose all information to the USPTO known to be material to
patentability. Only after the substantive portion of the
reexamination had concluded in Webvention's favor, however, did
Webvention disclose to the USPTO material prior art that an alleged
infringer had provided to Webvention about one year earlier. Upon
request, a new reexamination was instituted based on the newly
disclosed prior art. The USPTO subsequently issued a final
rejection of the patent claims that Webvention had asserted against
Novartis.
In turn, Novartisfiled for judgment in its favor and asked the
court to find the case "exceptional" and award Novartis
its attorney's fees. Webvention quickly followed by filing a
covenant not to sue Novartis and asking the court to dismiss the
case. The court dismissed the case, declared Novartis the
"prevailing party," and decided the issue of
attorney's fees.
The Novartis Decision
The court held that the case was "exceptional" and
awarded Novartis its attorney's fees. To support its holding,
the court pointed to Webvention's practice of sending hundreds
of demand letters to companies offering licenses and threatening or
instituting expensive litigation to induce nuisance-value licenses
or settlements. Those licensing offers, the court noted, were at
prices far lower than the cost to defend a patent-infringement
lawsuit, thus inducing companies to settle rather than litigate,
which the court characterized as "nuisance settlements."
According to the court, Webvention's sole business purpose was
to extract licensing fees from as many companies as possible by
exploiting the high cost to defend complex patent-infringement
litigation.
Additionally, the court highlighted that Webvention was in
possession of dispositive prior art but failed to promptly disclose
the art to the USPTO during reexamination, and that Webvention
continued to threaten or institute litigation to induce licenses or
settlements while in possession of the prior art. The court also
considered Webvention's uncooperativeness and unresponsiveness
toward Novartis in the face of what the court called reasonable
attempts by Novartis to conclude the dispute after the USPTO's
rejection of Webvention's patent claims.
In total, the court reasoned the evidence justified an inference of
improper motives, litigation misconduct, and subjective bad faith
on the part of Webvention, resulting in an award of attorney's
fees to Novartis to deter such litigation behavior.
Webvention argued that because it is no longer a legal entity,
Novartis cannot recover fees from it or its counsel. The court
rejected that argument, stating that under Texas law, a terminated
entity continues for three years from termination for purposes of
"prosecuting or defending in the terminated filing
entity's name an action or proceeding brought by or against the
terminated entity," "permitting the survival of an
existing claim by or against the terminated filing entity," or
"settling affairs not completed before termination." If
an action on an existing claim against a terminated filing entity
has been brought before the expiration of the three-year period,
the terminated filing entity continues to survive for purposes of
the action "until all judgments, orders, and decrees have been
fully executed . . . ." and Novartis's motion for
attorney's fees was an action on an existing claim that was
brought well within three years of Webvention's
dissolution.
Strategy and Conclusion
This case shows a number of factors that a court may consider in
reviewing the totality of the circumstances in whether to award
attorney's fees: 1) threatening or instituting litigation with
the motive of inducing nuisance-value licenses or settlements;
2) failing to disclose material prior art to the USPTO; 3)
being uncommunicative and uncooperative with an opponent,
particularly after the USPTO finds the asserted patent claims
invalid in the face of the opponent's reasonable attempts to
conclude the dispute; and 4) making spurious arguments to
avoid paying costs or fees. These factors are useful to consider in
developing a litigation strategy regardless of whether any one or
combination of factors would be enough to create a sufficient basis
for awarding attorney fees.
Footnotes
1 The Novartis decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/Novartis_v_Webvention-1-11-cv-03620-97_2015-10-28.pdf.
Previously published in LES Insights
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