Despite acknowledging "a unique case involving an unusual set of facts—a not-so-dead inventor, forged documents, no evidence of culpability, and a late discovery request," the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s finding that the case is not exceptional under 35 U.S.C. § 285 and does not support a motion for attorneys’ fees. Digeo, Inc. v. Audible, Inc., Case No. 07-1133 (Fed. Cir., Nov. 1, 2007) (Michel, C.J.).
Digeo purchased U.S. Patent No. 5,734,823 (the ’823 patent) "as is" in 2002 at a bankruptcy estate sale. Prior to the sale, Digeo obtained the patent file history, in which a power of attorney (POA) was filed in 1996, allegedly signed by one of four inventors as the executor of the estate of his deceased brother, a second inventor. Also filed on the same day was a separate POA by the remaining three inventors. In assignments executed in 1996, but not recorded until 2002, the three inventors executed an assignment, and the one inventor executed the assignment on behalf of his supposedly deceased brother.
Digeo filed suit in 2005 against Audible for infringement of the ’823 patent. While deposing the inventors, Audible discovered that the supposedly deceased brother was, in fact, not dead and that the one inventor never signed the POA or assignment documents. Moreover, Audible secured a license from the supposedly deceased inventor retroactively to the date of issuance. Audible then moved for summary judgment and alternatively for dismissal on the grounds that Digeo lacked standing because it did not possess complete ownership of the ’823 patent and because Audible was a licensee of the patent. Audible also moved for attorneys’ fees under § 285 and for limited discovery to develop the § 285 claim.
The district court granted the summary judgment motion in part, concluding that because the assignments were forgeries (without opining whether anyone actually committed forgery), the assignments did not convey legal title in Digeo. The court denied the motion for attorneys’ fees, finding that there was no evidence that Digeo knew or should have known about the "forged" documents and further denied the request for extension of discovery. Audible appealed the court’s denial of attorneys’ fees and extension of discovery.
The Federal Circuit found, upon review, that the district court’s findings were not clearly erroneous in its denial of attorneys’ fees. The Court explained, in response to Audible’s arguments, the different burdens of proof under § 285 and Fed. R. Civ. P. 11 (under Ninth Circuit case law). According to the Court, when "a litigant moves based upon non-frivolous allegations for a Rule 11 sanction, the burden of proof shifts to the non-movant to show it made a reasonable pre-suit inquiry into its claim," whereas "the burden of proof for § 285 motions remains with the movant to show by clear and convincing evidence that the case is exceptional." Thus, while Audible argued that the burden for a showing had shifted to it as the movant, the Court explained that the burden was originally upon Audible under the § 285 claim. Because Audible was unable to establish with clear and convincing evidence that Digeo knew or should have known of the title defect in the patent, the district court’s findings were not clearly erroneous. In finding no abuse of discretion in the district court’s denial of the discovery motion, the Court stated that "Audible’s ‘unsubstantiated speculation’ about Digeo’s conduct does not demonstrate a ‘reasonable probability that the outcome of its § 285 motion would have been different had discovery been allowed.’"
Practice Note:
The Court suggested that the result may have been different had Audible brought a Rule 11 motion against Digeo, which would have required Digeo to show that it conducted a reasonable pre-suit investigation. Failure of a plaintiff to establish such a showing can serve as a basis for a Rule 11 sanction and a separate § 285 motion.