United States: Litigation Misconduct And A Vexatious Litigation Strategy Can Justify Awarding Attorneys’ Fees For An Entire Case, Without Assertion Of Bad Faith Or Objectively Baseless Claims

In Monolithic Power Systems, Inc. v. O2 Micro International Ltd., No. 12-1221 (Fed. Cir. Aug. 13, 2013), the Federal Circuit held that litigation misconduct and a vexatious litigation strategy, without assertion of bad faith or objectively baseless claims, sufficed for a finding that the case was exceptional and for awarding attorneys' fees.

Monolithic Power Systems, Inc. ("MPS") and O2 Micro International Ltd. ("O2 Micro") sell integrated circuit products that control LCD and LED lighting.  ASUSTeK Computer, Inc. and ASUSTeK Computer International (collectively "ASUSTeK") are MPS customers.  In four previous patent cases involving infringement claims by O2 Micro, MPS and/or its customers obtained judgments of noninfringement or invalidity against O2 Micro, or O2 Micro stipulated to dismissal and covenanted not to sue.

In this case, MPS filed for DJ against O2 Micro with respect to four related O2 Micro patents:  U.S. Patent Nos. 6,856,519; 6,809,938; 6,900,993; and 7,120,035 (collectively "the '519 patent family").  After O2 Micro alleged infringement of three members of the '519 patent family and U.S. Patent No. 7,417,382 ("the '382 patent") in an ITC action against MPS and its customers, MPS amended its DJ complaint to include the '382 patent, and O2 Micro counterclaimed for infringement.  The parties agreed that the ITC discovery would apply in the district court action.

O2 Micro subsequently covenanted not to sue for infringement of the '519 patent family, and withdrew its assertion of the '519 patent family from both the district court and ITC proceedings.  MPS and ASUSTeK obtained summary adjudication regarding the '382 patent's invention date that exposed the '382 patent to the same prior art used to invalidate a related patent in an earlier case.  The district court also concluded that O2 Micro had proffered false testimony about the invention date.   After a court-appointed expert concluded that all claims of the '382 patent were invalid and MPS and ASUSTeK had filed their pretrial submissions, O2 Micro covenanted not to sue on the '382 patent and obtained dismissal of all claims.  But the district court found the case to be exceptional due to O2 Micro's vexatious litigation strategy, litigation misconduct, and unprofessional behavior, and awarded attorneys' fees for the entire case ($8,419,429), including fees incurred for ITC discovery for use in this case.  O2 Micro appealed.

On appeal, the Federal Circuit first addressed whether the case was exceptional.  The Court held that litigation misconduct alone may suffice for such a finding, and that findings of bad faith or objectively baseless litigation are not always required.  The Court further held that O2 Micro's overall vexatious litigation strategy and numerous instances of litigation misconduct were sufficient to support an exceptional case determination. 

The Court noted that O2 Micro's vexatious strategy included suing MPS customers to prompt MPS to file DJ actions.  In each previous case, O2 Micro withdrew its claims and granted covenants not to sue after substantial litigation had taken place.  In the underlying case, O2 Micro employed the same modus operandi, this time moving to dismiss only after MPS and ASUSTeK had completed their filings for the final pretrial conference, causing a waste of substantial resources.

"More than a decade ago, the Beckman Instruments court foretold, 'we can certainly imagine a case in which litigation misconduct would justify an award of attorney fees for the entire litigation.'  We are quite confident that this was the kind of case it had in mind."  Slip op. at 18 (quoting Beckman Instruments, Inc. v. LBK Produkter AB, 892 F.2d 1547, 1553 (Fed. Cir. 1989)).

The Court further noted that O2 Micro's litigation misconduct included repeated misrepresentations about the date of invention and having three witnesses testify to the same.  Furthermore, O2 Micro failed to conduct an investigation into the veracity of its representations until after MPS had retained an expert to debunk its version of events.  Then, O2 Micro obfuscated the fact that the claimed invention date had been manually entered on a key schematic.  Thereafter, O2 Micro filed three baseless motions attempting to bury the controversy over the invention date.  Thus, rather than straightforwardly admit the truth, O2 Micro dissembled and sought to mask its proffer of false testimony.  Accordingly, the Court upheld the finding of misconduct and unprofessional behavior, and held that the case was exceptional under 35 U.S.C. § 285.

The Federal Circuit next addressed the award of attorneys' fees.  At the outset, the Court held that O2 Micro had not waived its argument that an award of attorneys' fees must be limited to those fees that would not have been incurred but for its acts of misconduct.  The Court explained that O2 Micro had previously urged the same argument in its papers filed in opposition to the motion for fees.  The Court also held that Fox v. Vice, 131 S. Ct. 2205 (2011), did not apply to this case, explaining that the issue in Fox was the allocation of fees between frivolous and nonfrivolous claims in a single lawsuit, see id. at 2211.  In contrast, the situation here was how fees incurred in separate, but parallel, nonfrivolous proceedings should be allocated.

The Federal Circuit acknowledged that an exceptional case finding based on litigation misconduct usually does not support a full award of attorneys' fees, but instead, the fee award must bear some relation to the extent of the misconduct and compensate a party for the extra legal effort to counteract it.  But the Court held that this case was anything but usual and the extent of O2 Micro's misconduct was anything but limited.  Indeed, the litigation misconduct was not of isolated instances of unprofessional behavior by O2 Micro.  Rather, O2 Micro's misconduct comprised an abusive pattern or a vexatious strategy pervasive enough to infect the entire litigation.  O2 Micro's antics surrounding the invention date also took on many forms throughout the litigation, affecting several rounds of written discovery, deposition testimony, and baseless motions.  Finally, O2 Micro employed its usual tactic of granting covenants not to sue only after substantial work had been completed.  Thus, "O2 Micro's rampant misconduct so severely affected every stage of the litigation that a full award of attorney fees was proper here."  Slip op. at 17.  Under the unique circumstances, the district court's award of ITC-related expenses was also not an abuse of discretion, especially given the discovery's application in the district court and the parties' agreement to its dual use.  The Federal Circuit also noted that the fee award reflected discounts such that it demonstrated a careful exercise of discretion, not an abuse of it. 

In conclusion, the Federal Circuit affirmed the district court's order and recalled that "[m]ore than a decade ago, the Beckman Instruments court foretold, 'we can certainly imagine a case in which litigation misconduct would justify an award of attorney fees for the entire litigation.'"  Id. at 18 (quoting Beckman Instruments, Inc. v. LBK Produkter AB, 892 F.2d 1547, 1553 (Fed. Cir. 1989)).  "We are quite confident that this was the kind of case it had in mind."  Id.

Judges: Prost (author), Mayer, Reyna

[Appealed from N.D. Cal., Judge Wilken]

This article previously appeared in Last Month at the Federal Circuit, September 2013

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