IP Law Daily Dismissal with prejudice for lack of standing is judgment on merits for Patent Act fee shifting
Wednesday, April 18, 2018

Dismissal with prejudice for lack of standing is judgment on merits for Patent Act fee shifting

By Cheryl Beise, J.D.

The federal district court in Dallas did not err in concluding that Microsoft and AT&T were the prevailing parties in a patent infringement suit that was dismissed with prejudice for lack of standing, the U.S. Court of Appeals for the Federal Circuit has held. The district court’s dismissal with prejudice of the plaintiff’s case for an incurable standing defect was "tantamount to a judgment on the merits." Moreover, the Supreme Court in CRST Van Expedited, Inc. v. EEOC clarified that a favorable judgment on the merits is not necessary for a defendant to be deemed a prevailing party for purposes of statutory fee-shifting. The Federal Circuit incorporated CRST’s rationale in its jurisprudence, abrogating conflicting prior precedent (Raniere v. Microsoft Corp., April 18, 2018, O'Malley, K.).

Keith Raniere claimed to own five patents—U.S. Patent Nos. 6,373,936, 6,819,752, 7,215,752 ("the ’5752 patent"), 7,391,856, and 7,844,041 ("the ’041 patent"). In 1995, Raniere, along with the other inventors named on the patents, assigned all rights in the patents to Global Technologies, Inc. ("GTI"). GTI was administratively dissolved in May 1996. In 2014, though not an officer, director, or shareholder of GTI, Raniere signed a document on behalf of it as the "sole owner" of GTI purporting to transfer the patents to himself. Raniere sued AT&T for infringement of all five patents and Microsoft for infringement of two patents.

In 2015, Microsoft moved to dismiss Raniere’s suit for lack of standing, noting that the PTO’s records indicated that Raniere did not own the patents at issue. The court ordered Raniere to produce documentation proving his claim of ownership. The district court found that the documents produced by Raniere failed to show that he had an ownership interest in GTI at any time or that Raniere had the right to assign the patents at issue from GTI to himself. The court permitted Appellees to conduct limited discovery into the standing issue and stayed the cases pending its resolution. After giving Raniere two additional opportunities to prove that he owned the patents-in-suit, the court concluded that Raniere was unlikely to be able to cure the standing defect and dismissed the case with prejudice. The court also found that Raniere’s conduct demonstrated "a clear history of delay and contumacious conduct." In 2017, the Federal Circuit summarily dismissed Raniere’s appeal of the court’s dismissal for lack of standing.

The Appellees moved for an award of attorney fees and costs under 35 U.S.C. § 285. The district court ruled that the Appellees were the prevailing parties for the purposes of the Patent Act’s fee shifting provision and that the case was exceptional as standing out from other cases "with respect to the unreasonable manner in which it was litigated." The court awarded attorney fees and to the defendants under § 285, and alternatively, as a sanction pursuant to the court’s inherent authority. The district court awarded $300,295 to AT&T and $143,719 to Microsoft in attorney fees and costs. Raniere appealed the fee award.

Prevailing parties. Raniere first challenged the district court’s finding that Appellees are prevailing parties under § 285. Raniere argued that a dismissal with prejudice for lack of standing is a jurisdictional ruling, not an adjudication on the merits, thus precluding a finding that the defendant is a "prevailing party."

The Federal Circuit disagreed. The Supreme Court recently clarified that a favorable judgment on the merits is not necessary for a defendant to be deemed a prevailing party for purposes of statutory fee-shifting. In CRST Van Expedited, Inc. v. EEOC, 136 S. Ct. 1642, 1651 (2016), the Court explained that "[t]he defendant may prevail even if the court’s final judgment rejects the plaintiff’s claim for a nonmerits reason." Although CRST considered the fee-shifting provision of Title VII, the Court explained there that "Congress has included the term ‘prevailing party’ in various fee-shifting statutes, and it has been the Court’s approach to interpret the term in a consistent manner." Id. at 1646.

The Federal Circuit noted that other circuit courts have interpreted CRST to mean that, if a defendant succeeds on a jurisdictional issue, it may be a prevailing party. The Federal Circuit took the opportunity to incorporate CRST’s reasoning in its jurisprudence. "We hold CRST applies to our analysis of prevailing-party status under § 285, and that defendants need not prevail on the merits to be classified as a ‘prevailing party,’" the court said. "To the extent inconsistent with this conclusion, our prior case law to the contrary—Inland Steel and its progeny—is abrogated accordingly."

Even without CRST, the Federal Circuit said that the district court’s dismissal with prejudice of Raniere’s case for lack of standing was "tantamount to a judgment on the merits." This case was distinguishable from Univ. of Pittsburgh v. Varian Med. Sys., Inc., 569 F.3d 1328, 1332 (Fed. Cir. 2009), holding that a dismissal for lack of standing should generally be without prejudice, particularly when the defect is curable. The district court in this case dismissed the case with prejudice, after finding that the standing defect was incurable. The court did not err in finding that the Appellants were the prevailing parties for purposes of § 285.

Exceptional case. The district court also did not abuse its discretion in finding that the case qualified as "exceptional" under § 285, according to the Federal Circuit. The district court properly examined the totality of the circumstances and found the case to be exceptional. The district court specifically found that Raniere’s behavior throughout the litigation employed "a pattern of obfuscation and bad faith," and that this behavior caused Appellees to incur significant fees and costs to oppose Raniere’s positions.

Fee award. Raniere argued that the district court abused its discretion in determining the amount of the fee award. The Federal Circuit found no error in the district court’s discretionary determination of fees. The court’s fee determination was "well-supported" and reflected the court’s "careful consideration of the relevant billing rates, invoices, and records." The court did not accept Appellees’ fee request in its entirety, but declined some requested fees and costs and made modifications to the lodestar for duplication in effort between Microsoft and AT&T’s lawyers.

The Federal Circuit accordingly affirmed the district court’s award of fees and costs under § 285, and did not reach the court’s alternative award under its discretionary authority.

The case is Nos. 2017-1400 and 2017-1401.

Attorneys: Robert Dale Crockett (Crockett & Associates) for Keith Raniere. Constantine L. Trela, Jr. (Sidley Austin LLP) for Microsoft Corp. Stephen Blake Kinnaird (Paul Hastings LLP) for AT&T Corp.

Companies: Microsoft Corp.; AT&T Corp.

MainStory: TopStory Patent FedCirNews

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