IP Law Daily Fee award for litigation misconduct reversed after judgment on merits was vacated
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Thursday, September 19, 2019

Fee award for litigation misconduct reversed after judgment on merits was vacated

By Thomas Long, J.D.

Because the Federal Circuit had vacated a lower court’s ruling that a manufacturer of artificial Christmas trees was entitled to judgment of noninfringement of asserted patent claims, the manufacturer was no longer a "prevailing party."

In a patent infringement dispute involving invertible artificial Christmas trees, the U.S. Court of Appeals for the Federal Circuit has reversed a district court’s award of attorney fees after it vacated, in a separate opinion, the district court’s decision on the merits that a Chinese manufacturer was entitled to a declaration of noninfringement. The district court had awarded limited attorney fees under Section 285 of the Patent Act with respect to the patent holder’s litigation misconduct, but had denied the request for a full award of fees because, in its view, the case was not otherwise "exceptional." After the Federal Circuit’s decision vacating the district court’s ruling on the merits, the manufacturer was no longer a "prevailing party" for purposes of Section 285’s fee-shifting provision. For the same reason, the manufacturer was not entitled to fees incurred in defending a customer in another lawsuit involving the same patentee (UCP International Company Ltd v. Balsam Brands, Inc. September 19, 2019, Clevenger, R.).

Patent dispute. UCP International Company Ltd. brought a declaratory action against Balsam Brands Inc., seeking a declaration of noninfringement of patent claims relating to invertible artificial Christmas trees. On June 22, 2017, Balsam added District Judge William Orrick’s former law partner and his firm as counsel. Given that relationship, Judge Orrick immediately recused himself, which resulted in a temporary reassignment of the case to another judge. After disqualification of the former law partner, the case was then reassigned back to Judge Orrick. The court entered summary judgment of noninfringement for UCP on November 3, 2017. UCP then filed a motion seeking reimbursement of its attorney fees incurred in the instant case and a previous related lawsuit.

District court’s orders. The district court issued an order granting in part and denying in part UCP’s motion for fees. UCP’s request for fees from the previous suit were denied because, in the district court’s view, UCP was not a prevailing party in that action, as required for a fee award under Section 285 of the Patent Act. With respect to the instant declaratory judgment action, the district court concluded that the case was "exceptional" for Patent Act attorney fee purposes only with respect to Balsam’s conduct resulting in the judge’s temporary recusal. Balsam acted in an unreasonable manner, approaching if not constituting bad faith, the court said. Therefore, UCP was entitled to attorney fees incurred in filing and defending the motion to disqualify. In a separate order, the district court awarded UCP $43,475 in fees for litigating the recusal issue, and $2,345 in fees-on-fees based on UCP limited success in its motion for attorney fees.

Arguments on appeal. Balsam appealed from the award of limited attorney fees, arguing that if the Federal Circuit, in a separate appeal, decided to reverse or vacate the district court’s judgement of noninfringement, then UCP would no longer be a prevailing party and could not receive a fee award. UCP cross-appealed on the ground that the district court abused its discretion in failing to award UCP all of its attorney fees incurred in the declaratory judgment litigation, and its attorney fees incurred in indemnifying its customer in the earlier related lawsuit. According to Balsam, it was entitled to a fee award for the declaratory judgment action regardless of whether the Federal Circuit disturbed the district court’s decision on the merits, arguing that the basis for the award was Balsam’s litigation misconduct.

Prevailing party. Because the Federal Circuit had vacated the judgment on the merits, it was required to also reverse the attorney fee award, the court said, because UCP no longer was receiving relief on the merits that directly benefited it and made it a prevailing party in the litigation. The appellate court rejected UCP’s contention that the fee award could be affirmed on alternative grounds. In the district court, UCP had sought fees under Section 285 and not any other basis. It could not raise these alternative grounds for the first time on appeal. It was immaterial that the district court awarded fees under Section 285 based on Balsam’s actions resulting in Judge Orrick’s recusal because that award depended on UCP’s status as a prevailing party on the merits.

Previous lawsuit. For the same reason—UCP was not a prevailing party after the appellate court’s decision vacating the district court’s determination on the merits—the appellate court rejected UCP’s argument that the district court abused its discretion in not awarding UCP all of the fees it incurred in defending its customer in the previous related litigation.

Fees-on-fees. Nor was UCP entitled to an award of its additional fees incurred in litigating its motion for attorney fees because it was not entitled to even the fraction of its fees-on-fees request that the district court had awarded. Because the Federal Circuit was reversing the district court’s decision regarding attorney fees, there was no longer a basis for awarding any fees-on-fees.

This case is Nos. 2018-2231 and 2018-2253.

Attorneys: Patricia Lynn Peden (Burke, Williams & Sorensen, LLP) for UCP International Company Ltd. and Global United Enterprises Ltd. Deanne Maynard (Morrison & Foerster LLP) for Balsam Brands, Inc., and Balsam International Unlimited Co.

Companies: UCP International Company Ltd.; Global United Enterprises Ltd.; Balsam Brands, Inc.; Balsam International Unlimited. Co.

MainStory: TopStory Patent FedCirNews

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