CAFC examines 285/exceptional case in Stone Basket Innovations

The case concerned attorneys fees under 285, which were denied in this case:



Appellee Stone Basket Innovations, LLC (“Stone”)
sued Appellant Cook Medical LLC (“Cook”) in the U.S.
District Court for the Southern District of Indiana (“District
Court”), alleging infringement of U.S. Patent
No. 6,551,327 (“the ’327 patent”). Following a dismissal
with prejudice, see Stone Basket Innovations, LLC v. Cook
Med. LLC (Stone Basket I), No. 1:16-cv-00858-LJM-TAB
(S.D. Ind. Jan. 11, 2017) (J.A. 1157), Cook filed, inter
alia, a motion for attorney fees pursuant to 35 U.S.C.
§ 285 (2012) (“the § 285 Motion”). The District Court
issued an order denying the § 285 Motion. Stone Basket
Innovations, LLC v. Cook Med. LLC (Stone Basket II), No.
1:16-cv-00858-LJM-TAB, 2017 WL 2655612, at *1 (S.D.
Ind. June 20, 2017).

Cook appeals. We have jurisdiction pursuant to
28 U.S.C. § 1295(a)(1) (2012). We affirm.

(...)

This appeal involves two main issues, namely, whether
the District Court erred in its assessment of: (1) the
substantive strength of Stone’s litigating position, and
(2) the alleged pattern of vexatious litigation by Stone.
We address these issues in turn


Deference to the examiner is mentioned:


Moreover, Leslie is listed on the face of the ’327 patent,
see ’327 patent, References Cited, and when prior art
“is listed on the face” of a patent, “the examiner is presumed
to have considered it,” Shire LLC v. Amneal
Pharm., LLC, 802 F.3d 1301, 1307 (Fed. Cir. 2015). We
have explained that, where a party only relies on prior art
considered by an examiner in its invalidity contentions,
that party has the burden to “overcome[e] the deference
that is due to a qualified government agency presumed to
have properly done its job, which includes one or more
examiners who are assumed to have some expertise in
interpreting the references and . . . whose duty it is to
issue only valid patents.” PowerOasis, Inc. v. T-Mobile
USA, Inc., 522 F.3d 1299, 1304 (Fed. Cir. 2008) (internal
quotation marks and citation omitted). Having been
issued a valid patent, Stone was entitled to a presumption
of good faith in asserting its patent rights against Cook in
the form of a suit for infringement. See Checkpoint Sys.,
Inc. v. All-Tag Sec. S.A., 858 F.3d 1371, 1376 (Fed. Cir.
2017) (stating there is a “presumption that an assertion of
infringement of a duly granted patent is made in good
faith” (internal quotation marks and citation omitted)).
Cook’s invalidity contentions, based on prior art already
considered by the Examiner and with no further explanation,
do not make the substantive strength of Stone’s
position exceptional.



As to inventor testimony:


Moreover, contrary to Cook’s argument, an inventor’s
testimony that “there is nothing novel about [the sheath
movement],” J.A. 1510, taken alone, neither “establishe[s]
the invalidity of the patent on obviousness grounds” nor
constitutes a “material false statement[] to the [US]PTO,”
Appellant’s Br. 27, 28. A post-issuance statement regarding
a single element of a claimed invention does not
establish invalidity because “[w]e must consider the
subject matter sought to be patented taken as a whole.”
Graham v. John Deere Co., 383 U.S. 1, 32 (1966). During
prosecution, the USPTO found that the inventor’s
amendment adding the “handle portion comprising a
sheath movement element, . . . as proposed, would overcome
the rejection.” J.A. 1446. Indeed, duly issued
patents are presumed valid. See 35 U.S.C. § 282(a);
Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 95 (2011).
It was not necessarily unreasonable for Stone to continue
to rely on the ’327 patent’s presumption of validity despite
the ’327 patent’s inventor testimony. See Q-Pharma, Inc.
v. Andrew Jergens Co., 360 F.3d 1295, 1303 (Fed. Cir.
2004) (concluding, in an appeal from a denial of a fee
award, that a party’s decision to proceed with a lawsuit
was not frivolous “in light of the statutory presumption of
validity”).



As to litigation conduct:


The District Court was well within its discretion to
factor in Cook’s litigation conduct, because “the conduct of
the parties is a relevant factor under Octane’s totality-ofthe-circumstances
inquiry, including the conduct of the
movant.” Gaymar Indus., Inc. v. Cincinnati Sub-Zero
Prods., Inc., 790 F.3d 1369, 1373 (Fed. Cir. 2015) (footnote
omitted) (considering conduct of the movant in assessing
exceptionality). Such conduct includes Cook’s failure to
send any communication to Stone that highlighted and
set out with precision the specific invalidity argument on
which Cook now relies for its assertion that Stone should
have known its conduct was “clearly unreasonable,”
Appellant’s Br. 17, or “objectively baseless,” id. at 25, so
as to merit an award of attorney fees.

Further, Cook’s failure to provide early, focused, and
supported notice of its belief that it was being subjected to
exceptional litigation behavior further supports the
District Court’s determination that Stone’s litigating
position did not “stand[] out” from others. Octane, 134 S.
Ct. at 1756. Absent any evidence that Stone’s litigating
position was frivolous when filed or at any point before it
filed for dismissal, we are not persuaded the District
Court abused its discretion in determining Stone’s case
did not meet the standard for an award of attorney fees.
Cf. Nat’l Oilwell Varco, L.P. v. Omron Oilfield & Marine,
Inc., 676 F. App’x 967, 973 (Fed. Cir. 2017) (affirming
award of attorney fees where a party was “on notice” of its
potentially frivolous litigating position based on information
provided by the opposing party, yet took no action
to remedy its position).

(...)

Moreover, a “party cannot simply hide under a rock,
quietly documenting all the ways it’s been wronged, so
that it can march out its ‘parade of horribles’ after all is
said and done.” Aten Int’l Co. v. Uniclass Tech., No. CV
15-04424-AG (AJWx), slip op. at 5 (C.D. Cal. Mar. 30,
2018). We find this reasoning both persuasive and appli-
cable to this case. Cook waited until October 2016, nearly
a year after service of its invalidity contentions, and nine
months after the inventor’s statements regarding the
sheath’s novelty, before informing Stone that, if Stone
refused to drop its case, “Cook intend[ed] to file . . . a
motion for attorneys’ fees against [Stone], its principals
and its attorneys.” J.A. 1717. During oral argument,
counsel for Cook could not explain why it did not make its
assertion of frivolousness of the claims known to Stone
sooner. See Oral Arg. at 11:37–12:19, http://
oralarguments.cafc.uscourts.gov/default.aspx?fl=2017-
2330.mp3 (Q: “That [October 2016] email is . . . the kind
of communication I am talking about, that is, it
says . . . that if you don’t accept our settlement, then [we
will file for attorney fees].” A: “I recognize that . . . .”
Q: “It’s just that [the September 2016 letter] came very
late, . . . and the proceedings ended . . . six weeks later.”
A: “Yes . . . .” Q: “Why didn’t you send something like
that [September 2016 settlement email] before?” A: “I
didn’t think it would produce the result we were likely to
see . . . .” (emphasis added)).

(...)

We are further unpersuaded by Cook’s counterargument
that this case is similar to Rothschild, see Appellant’s
Br. 27 (citing 858 F.3d at 1388), in which we
reversed a district court’s denial of a § 285 motion because
the district court failed to consider plaintiff’s “willful
ignorance of the prior art” given counsel for plaintiff
admitted that counsel had “not conducted an analysis of
any of the prior art asserted in [the cross-motion] to form
a belief as to whether that prior art would invalidate” the
patent. Rothschild, 858 F.3d at 1388. In Rothschild, the
defendant also provided notice that the patent was invalid
under 35 U.S.C. §§ 101 and 102, and filed a motion for
judgment on the pleadings. See id. at 1385–86. The
defendant further served plaintiff with a Rule 11 letter
and appended both a draft Rule 11(b) motion and copies of
anticipatory prior art. Id. at 1386. Here, by contrast,
Cook failed to file any Rule 11 motion or motions for
summary judgment, and has not set forth any concrete
evidence that the District Court failed to consider Stone’s
evaluation of its case in light of the evidence of record.



Note footnote 2:


While we affirm the District Court’s ultimate exceptionality
determination, which considered evidence
that Messrs. Mitry and Salmon are in the business of
forming shell entities to extract nuisance settlements, see
Stone Basket II, 2017 WL 2655612, at *6 & n.3, we note
that Messrs. Mitry and Salmon appear to be patent
attorneys who have been authorized to practice law, see
J.A. 60; see also Oral Arg. at 19:05–11 (confirming the
same by Stone’s counsel). Alternative means exist for
punishing activities by licensed attorneys that might
demonstrate unethical conduct. See Oral Arg. at 33:01–18
(agreeing, by counsel, that “there are plenty of remedies
that are available” if a party has been subject to improper
conduct).