The Supreme Court’s Recent Lowering of the Evidentiary Standard for Awarding Legal Fees in the Octane Case Turns-Up the Heat on Aggressive Patentees

Stephen Parker | April 24, 2015

Oplus Technologies, Ltd. v. Vizio, Inc.

April 10, 2015

Before: Prost, Moore, and O’Malley. Opinion by Moore.

Summary

Despite the district court’s determination that non-practicing-entity-plaintiff Oplus Technologies, Ltd.’s counsel, Niro, Haller & Niro, had engaged in “exceptional” litigation misconduct, the district court determined that attorney fees should not be awarded to defendants.  Upon appeal by defendant Vizio, Inc. of the denial of attorney fees, the Federal Circuit vacated and remanded the decision back to the district court to force the district court to reconsider its decision not to award attorney fees in light of the district court’s own fact findings showing a high extent of harassing, unprofessional and vexatious misconduct of plaintiff’s counsel and in view of the Supreme Court’s subsequent changing of the evidentiary standard for awarding legal fees in the Octane case to a preponderance of the evidence standard from the former clear and convincing evidence standard.

Details

Background:

Plaintiff Oplus Technologies, Ltd. (Oplus) sued Vizio, Inc. (Vizio) for alleged patent infringement of two patents.  Oplus, a non-practicing entity (NPE), was represented by the law firm of Niro, Haller & Niro in Chicago, Illinois, which is renowned for its representation of NPEs.  See, e.g., PRNewswire, VIZIO’s Award-Winning Legal Team Prevails In 10th NPE Case as the Nation’s Fight Against Patent Trolls Accelerates, October 9, 2013.  The case concluded on the merits by an order of summary judgment of non-infringement of the asserted patents.  Vizio then moved to recover legal fees, including attorneys fees and expert witness fees under 35 U.S.C. §285 and 28 U.S.C. §1927.  Although the district court found that the case was “exceptional” under 35 U.S.C. §285 and that “Oplus and its counsel were vexatious litigants and engaged in litigation misconduct,” the district court denied the award of legal fees.

Subsequent to the district court’s decision but prior to the Federal Circuit’s appellate review, in Octane Fitness, LLC v. Icon Health & Fitness (S. Ct. 2014) the Supreme Court rejected the Federal Circuit’s prior requirement of “clear and convincing evidence” for the entitlement to legal fees under §285, and held that the standard is a “preponderance of the evidence.”  See discussion of the Octane case on our WHDA CAFC Blog on May 23, 2014 blog post at: Octane.

Discussion:

The Federal Circuit reviewed the district court’s determinations under 35 U.S.C. §285 and 28 U.S.C. §1927 for abuse of discretion.

Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  As indicated above, in view of the Supreme Court’s Octane decision, patent litigants need only establish entitlement to such fees by a preponderance of the evidence, and not by the previous standard of clear and convincing evidence.

The Federal Circuit explained that while “[t]he district court opinions details an egregious pattern of misconduct,” nothing in the district court’s opinion or in the record substantiates the district court’s decision not to award fees.  The Federal Circuit pointed out that the district court opinion sets forth:

  1. That Oplus’s counsel’s behavior was inappropriate, unprofessional, vexacious, and harassing;
  2. That Oplus’s litigation positions, expert positions, and infringement contentions were a constantly moving target, referred by the district court as “a frustrating game of Whac-A-Mole throughout the litigation;”
  3. That Oplus misused the discovery process to harass Vizio by ignoring necessary discovery, flouting its own obligations, and repeatedly attempting to obtain damages information to which it was not entitled;
  4. That Oplus filed motions to compel that were “seriously contradictory and unreasonable” and sought to compel discovery that it was not entitled to;
  5. That Oplus used improper litigation tactics including presenting contradictory expert evidence and infringement contentions as well as misrepresenting legal and factual support;
  6. That Oplus consistently twisted the court’s instructions and decisions and attempted to mislead the court;
  7. That Oplus regularly cited to exhibits that failed to support the propositions for which they were cited;
  8. That Oplus’ counsel, Niro, Haller & Niro, improperly attempted to subpoena documents that counsel had gained knowledge of related to Oplus due to a prior litigation involving Vizio in which Niro, Haller & Niro was counsel but had received such documents under a prior protective order.

The Federal Circuit explained that based on its review of the district court record, the Federal Circuit “cannot find [any] basis to support the court’s refusal to award fees.”  The Federal Circuit noted that on appeal, Oplus has “not [even] challenged any finding by the district court.”

The Federal Circuit indicated that the reasons stated by the district court for denying fees were based on the district court’s position that while “Oplus’s behavior was “inappropriate, unprofessional, and vexatious, an award of attorneys fees must take the particular misconduct into account” and the district court explained that here, the particular misconduct didn’t warrant such fees because (1) the “case [was] fraught with delays and avoidance tactics to some degree on both sides,” (2) despite the misconduct “each instance of motion practice occurred according to normal litigation practice,” and (3) “[t]here is little reason to believe that significantly more attorney fees or expert fees have been occurred than would have been in the absence of Oplus’s vexatious behavior.”   However, the Federal Circuit expressed that these reasons were incorrect because (1) there was nothing on the record detailing improper conduct of Vizio and at oral argument Oplus’s counsel could not articulate any actions that would warrant the court’s denial, (2) whether or not the motion practice was similar to normal practice does not mean that defendant did not incur additional fees on account of counsel’s misconduct, and (3) “[t]he discovery abuses, unprofessionalism, and changing litigation positions described by the court had to have increased expense and frustration for all concerned.”

Accordingly, in view of the detailed findings of misconduct by plaintiff’s counsel, the lack of basis for denying fees and the recent change in law under the Supreme Court’s decision in Octane, the Federal Circuit vacated and remanded for reconsideration.

Takeaway

1.  This case highlights the increased chances of receiving awards of attorney fees after the Supreme Court’s Octane decision due to the reduction of the evidentiary standard to a preponderance of the evidence from the prior clear and convincing evidence standard.

2.  This case also highlights the increased risks faced by aggressive non practicing entities and/or aggressive patentees that seek to receive settlement payments from accused infringers.

3.  The Federal Circuits position that discovery abuses, unprofessionalism and changing litigation positions necessarily resulted in increased expenses, for which attorney fees should be proper in the absence of reasons why such attorneys fees should not be awarded, may encourage more litigants to seek attorneys fees in patent litigations.

Full Opinion

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