ORDER RE: TAXATION OF COSTS

(Re: Docket Nos. 706, 710 and 714)

PAUL S. GREWAL, District Judge.

Three motions remain before the court: (1) Defendants' motion for review of the Clerk's taxation of costs and for costs in the amount stated in the second amended bill of costs,1 (2) Plaintiffs' motion for review of the Clerk's taxation of costs and for no costs or reduced costs2 and (3) Plaintiffs' motion to find Plaintiffs as prevailing parties and to tax costs against Defendants.3 Each of these motions is opposed. The parties appeared for a hearing on these motions. Having reviewed the papers and considered the arguments of counsel, the court holds that each side shall bear its own costs.

I. BACKGROUND

Plaintiffs in this action are HTC Corporation, a Taiwan corporation with its principal place of business in Taoyuan, Taiwan, R.O.C., and HTC America, Inc., a Texas corporation with its principal place of business in Bellevue, Washington. Defendants (collectively, "TPL") are Technology Properties Limited and Alliancense, Limited, both California corporations with their principal place of business in Cupertino, California, and Patriot Scientific Corporation, a Delaware corporation with its principal place of business in Carlsbad, California.

HTC filed this action on February 8, 2008, seeking a judicial declaration that four patents owned by TPL — U.S. Patent Nos. 5,809,336, 5,784,584, 5,440,749 and 6,598,148 — were invalid and/or not infringed.4 A few months later, TPL filed actions against HTC in the Eastern District of Texas for infringement of the '336, '584, '749, and '148 patents.5 TPL then filed additional actions against HTC in the Eastern District of Texas asserting U.S. Patent No. 5,530,890.6 HTC amended its complaint in this court to add claims for declaratory relief with respect to the '890 patent.7 TPL responded with a counterclaim in this court for infringement of the '336, '749, '148 and '890 patents.8 After Judge Fogel denied TPL's motion to dismiss, or in the alternative, to transfer venue in the California action, the parallel Texas litigation was dismissed without prejudice.9 The action in this court then proceeded with five patents-in-suit — the '336, '584, '749, '148 and '890 patents.

The parties next stipulated to the dismissal of all claims based on the '584 patent.10 The stipulation included a TPL-provided covenant not to sue, which stated that neither TPL nor its successors-in-interest to the '584 patent would assert infringement of the '584 patent against any HTC product made, used, offered for sale, sold or imported into the United States currently or prior to the covenant date.11 The court accepted the parties' stipulation and, pursuant to Fed. R. Civ. P. 41(a)(2), dismissed all claims based on the '584 patent without prejudice for lack of subject matter jurisdiction.12 The parties also stipulated to the dismissal of all claims based on the '148 and '749 patents.13 That stipulation — entered by the court14 — included a statement that "in the event HTC is sued on the '148 or '749 patents in the future, none of the products at issue in this case will be accused."15

In advance of trial, the court granted HTC's motion for partial summary judgment on the '890 patent, precluding a portion of TPL's infringement claims and limiting the potential for money damages.16 In light of TPL's resulting inability to establish entitlement to damages, the parties stipulated to the dismissal without prejudice of all claims based on the '890 patent17 and the court entered the parties' stipulation.18 Upon incorporating the dismissal of the '890 patent claims into the final judgment entered in this action, however, the court declined to characterize the dismissal as a judgment in HTC's favor, stating that broader relief, such as patent invalidation, would have been available to HTC at trial.19 Consequently, at the time of trial, only the '336 patent remained at issue. The jury found that HTC's products infringed the '336 patent and awarded money damages, leading the court to enter final judgment in TPL's favor.20

After trial, TPL filed its bill of costs in the amount of $378,376.54.21 This amount was subsequently trimmed to $274,592.19 in TPL's first amended bill of costs22 and later further reduced to $227,566.79 in TPL's second amended bill of costs.23 HTC filed objections to both the first and second amended bills of costs.24 After reviewing the filings, the Clerk taxed costs against HTC in the amount of $113,255.63, disallowing some of TPL's costs as beyond the ambit of Civil L.R. 54-3.25

II. LEGAL STANDARDS

Pursuant to Fed. R. Civ. P. 54(d), "unless a federal statute, these rules, or a court order provides otherwise, costs — other than attorney's fees — should be allowed to the prevailing party. The clerk may tax costs on 14 days' notice. On motion served within the next 7 days, the court may review the clerk's action." The Supreme Court has bifurcated the taxation of costs inquiry.26 First, a party must be deemed a "prevailing party."27 Second, the court determines whether costs are warranted based on "the amount and nature" of the party's success.28

In the context of patent litigation, the first issue — whether a party is deemed the "prevailing party" — is governed by Federal Circuit case law.29 To "be a prevailing party, one must receive at least some relief on the merits" altering "the legal relationship of the parties."30 Relief on the merits may take the form of a judgment on the merits or a settlement enforced through a consent decree.31 Whether or not the parties voluntarily undertake the change in their legal relationship is irrelevant; the critical question is "whether there is a judicially sanctioned change in the legal relationship of the parties."32 At bottom, there must be "judicial imprimatur on the change."33

The second issue — whether costs are warranted — is a discretionary call for the trial court following the law of the regional circuit — here, the Ninth Circuit.34 "Rule 54(d) creates a presumption for awarding costs to prevailing parties; the losing party must show why costs should not be awarded."35 "In the event of a mixed judgment, however, it is within the discretion of a district court to require each party to bear its own costs."36

III. DISCUSSION

A. HTC Prevailed With Respect to the '148 and '749 Patents

On July 18, 2013, the asserted claims of the '148 and '749 patents were dismissed by stipulated court order.37 The court order incorporated the parties' stipulation that "in the event HTC is sued on the '148 and '749 patents in the future, none of the products at issue in this case will be accused."38 TPL does not dispute that the dismissal and incorporated covenant not to sue altered the legal relationship of the parties to HTC's benefit.39 TPL instead argues that because it voluntarily agreed to dismiss the claims and not reinstate them, HTC did not receive relief on the merits and therefore does not qualify as the prevailing party.40

TPL's reliance on the Supreme Court's statement in Buckhannon that a "defendant's voluntary change in conduct" lacks "the necessary judicial imprimatur" on the change is misplaced.41 The Supreme Court in Buckhannon rejected the proposition that voluntary settlement agreements that lack judicial sanction have the requisite judicial imprimatur to confer prevailing party status.42 The Court instead held that whether or not the parties' agreement is voluntary or involuntary is irrelevant; the critical question is whether or not it is judicially sanctioned.43

The Federal Circuit applied Buckhannon's holding in Highway Equipment Co., Inc. v. FECO, Ltd.44 In that case, the trial court dismissed the patent claims at issue based on the parties' stipulation that Highway Equipment would never assert the patent against FECO's pre-covenant products.45 The Federal Circuit held that the dismissal with prejudice based on the covenant "has the necessary judicial imprimatur to constitute a judicially sanctioned change in the legal relationship of the parties."46 The court distinguished the lower court's dismissal from a dismissal in which "voluntary action was taken outside the proceedings, was not designed to be judicially enforceable, and resulted in a dismissal without prejudice."47

Because the dismissal of the claims related to the '148 and '749 patents, and the incorporated covenant not to sue, were judicially sanctioned and "designed to be judicially enforceable,"48 HTC is the prevailing party with respect to those claims.49

B. Neither Side Prevailed With Respect to the '584 Patent

On April 25, 2008, TPL filed two complaints in the Eastern District of Texas against HTC asserting infringement of four patents, including the '584 patent.50 TPL has not, however, asserted infringement of the '584 patent in this district's proceedings. Following HTC's initial complaint for declaratory judgment with regard to all five patents-in-suit, TPL excluded the '584 patent from its infringement counterclaims.51 TPL provided HTC with a covenant not to sue, which stated that neither TPL nor its successors-in-interest to the '584 patent would assert infringement of the '584 patent against any pre-covenant HTC product.52 The parties then stipulated to dismissal of HTC's claims related to the '584 patent.53 The claims were dismissed without prejudice for lack of subject matter jurisdiction.54

HTC now asserts that it is the prevailing party with respect to the '584 patent claims.55 HTC argues that, like the dismissal of the '148 and '749 patent claims, the dismissal of the '584 patent claims amounts to a judicially-sanctioned limitation on TPL's ability to sue HTC in the future and that the dismissal therefore altered the legal relationship between the parties in HTC's favor.56 Although the Federal Circuit has held that a dismissal with prejudice based on a covenant not to sue has the requisite judicial imprimatur,57 it "has yet to determine whether a declaratory judgment defendant's grant of a covenant not to sue qualifies as a judicially sanctioned change in the legal relationships if no infringement claims or counterclaims were ever first made against the declaratory judgment plaintiff."58 District courts, including this one, have held that where a declaratory judgment defendant divests the court of subject matter jurisdiction over the case, either by disclaiming the patent at issue or by filing a covenant not to sue — and the court dismisses the claims without prejudice — the plaintiff is not the prevailing party.59

Because the dismissal of the claims related to the '584 patent was without prejudice for lack of subject matter jurisdiction, HTC is not the prevailing party with respect to the'584 patent.

C. Neither Side Prevailed With Respect to the '890 Patent

The court's grant of partial summary judgment on the '890 patent precluded a portion of TPL's infringement claims and the potential for money damages.60 In light of TPL's resulting inability to establish entitlement to damages, the court then entered the parties' stipulation to the dismissal without prejudice of all claims based on the '890 patent.61 Upon incorporating the dismissal into the final judgment entered in this action, the court declined to characterize the dismissal as a "complete victory in favor of HTC," since broader relief would have been available to HTC at trial.62

HTC now asserts that it is the prevailing party with respect to the '890 patent claims because "HTC prevailed on its motion for partial summary judgment."63 Consistent with the final judgment, however, the court finds that the dismissal was not a complete victory in favor of HTC. Moreover, the dismissal was without prejudice and therefore did not amount to a "judicially-sanctioned change in the legal relationship of the parties."64 HTC is not the prevailing party with respect to the '890 patent.

D. TPL Prevailed With Respect to the '336 Patent

The '336 patent was the only patent asserted at trial. The jury found that HTC's products infringed the '336 patent and awarded $958,560 in money damages to TPL.65 On October 3, 2013, the court entered final judgment in that amount.66 TPL prevailed with respect to the parties' claims regarding the '336 patent.67

E. Each Party Will Bear Its Own Costs

Although Rule 54(d) creates a presumption in favor of awarding costs to the prevailing party, "in the event of a mixed judgment," it "is within the discretion of a district court to require each party to bear its own costs."68 In Amarel v. Connell, for example, the Ninth Circuit reversed and remanded the district court's judgment in favor of the defendant on one of the plaintiffs' claims.69 Noting that the defendant had prevailed at trial on the other claim, the court stated that if the plaintiffs prevailed on remand, "the resultant mixed judgment may warrant that each party bear its own costs."70 This court has ordered parties in mixed judgment cases to bear their own costs.71

Here, the judgment is mixed. HTC prevailed with respect to the '148 and '749 patents, neither party prevailed with respect to the '584 and '890 patents and TPL prevailed with respect to the '336 patent. In light of the mixed judgment, and cognizant of the prolonged litigation between the parties spanning five accused patents, the equitable result is for each side to bear its own costs.72 However unsatisfying, the law treats such draws as group stage play: no winner may be declared.

IT IS SO ORDERED.