ORDER RE ATTORNEYS FEE AND TAXATION OF COST MOTIONS
[Doc. Nos. 169, 182]
[Doc. No. 91]
[Doc. No. 291, 317, 319]
[Doc. Nos. 158, 171]
[Doc. Nos. 162, 175]
CATHY ANN BENCIVENGO, District Judge.
This matter is before the Court on Defendants' motions for attorneys' fees and Plaintiff's motions to review the Clerk of Court's taxation of costs. The motions have been fully briefed, and the Court deems them suitable for submission without oral argument. Defendants' motions are denied. Plaintiff's motions are granted.
I. Background
Plaintiff SPH America, LLC ("SPH") filed the above-captioned patent infringement lawsuits on September 26, 2013. On December 18, 2014, the Court stayed the case against Sprint Spectrum LP ("Sprint"), and ordered that the cases against AT&T Mobility, LLC ("AT&T"), T-Mobile US, Inc. ("T-Mobile"), and Cellco Partnershipt dba Verizon Wireless ("Verizon," and together with AT&T, T-Mobile, and Sprint, the "Carrier Defendants") would be stayed as of the date of an order from the Court construing claim terms. After claim construction, meanwhile, extensive discovery was conducted in the case against Huawei Technologies, Co., Ltd. ("Huawei").1
In the fall of 2016, the question of SPH's standing to sue for infringement came to the attention of the Court as a result of a discovery dispute between the parties to the Huawei lawsuit. After ordering briefing from the parties, on April 10, 2017, the Court entered an order dismissing the Huawei lawsuit because SPH lacks Article III standing to sue for infringement of the patents at issue in the litigation. The following day, the Court entered orders in each of the Carrier Defendant lawsuits dismissing them because SPH lacks Article III standing for all of the reasons discussed in the order dismissing the Huawei lawsuit. Each of the Defendants now move for their attorney's fees pursuant to: (1) 35 U.S.C. § 285; (2) 28 U.S.C. § 1927; and (3) the Court's inherent power.
Separately, each defendant except for Sprint filed bills of cost with the Clerk of Court. SPH filed objections to these bills of cost, and the Clerk of Court held a hearing on May 11, 2017. The Clerk of Court ultimately taxed costs against SPH in each case where a bill of cost was filed. SPH has now filed a motion asking for this Court to review the taxation of costs and order that no costs be awarded to Defendants. Each Defendants' three bases for entitlement to fees and SPH's motions concerning the taxation of costs are addressed below.
II. Attorney's Fees under 35 U.S.C. § 285
Section 285 of the Patent Act states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. Thus, to award fees, the Court must find both that these cases were exceptional, and that Defendants were the prevailing parties. Neither requirement is satisfied here.
A. Prevailing Party Determination
For a party to be "prevailing," there must be a "judicially sanctioned change in the legal relationship of the parties." Buckhannon Bd. & Care Home, Inc. v. W. Virginia Dep't of Health and Human Res., 532 U.S. 598, 605 (2001). The Federal Circuit applies its own law to determine the meaning of "prevailing party" in the context of patent litigation. Inland Steel Co. v. LTV Steel Co., 364 F.3d 1318, 1320 (Fed. Cir. 2004). Under Federal Circuit law since Buckhannon, "[t]o be the prevailing party, [] require[s]: (1) that the party received at least some relief on the merits, and (2) that relief must materially alter the legal relationship between the parties by modifying one party's behavior in a way that directly benefits the opposing party." SSL Servs., LLC v. Citrix Sys., Inc., 769 F.3d 1073, 1086 (Fed. Cir. 2014) (internal quotation marks, brackes and citation omitted). Here, the Court dismissed SPH's claims for lack of standing. This dismissal did not reach the merits of SPH's infringement claims. See Media Techs. Licensing, LLC. v. Upper Deck Co., 334 F.3d 1366, 1370 (Fed. Cir. 2003) ("Because standing is jurisdictional, lack of standing precludes a ruling on the merits."); H.R. Techs., Inc. v. Astechnologies, Inc., 275 F.3d 1378, 1384 (Fed. Cir. 2002) (noting that "lack of standing is not an issue that goes to the merits of the underlying patent issues"). As a result, one of the two requirements for finding the defendants to be prevailing parties is missing. For this reason alone, Defendants are not entitled to their fees pursuant to Section 285 of the Patent Act.
B. These Cases Were Not Exceptional
Even if Defendants are "prevailing parties" within the meaning of Section 285, they are not entitled to their attorney's fees because these cases were not exceptional. "[A]n `exceptional' case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is `exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1756 (2014); see also Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S.Ct. 1744, 1749 (2014) ("[T]he determination of whether a case is `exceptional' under § 285 is a matter of discretion.").
All of the patents at issue are owned by Electronics and Telecommunications Research Institute ("ETRI"), and all of the patents are subject to the terms of a 2007 license agreement. In SPH America LLC v. Acer, Inc. et al., S.D. Cal. Civil No. 09cv2525, Judge Houston held that SPH had standing to assert claims for infringement of the ETRI patents against a different defendant based on the same 2007 license agreement. The undersigned respectfully disagreed with Judge Houston's holding and held in dismissing the instant lawsuits that SPH does not have standing to sue for infringement of the ETRI patents based on the 2007 license agreement. However, that the undersigned ultimately interpreted the the terms of the license agreement differently from Judge Houston does not render this case exceptional. SPH entered into this litigation relying on a prior favorable holding concerning standing.
Defendants argue that SPH knew its position was unreasonable and therefore fought the disclosure of evidence that demonstrated its lack of standing and attempted to hide that fact. Defendants primarily focus on evidence related to negotiations of a license between Samsung and SPH that was not signed until 2015, more than a year after these cases were filed. Although this Court considered ETRI's role regarding licensing the patents-at-issue to Samsung as illustrative of the actual nature of the contractual relationship between SPH and the patents' owner, the Court's conclusion that the 2007 license agreement did not give SPH standing was based on a consideration of all the circumstances of the arrangement.
Fundamentally, this Court disagreed with Judge Houston's interpretation that SPH's obligation to act in the best interests of ETRI was not a significant limitation on the rights SPH obtained. SPH cannot act in a manner contrary to ETRI's interests without being subject to a breach of contract claim and loss of the 2007 SPH-ETRI license agreement. That the undersigned reached a contrary analysis on the question of contract interpretation, however, did not make SPH's belief it had standing based on Judge Houston's holding in the Acer lawsuit an unreasonable position. Nor did SPH's positions with respect to discovery about the Samsung negotations (which was eventually produced) rise to the level of unreasonableness warranting a finding that this case is exceptional.
In sum, considering the totality of the circumstances, these cases do not stand out from others with respect to the substantive strength of SPH's litigating position, particularly with respect to SPH's standing, which was the only basis for the Court's dismissal. Accordingly, the Court declines to find these cases exceptional and award Defendants their attorneys' fees under 35 U.S.C. § 285.
III. Attorney's Fees under 28 U.S.C. § 1927
Pursuant to 28 U.S.C. § 1927, "[a]ny attorney. . . who multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. The Federal Circuit applies the law of the regional circuit court when reviewing a district court's decision awarding or denying fees under section 1927. Phonometrics, Inc. v. Westin Hotel Co, 350 F.3d 1242, 1246 (Fed. Cir. 2003). Under Ninth Circuit law, section 1927 sanctions must be supported by a finding of bad faith or recklessness. Lahiri v. Universal Music & Video Distrib. Corp., 606 F.3d 1216, 1219 (9th Cir. 2010); In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 436 (9th Cir. 1996). "Bad faith is present when an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purpose of harassing an opponent." In re Keegan, 78 F.3d at 436 (citation omitted). Although it did not expressly say so, the Supreme Court at least implied that the requirements for awarding sanctions under this provision are more stringent than the requirements of 35 U.S.C. § 285. See Octane Fitness, 134 S.Ct. at 1756-57 ("Under the standard announced today, a district court may award fees [under 35 U.S.C. § 285] in the rare case in which a party's unreasonable conduct-while not necessarily independently sanctionable-is nonetheless so `exceptional' as to justify an award of fees.").
Having found that SPH's conduct did not render this case exceptional so as to entitle Defendants to a fee award under 35 U.S.C. § 285, there is little question that SPH's conduct is not sanctionable under Section 1927. The Court is not persuaded that SPH brought any single filing recklessly or in bad faith for the purpose of harassing the various defendants. Therefore, the Court declines to sanction SPH under 28 U.S.C. § 1927.
IV. Attorney's Fees Pursuant to the Court's Inherent Power to Sanction Misconduct
The Court may award sanctions under its inherent powers upon finding of vexatious litigation, bad faith, or when the applicable statute or Rules do not provide for an adequate sanction. Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 50 (1991). "Because of their very potency, inherent powers must be exercised with restraint and discretion." Id. at 44. For all of the reasons why the Court has declined to award attorney's fees under the relevant statutory authority, the Court also declines to do so pursuant to its inherent power.
V. Taxation of Costs in Favor of Defendants as the Prevailing Parties
Pursuant to Rule 54(d)(1) of the Federal Rules of Civil Procedure, "costs—other than attorney's fees—should be allowed to the prevailing party." Fed. R. Civ. P. 54(d)(1). Similarly, Local Civil Rule 54.1(a) states that "[u]nless otherwise ordered by the court, or stipulated by the parties, the prevailing party is entitled to costs." SPH argues that Defendants are not entitled to their costs because they are not "prevailing parties" within the meaning of these rules. "Whether a party is prevailing within the meaning of Rule 54 is a matter of Federal Circuit law and is reviewed de novo." Power Mosfet Techs., L.L.C. v. Siemens AG, 378 F.3d 1396, 1407 (Fed. Cir. 2004).
As set forth in Section II. A., supra, under Federal Circuit law since Buckhannon, to be the prevailing party, that party must receive at least some relief on the merits that materially alters the legal relationship between the parties by modifying one party's behavior in a way that directly benefits the opposing party. See SSL Servs., 769 F.3d at 1086. The Court dismissed SPH's claims for lack of standing. This dismissal did not reach the merits of SPH's infringement claims. See Media Techs. Licensing, 334 F.3d at 1370; H.R. Techs., Inc., 275 F.3d at 1384.
Defendants are not "prevailing parties" in these cases. Therefore, they are not entitled to costs under Rule 54(d)(1), meaning the Clerk of Court's orders taxing costs were erroneous.
VI. Conclusion
For the foregoing reasons, it is hereby ORDERED that:
1. Defendants' motions for attorneys' fees are all DENIED;
2. SPH's motions to review the Clerk's taxation of costs are all GRANTED; and
3. The Clerk of Court's orders taxing costs are all VACATED.
It is SO ORDERED.
