JULIE A. ROBINSON, District Judge.
Plaintiff Hopkins Manufacturing Corporation ("Hopkins") filed this single-count action for alleged patent infringement of U.S. Patent No. 6,837,551 ("'551 Patent") by Defendant Cequent Performance Products, Inc. ("Cequent"). On February 10, 2015, this Court granted a motion to stay the case pending inter partes review ("IPR") of the patent by the United States Patent and Trademark Office ("USPTO"). Following the cancellation of Hopkins's claims, this Court lifted the stay and granted summary judgment in favor of Defendant on December 12, 2016.
This Court has a limited history with the parties and this matter. The Complaint in this matter was filed on May 2, 2014 alleging infringement of the '551 Patent. Cequent moved to stay the case pending inter partes review before the United States Patent and Trade Office ("USPTO") Patent Trial and Appeal Board ("PTAB") on January 23, 2015.
Both parties submitted lengthy factual contentions — some of which were submitted without citation to the record.
Cequent, and its predecessor Tekonsha, produce trailer brake controllers, which connect trailers to vehicles. Tekonasha's line of brake controllers has been around since the 1960s, and Cequent acquired the brand in the early 2000s. The USPTO has awarded Cequent several brake controller patents, including U.S. Patent Nos. 6,068,352 ("'352 Patent"), 6,012,780 ("'780 Patent"), and 6,445,993 ("'993 Patent").
Hopkins, a Cequent competitor, also produces trailer brake controllers. Both Cequent and Hopkins create trailer brake controllers in the "do-it-yourself" consumer market. [REDACTED\]
In December 2013, Cequent sued Hopkins for patent infringement on Cequent's '352, '780, and '993 Patents in the United States District Court for the Eastern District of Michigan (the "Michigan Litigation").
During the pendency of the Michigan Litigation, Hopkins filed petitions for inter partes review with the USPTO against Cequent's '352, '780, and '993 Patents. The USPTO denied Hopkins's petition for inter partes review on the '780 and '352 patent, stating Hopkins failed to "demonstrate[] a reasonable likehood that [Hopkins] would prevail" in proving that at least one challenged claims is unpatentable.
Following the USPTO's decision in inter partes review, the Eastern District of Michigan lifted the stay. On January 1, 2017, the Eastern District of Michigan issued an order construing disputed claims limitations.
The '551 Patent was issued to United States Gear Corporation. In June 2006, it was purchased by AP Products. AP Products sold a different type of brake controller called the "Unified Tow Brake." [REDACTED\] From the time AP Products purchased the '551 patent, it felt that it had a legitimate potential infringement cause of action against Cequent.
Hopkins had researched and been aware of the '551 Patent for years.
In 2009, Hopkins reached out anonymously through its attorney to AP Products about the possibility of licensing the '551 Patent. [REDACTED\] [REDACTED\] Hopkins and AP Products could not agree to a royalty rate in 2009.
From May 2013 to February 2014, AP Products was involved in a significant lawsuit relating to the line of business that it purchased with the '551 Patent. As that lawsuit neared its end, AP Products's president learned through a mutual customer that Hopkins was looking to make changes in its sales representation. AP Products and Hopkins began discussing the sale of the '551 Patent.
On April 23, 2014, Hopkins purchased the '551 Patent from AP Products. AP Products agreed to exit the market for the product covered by the '551 Patent, which allowed Hopkins to sell that product line. When Hopkins purchased the '551 Patent, Hopkins obtained the "right to sue for and collect past and future damages for infringement."
On May 2, 2014, Hopkins filed the instant matter alleging that the Tekonsha brand P3, Prodigy P2, and Primus IQ brake controllers infringe on the '551 Patent.
Cequent filed a petition for inter partes review with the USPTO challenging the patentability of the eight claims of the '551 Patent on grounds of obviousness. In its inter partes review petition, Cequent advanced five invalidity grounds based on claims that the '551 Patent was obvious in view of prior art. Three of Cequent's grounds asserted that the '551 Patent's claims were obvious in view of the '780 Patent and in view of other prior art. Hopkins responded to the petition and argued the '551 Patent claims were not invalid.
After hearing both parties' position, the USPTO found Cequent had a "reasonable likelihood [it] would prevail" on at least one of the claims challenged.
In its order instituting inter partes review, the USPTO ordered Hopkins to file a response, or if it did not wish to respond, it needed to arrange a conference call with the USPTO and Cequent before the response deadline. After the deadline passed with Hopkins taking no action, Cequent contacted the USPTO and Hopkins requested a conference call. The USPTO ordered Hopkins to comply with its instructions by identifying whether it "(1) has elected not to file a Patent Owner Response, but has not abandoned the contest, or (2) has abandoned the contest with an explanation that [Hopkins] understands such abandonment will lead to cancellation of its involved claims under 37 C.F.R. § 42.73(b)(4)."
On February 10, 2016, Cequent forwarded to Hopkins what it called "a draft motion for consent judgment with the judgment for [Hopkins's] review."
Later in the day on February 18, 2016, Hopkins responded with its comment and attached a redlined version of a proposed stipulation of dismissal. The transmittal email read:
Cequent did not respond to Hopkins' email or request any changes to Hopkins' proposed stipulation of dismissal before filing its Motion to Lift the Stay and Motion for Summary Judgment on February 24, 2016.
Cequent filed a motion for summary judgment seeking prevailing party status in order to move for attorneys' fees under § 285 of the Patent Act. Hopkins opposed and argued that: (1) the USPTO's ruling rendered the action before this Court moot; (2) a judgment against Hopkins was not required to declare Cequent the prevailing party; and (3) a stipulated dismissal was sufficient. In granting summary judgment in Cequent's favor, the Court found Cequent the prevailing party and noted that a consent judgment would have been sufficient to confer prevailing party status for purposes of seeking attorneys' fees without the burden of time and resources for the litigants of filing for summary judgment.
Section 285 of the Patent Act authorizes a district court to award attorneys' fees in patent litigation. It provides, in its entirety, that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."
The court may determine whether a case is "exceptional" in the "case-by-case exercise of their discretion, considering the totality of the circumstances."
Cequent argues that this case is exceptional on both of the Octane Fitness prongs. First, Cequent argues Hopkins's claims regarding the '551 Patent in this matter were objectively weak compared to Cequent's exceptionally strong invalidity grounds adopted by the USPTO. Second, Hopkins's unreasonable litigation conduct stands out. For the reasons described more fully below, the Court finds Cequent has not met the preponderance of the evidence standard to prove this case is exceptional on either prong. Neither the substantive strength of Hopkins's litigation position nor the litigation conduct render this proceeding exceptional to warrant the award of attorneys' fees.
The Court must first determine whether the substantive strength of Hopkins's litigation position is objectively baseless to render this proceeding exceptional. Cequent argues Hopkins's infringement case was objectively baseless on three grounds — (1) the USPTO instituted inter partes review on the '551 Patent on all claims and rejected all of Hopkins arguments, (2) Hopkins's claim construction was legally incorrect and exceptionally weak, and (3) Hopkins conceded its validity position was weak by cancelling its claims.
A claim is objectively baseless when "no reasonable litigant could reasonably expect success on the merits."
First, Cequent argues that the USPTO's determination that all of the '551 Patent claims are invalid based on Cequent's '780 Patent establishes the objective baselessness of Hopkins's position. In particular, Cequent argues that Hopkins knew of the '780 Patent when it filed suit in Kansas, and that it should have known that the '780 Patent rendered the '551 Patent invalid. Courts have found subjective bad faith where a party asserts a meritless position when it knew or should have known the position was meritless.
Here, the Court finds that while Hopkins knew of the existence of the '780 Patent, there is evidence in the record that it was not aware of the other prior art that rendered the '551 Patent claims invalid.
Cequent requests that the Court ignore Hopkins's lack of knowledge of the other prior art because the inquiry should be solely objective. It cites Kilopass Technology, Inc. v. Sidense Corp., which states "a determination of whether the patentee acted in subjective bad faith must take into account the totality of the circumstances and does not require a showing that the patentee had actual knowledge that its claims are baseless."
Further, after obtaining the '551 Patent, the Court finds there was a good-faith basis for Hopkins asserting a '551 Patent infringement case. There was evidence in the record that the prior owner, AP Products, felt that it had a legitimate potential infringement cause of action against Cequent when it owned the '551 Patent. The fact that not only Hopkins, but also AP Products believed Cequent was infringing on the '551 Patent makes the assertion of this claim more reasonable, not less. Given the evidence that Hopkins did not know about the prior art in combination with the '780 Patent, there was a good-faith basis for asserting the '551 Patent infringement claim.
To the extent Cequent argues that its substantive position was so strong in petitioning for inter partes review that the USPTO did not institute inter partes review on two of its invalidity grounds, the Court finds this overstates the USPTO's findings. Cequent seems to suggest that its substantive position in inter partes review was "so strong" that the USPTO chose not to institute Cequent's additional invalidity grounds.
Second, Cequent argues that the USPTO found Hopkins's position with regards to the '551 Patent claims to be frivolous. Specifically, Cequent offers that Hopkins's "unduly narrow construction" of multi-axis accelerometer render its claim frivolous, and this is so especially in light of the USPTO's standard of "broadest reasonable interpretation." Fees have been imposed for making frivolous claim construction arguments.
Third, putting aside the USPTO's findings in instituting inter partes review, Cequent argues that Hopkins's voluntary cancellation of its claims renders the proceeding frivolous. In Gaymar Industries, Inc. v. Cincinnati Sub-Zero Products, Inc., the United States District Court for the Western District of New York considered a case where the plaintiff consented to cancellation of its claim at a much later stage in the proceedings.
Next, the Court must determine whether the totality of Hopkins's litigation conduct was unreasonable. Cequent argues that Hopkins's litigation conduct has been unreasonable on two grounds — (1) Hopkins purchased the '551 Patent to retaliate against Cequent for the Michigan Litigation and (2) once the claims were cancelled before the USPTO, Hopkins refused to agree to a consent judgment. Litigation misconduct "generally involves unethical or unprofessional conduct by a party or his attorneys during the course of adjudicative proceedings."
First, Cequent argues that Hopkins purchased the '551 Patent solely to retaliate against it for the Michigan Litigation. Further, Cequent argues that Hopkins filed this matter to extort a legal settlement and delay the Michigan Litigation. Indeed, "motivation" to harass or burden an opponent may be relevant to an "exceptional case" finding.
Here, there is evidence that the '551 Patent was not purchased solely to retaliate against Cequent. Hopkins submitted evidence that it had attempted to license the '551 Patent from AP Products as early as 2009, which fell through. Hopkins designed around the '551 Patent [REDACTED\] AP Products then became enthralled in major litigation surrounding the '551 Patent, and the litigation ended in February 2014. When the litigation ended, AP Products contacted Hopkins about the purchase of the '551 Patent. Hopkins ultimately purchased the '551 Patent in April 2014. With acquisition of the '551 Patent, Hopkins also gained the right to sue for present and future damages for infringement. It sued Cequent in May 2014 for infringement of the '551 Patent.
Given the presumption that an assertion of infringement of the '551 Patent was made in good faith, the Court does not find evidence that this suit was instituted solely to delay the Michigan litigation or extort legal settlement. The president of AP Products attested that it did not assert an infringement action against Cequent in the eight years it owned the patent because it did not have the litigation budget to sustain such a suit.
Cequent also argues that the institution of the '551 Patent suit in Kansas rather than asserting as a counterclaim in the Michigan Litigation is evidence of unreasonable litigation tactics. The Court finds this argument particularly unavailing because the Michigan Litigation involves a different set of claims and other patents than the '551 Patent suit, which involves as Cequent admits, a "different type of brake controller called the `Unified Tow Brake.'"
Lastly, Cequent argues that Hopkins forcing Cequent to file summary judgment instead of agreeing to a consent judgment was an unreasonable litigation tactic. The Court disagrees for two reasons. First, Hopkins agreed to a stipulated dismissal under Rule 41(a)(1)(A)(ii). There was evidence submitted here and at summary judgment that Hopkins believed a stipulated dismissal would be sufficient for purposes of prevailing party status. While the Court found that Rule 41(a)(1)(A)(ii) stipulated dismissal would not be sufficient, the Court in its Order on summary judgment recognized the lack of case law on the matter.
This Court finds this matter is not exceptional to warrant the award of attorneys' fees and expenses under § 285 of the Patent Act. The Court does not find Hopkins's infringement case was objectively baseless. Further, the Court does not find Hopkins engaged in unreasonable litigation conduct. With the Court's limited interaction with the parties and this matter and the limited record, there is insufficient evidence to warrant finding this case is exceptional. It appears that the true battle is being fought in the Michigan Litigation, so this Order should not be read to limit the possible recovery of attorneys' fees in that matter.