When Patentee Asserts Infringement, There is a Good Faith Presumption of Correctness

The Court of Appeals for the Federal Circuit recently ruled that when a patent owner sues another asserting a valid patent, there is a presumption of good faith.  To “overcome that presumption and show that the patentee’s infringement claims were vexatious, unjustified, or frivolous, and were pursued in bad faith,” defendant must provide clear and convincing evidence. Medtronic Navigation, Inc. v. Brainlab Medizinische Computer Systeme Gmbh, Case no. 2009-1058 at slip opn. 13-14 (Fed. Cir. April 26, 2010) (available here).  In support, the Federal Circuit cited Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1382 (Fed. Cir. 2005); Springs Window Fashions LP v. Novo Indus., L.P., 323 F.3d 989, 999 (Fed. Cir. 2003); Serio-US Indus., Inc. v. Plastic Recovery Techs. Corp., 459 F.3d 1311, 1322 (Fed. Cir. 2006); and Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1328-29 (Fed. Cir. 2003).

Medtronic Navigation, Inc. (Medtronic) brought suit against Brainlab Medizinische Computer Systeme Gmbh, (Brainlab) alleging that Brainlab infringed the patented image-guided surgical navigation devices that use an array of cameras to detect the position of surgical instruments through triangulation.  Medtronic not only lost the case in the U.S. District Court but the judge found that the case was exceptional under 35 U.S.C. § 285 of the Patent Statute and awarded Brainlab over $4,000,000 ($4m) in damages for attorneys fees, costs, expenses and interest.  Further, the trial court assessed this award against Medtronic’s attorneys.  The Federal Circuit reversed this ruling.

The trial court, in an early ruling, refused to accept certain Medtronic claim construction theories (a Markman ruling).  Brainlab moved for summary judgment arguing non-infringement and, in response, Medtronic asserted infringement under the doctrine of equivalents, withdrawing its assertions of literal infringement of the claims.  Confirming the trial court judge’s earlier statement that infringement under the doctrine of equivalents is a factual finding relegated to the jury, the court denied Brainlab’s motion for summary judgment two weeks before trial.

Following Medtronic’s case in chief, Brainlab moved for judgment as a matter of law (“JMOL”) under Rule 50(a) of the Federal Rules of Civil Procedure raising the same arguments in its summary judgment motion.  Brainlab also added an argument that infringement by equivalents under one of the Medtronic patents was barred by amendment-based prosecution history estoppel.  The trial court denied the motion ruling that he wanted to hear Medtronic’s evidence and more carefully review the law.  Brainlab again made the same motion at the close of the entire case, before the case went to the jury.  The judge again denied the motion.

The jury found that Brainlab infringed Medtronic’s patents and awarded damages in excess of $50m. Brainlab then re-filed its JMOL motions. The trial court finally granted Brainlab’s JMOL motion, threw out the jury’s decision and found non-infringement on all counts.  The trial court held that Medtronic’s doctrine of equivalents theory was barred by prosecution history estoppel, adopting both the argument-based and amendment-based theories advanced by Brainlab.  Medtronic appealed the district court’s judgment for Brainlab and the Federal Circuit, in a non-precedential opinion, upheld the trial court’s rulings.

After the first appeal, Brainlab sought an award of attorney fees and expenses based on 35 U.S.C. § 285, 28 U.S.C. § 1927, and the court’s inherent powers arguing that the case was exceptional and that Medtronic and its trial counsel had prolonged a frivolous lawsuit and had obtained an improper jury verdict through litigation misconduct and abusive advocacy.  The trial court agreed and held that under Section 285, the case was exceptional and awarded over $4m for attorneys fees and costs to Brainlab.  The court also found that Medtronic’s attorneys engaged in abusive litigation conduct.  The award was assessed against Medtronic and its attorneys. The Federal Circuit overturned these rulings.

Although such trial court findings are reviewed under a highly deferential standard, see Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1026 (Fed. Cir. 2008), the size of the award and the “reputational impact” on Medtronic’s attorneys required a careful review of the record.  The Appeals Court stated:

We have held that there is a presumption that an assertion of infringement of a duly granted patent is made in good faith.   Clear and convincing evidence is required to overcome that presumption and show that the patentee’s infringement claims were vexatious, unjustified, or frivolous, and were pursued in bad faith.  The district court’s characterization of Medtronic’s claims as frivolous is undermined by the fact that the court denied BrainLAB’s motions for summary judgment and denied each of its motions for JMOL filed during the trial.  Absent misrepresentation to the court, a party is entitled to rely on a court’s denial of summary judgment and JMOL, as well as the jury’s favorable verdict, as an indication that the party’s claims were objectively reasonable and suitable for resolution at trial.  Slip opn. pg. 14-15 (citations omitted).

As for the award of fees under 28 U.S.C. § 1927, the Federal Circuit stated:

Even if McDermott [Medtronic’s attorneys] had concluded that Medtronic’s prospects for ultimately prevailing in the litigation were significantly diminished by the court’s claim construction order, it was not unreasonable for McDermott to continue to press its client’s case in light of the arguments that remained available to it.  See Mezibov v. Allen, 411 F.3d 712, 719 (6th Cir. 2005) (“[A]n attorney is ethically bound to make reasonable arguments on behalf of his client, even if the attorney disagrees with them.”); Stitt v. Williams, 919 F.2d 516, 528 (9th Cir. 1990) (“[A] lawyer should not be sanctioned for failing to abandon his client’s case at the drop of a summary judgment motion, unless there is no colorable defense to the motion that can be advocated and no possible merit to any argument that can be advanced.”).  Slip opn. pg. 37.

As for the trial courts “inherent power” to sanction counsel, the appellate court “ require[s] a finding of fraud or abuse of the judicial process before a trial court can invoke its inherent sanctioning power, and … [the] case must be sufficiently beyond exceptional within the meaning of section 285 to justify . . . a sanction under the court’s inherent power.” Slip opn. pg. 38; quoting Amsted Indus., Inc. v. Buckeye Steel Castings Co., 23 F.3d 374, 378-79 (Fed Cir. 1994).

The result, as noted above, was a reversal of the $4m attorneys fees award.

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