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Section 285 Authorizes an Award of Attorney Fees in Exceptional Cases, but Exceptionality Is Only an Element for That Award, Not a Separate Sanction

April 29, 2008

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Last Month at the Federal Circuit - May 2008

Judges: Rader (author), Schall, Farnan (District Judge sitting by designation)

[Appealed from: E.D. Va., Senior Judge Payne]

In Samsung Electronics Co. v. Rambus, Inc., No. 06-1579 (Fed. Cir. Apr. 29, 2008), the Federal Circuit held that because Rambus, Inc. (“Rambus”) offered to pay Samsung Electronics Company, Ltd.’s (“Samsung”) attorney fees, the district court’s order denying Samsung’s motion for attorney fees, but entering findings with respect to the spoliation of evidence, was issued without jurisdiction. Accordingly, the Court vacated that order and remanded the case to the district court with instruction to dismiss Samsung’s complaint.

Rambus sued Samsung in the Northern District of California alleging infringement of four Rambus patents directed to dynamic random access memory devices (“DRAMs” ). The next day, Samsung filed a DJ action in the Eastern District of Virginia seeking a declaration that the patents were invalid, unenforceable, and not infringed. Because the DJ action was related to a prior litigation involving the same patents, the district court accepted jurisdiction. In that prior case, Rambus v. Infineon Technologies AG, 164 F. Supp. 2d 743 (E.D. Va. 2001), the district court had ruled from the bench that Rambus had unclean hands due to spoliation of evidence. Rambus settled that case and as a result, the district court dismissed it before entry of any findings or judgment against Rambus.

Rambus unsuccessfully moved to transfer this case from Virginia to the Northern District of California, where Rambus had originally filed suit against Samsung and where other lawsuits involving the same patents were ongoing. On the other hand, Samsung was aware of the adverse findings against Rambus in Infineon and sought to keep the case in Virginia due to the possibility of invoking collateral estoppel on the basis of the earlier unpublished spoliation findings. Subsequently, Rambus filed covenants not to sue Samsung on the four patents at issue and voluntarily dismissed its infringement counterclaims. As a result, the district court dismissed the case as moot, but retained jurisdiction to adjudicate Samsung’s claim for attorney fees under 35 U.S.C. § 285. Rambus offered to compensate Samsung for the full amount of its requested attorney fees and even followed up with a formal offer of judgment. Samsung, however, rejected Rambus’s offer. The district court ultimately issued an order denying Samsung’s motion for attorney fees, but held that the case was exceptional under 35 U.S.C. § 285 and issued the unpublished spoliation findings from Infineon. Rambus appealed.

On appeal, Rambus asked the Federal Circuit to dismiss its appeal for lack of jurisdiction. It asserted that because it was the prevailing party on the issue of attorney fees, it lacked standing to challenge the district court’s findings. In the alternative, Rambus argued that the Court should hold that the district court lacked jurisdiction to rule on the issue of attorney fees because the issue was moot in view of Rambus’s offer to pay Samsung’s attorney fees. The Federal Circuit noted that although Rambus’s argument that it lacked standing to appeal raised a legitimate question, it was not necessary for it to decide that issue because the Court could assume, arguendo, that Rambus had standing to appeal. Accordingly, the Court turned to Rambus’sargument that the district court lacked jurisdiction.

The Court reasoned that under Article III of the Constitution, courts may adjudicate only actual, ongoing cases and controversies. It stated that “[a]n offer for full relief moots a claim for attorney fees.” Slip op. at 6. It explained that the authorities cited by the district court to retain jurisdiction, which stood for the proposition that a district court retains subject matter jurisdiction to impose sanctions even after a case becomes moot, did not apply in this case. According to the Court, those cases provide a district court discretion to postpone collateral issues, such as costs, fees, and contempt proceedings, until completion of the principal action. The Court noted, however, that 35 U.S.C. § 285 was not a separate sanctions statute, and that “[t]he only sanction for which section 285 provides is attorneys fees.” Id. at 7. Thus, held the Court, because “the issue at bar [was] not a collateral issue and the statute is not a separate sanctions statute in and of itself, the district court lack[ed] jurisdiction beyond full settlement of the fees dispute.” Id.

Looking to the language of section 285, which states that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party,” the Court explained that exceptionality is an element for the imposition of attorney fees, not a separate sanction for which a district court can retain jurisdiction. It noted that the district court did not have independent jurisdiction to assess the exceptionality after Rambus offered the entire amount of attorney fees in dispute. It concluded that the district court lacked jurisdiction to issue opinions in conjunction with an attorney fee issue that had ceased to exist.

In so concluding, the Federal Circuit noted that courts possess inherent powers to sanction litigation misconduct and may use those powers to assess attorney fees. In this case, noted the Court, the district court recognized the availability of its inherent power to sanction, but expressly declined to invoke that power. The Court reasoned that in any event, the district court’s power to use its inherent power could not exceed its jurisdiction over the case itself, and that once the attorney fees were offered, the case was moot and the district court lacked jurisdiction. Accordingly, the Federal Circuit vacated the district court’s order regarding attorney fees and spoliation, and remanded to the district court with instruction to dismiss Samsung’s complaint.