District Court Did Not Abuse Its Discretion in Awarding Rule 11 Sanctions Against Patentee's Counsel
November 24, 2003
Last Month at the Federal Circuit - December 2003
Judges: Michel (author), Rader, and Newman (dissenting)
In Phonometrics, Inc. v. Economy Inns of America, No. 02-1502 (Fed. Cir. Nov. 21, 2003), the Federal Circuit affirmed a sanction under Fed. R. Civ. P. 11 against a patentee's counsel for continuing to pursue infringement claims after he should have known the claims were groundless.
During the mid to late 1990s, Phonometrics, Inc. ("the patentee") sued numerous hotel companies, including Economy Inns of America (collectively "Defendants"), for infringement of U.S. Patent No. 3,769,463 ("the '463 patent"). The '463 patent relates to telephone equipment for calculating and displaying the cost of longdistance telephone calls.
The suits were stayed during the pendency of two appeals to the Federal Circuit regarding the same patent and patentee. Both appeals resulted in claim-construction rulings adverse to the patentee, the latter ruling being provided in an unpublished decision.
Based on these opinions, fourteen of the Defendants served Phonometrics with a copy of their joint (unfiled) motion for Rule 11 sanctions and a "safe-harbor" letter demanding dismissal of Phonometrics's infringement actions. In response, the patentee's counsel refused to withdraw its infringement claims and subsequently opposed the Rule 11 motion as well as the Defendants' ensuing motion for SJ. The district court granted the Rule 11 motion, personally imposing on the patentee's counsel a sanction to pay the Defendants' attorney's fees associated with bringing the sanctions motion. The district court noted that a litigant's Rule 11 obligations include a duty to refrain from continuing to advocate a position once it becomes untenable, and the patentee's continued pursuit of its claims after the Federal Circuit opinions violated that duty.
The Federal Circuit affirmed, holding that the district court did not abuse its discretion in awarding sanctions. The Court noted that each decision was on the merits since the Federal Circuit's precedential claim-construction ruling consistently applied and was resolved by that construction. The Court further noted that the patentee's counsel, who represented the patentee in virtually all the previous suits regarding the '463 patent, was very familiar with its history. Noting that the issue before the Court was not whether the Federal Circuit would award sanctions, but whether the district court abused its discretion, in view of these facts, the Court found there was ample basis for the district court's decision to impose sanctions.
Judge Newman dissented, arguing that the issue of whether the precedential claimconstruction ruling applied to the Defendants was not settled until the Federal Circuit's subsequent unpublished decision. It would be a leap, opined Judge Newman, to award Rule 11 sanctions for declining to withdraw other litigation against other parties whose infringement status was still being explored based on a nonprecedential opinion.
Similarly, in Phonometrics, Inc. v. Westin Hotel Co., No. 02-1501 (Fed. Cir. Nov. 26, 2003), the Federal Circuit affirmed-in-part an award of attorney's fees, but vacated part of the order and remanded for a redetermination of the amount.
Westin Hotel Company is another one of several hotel companies sued by Phonometrics. In this case, however, the grounds for the fees and costs award, in the amount of just over $24,000, were based on 35 U.S.C. § 285 and 28 U.S.C. § 1927, whereas in the above case, the fee award was based on a Rule 11 sanction.