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Court Reverses Sanction of Attorneys’ Fees

July 10, 2003

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Last Month at the Federal Circuit - August 2003

Judges: Dyk (author), Newman, and Rader

In Waymark Corp. v. Porta Systems Corp., No. 03-1012 (Fed. Cir. July 10, 2003), the Federal Circuit reversed an award of attorneys’ fees.

Waymark Corporation (“Waymark”) and the Caravello Family Limited Partnership (“the Partnership”) sued Porta Systems Corporation (“Porta”) for infringement of U.S. Patent No. 5,705,929 (“the ‘929 patent”), and trademark and tradedress infringement.

In a previous decision on the merits, the Federal Circuit had ruled that SJ of noninfringement had properly been granted under 35 U.S.C. § 271(a) but improperly granted under 35 U.S.C. § 271(f)(2).

While the first appeal was still pending, the district court granted Porta’s motion for sanctions in the form of attorneys’ fees, but did not set an amount. The Court imposed the sanctions because: (1) Plaintiffs had not registered the asserted trademark until well after filing suit; (2) an appropriate written exclusive license agreement had not been prepared, such that Waymark did not have standing to file suit; and (3) Plaintiffs had been misleading about documents during discovery.

After the first appeal, the case was remanded back to the district court to determine whether Porta had infringed under § 271(f)(2) by shipping to Mexico certain components that, if assembled, would infringe the patent. After additional discovery and hearings on the issue, the Plaintiffs filed a stipulation of voluntary dismissal. Before doing so, however, the district court entered a second sanctions order reaffirming its earlier order and awarding a sanction of $44,000 against the Plaintiffs and their lawyers.

The Federal Circuit reversed the sanctions order. As to the trademark issue, the Court concluded that § 43(a) of the Lanham Act provides a remedy for infringement of both registered and unregistered trademarks. Because Plaintiffs provided use of their unregistered trademark, the Court concluded that the award of sanctions on this issue was based on a misunderstanding of the governing law.

As to the standing issue to bring the patent-infringement action, the Federal Circuit again found that the district court had improperly applied the law, which requires assignments, not licenses, to be in writing. Since the Partnership claimed a written assignment of the ‘929 patent, it had standing to bring the action, and it was permissible to join Waymark as a plaintiff under the alleged oral exclusive license. Indeed, Porta did not even press for this award on appeal.

Finally, as to the alleged failures to produce documents, the Court noted that sanctions cannot be based on the failure to produce a document that does not exist.