A Licensing Entity's Business Model of Litigating to Secure Patent Licenses Does Not, By Itself, Support an Award of Attorneys' Fees

Authored by D. Brian Kacedon, John C. Paul, and Andrew E. Renison

Under § 285 of the Patent Act, courts may award reasonable attorneys' fees to the prevailing party in "exceptional cases." As a threshold matter, the prevailing party must show, by clear and convincing evidence, that the case is exceptional. Certain conduct by the losing party may alone satisfy this requirement: willful infringement, fraud, or inequitable conduct in procuring the patent, litigation misconduct, vexatious or unjustified litigation, or conduct that violates Fed. R. Civ. P. 11. Under current precedent, absent such conduct, a case may be considered exceptional only if the prevailing party proves that the litigation (1) was brought in subjective bad faith, and (2) was objectively baseless.

Generally, a patent owner's business model of only licensing a patent portfolio, rather than creating products, cannot, by itself, establish a case as exceptional. In Wi-LAN v. Alcatel-Lucent USA Inc., No. 6:10-cv-521 (E.D. Tex. Jan. 28, 2014),¹ the Eastern District of Texas explored this issue, denying the defendants' post-trial motion for attorney's fees because they could not show that, in this instance, the plaintiff had vexatiously sought licenses of its patented technology.

Background

In October 2010, Wi-LAN, Inc. sued multiple defendants, alleging infringement of four patents generally related to wireless telecommunications systems. Several defendants were dismissed before trial. After trial, the jury found that the remaining defendants did not infringe any asserted claims. Further, it found that several asserted claims were invalid due to obviousness and anticipation. Later, several additional defendants were dismissed and did not participate in post-trial motions. The remaining defendants asked the Court to declare the case exceptional and award attorneys' fees because, according to them, Wi-LAN unfairly engaged in serial litigation intended to force settlements and extract licensing fees.

The Wi-LAN Decision

In its decision, the Court denied the motion for attorneys' fees. In the defendants' view, the case was exceptional because of Wi-LAN's vexatious litigation conduct, and because Wi-LAN brought the action in subjective bad faith and its claims were objectively baseless.

First, the defendants asserted, "[that] Wi-LAN's business model is based on serial litigation intended to extract licensing fees below the cost of defending litigation, that Wi-LAN's trial strategy relied on the flawed testimony of noncredible expert witnesses, and that Wi-LAN unnecessarily increased the costs of defending" litigation. Wi-LAN responded that the defendants misrepresented its business model and that generating revenue by licensing intellectual property sometimes required litigation. The Court explained that although the defendants may have disagreed with Wi-LAN's alleged licensing framework, they did not "show that it had been used vexatiously against" them. According to the Court, "sound business practice counsels considering litigation costs during [license] negotiations, whether explicitly or implicitly." Regarding Wi-LAN's experts, the Court noted, the defendants had successfully used more appropriate tools than a motion for attorneys' fees, such as successfully challenging part of one expert's opinion with a Daubert motion as well as effectively using cross-examination and rebuttal evidence. Moreover, mere disagreement with an expert opinion did not render the expert so unreliable as to constitute litigation misconduct. Accordingly, the defendants failed to provide clear and convincing evidence that Wi-LAN engaged in litigation misconduct, which would justify an award of attorneys' fees.

Second, the defendants asserted that Wi-LAN brought the action in subjective bad faith because of its policy of serial litigation to force settlements and licensing fees. Further, Wi-LAN's claims were objectively baseless because it read out certain limitations in the asserted claims. Although the Court warily acknowledged "troubling evidence that Wi-LAN had a policy of using repeated and vexatious litigation to secure patent licenses," it held that the defendants could not demonstrate that "Wi-LAN acted in subjective bad faith by actually implementing that policy" against them. Further, the Court rejected the defendants' assertions that Wi-LAN's claims were objectively baseless. Rather, the Court explained, both sides accused the other of misinterpreting the claims and distorting the claim elements, and, notably, the supposedly baseless claims all survived to reach trial and a jury verdict. Thus, the Court held, Wi- LAN did not institute an objectively baseless litigation in subjective bad faith.

Strategy and Conclusion

This court decision illustrates the high burden of proof imposed on an accused infringer who seeks to have its attorney's fees paid after being unsuccessfully sued by a patent owner. Although patent-assertion entities continue to attract attention in Congress and elsewhere, this court decision demonstrates that having a business model of using litigation repeatedly to obtain licenses and royalties may not, on its own, warrant awarding attorney fees.

Endnotes

¹ The Wi-LAN decision can be found at http://docs.justia.com/cases/federal/district-courts/texas/txedce/6:2010cv00521/125700/529/0.pdf?1390989438.

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