GABRIEL TECHNOLOGIES CORPORATION, and Trace Technologies, LLC, Plaintiffs-Appellants, v. QUALCOMM INCORPORATED, SnapTrack, Inc., and Norman Krasner, Defendants-Appellees.
No. 2013-1205.
United States Court of Appeals, Federal Circuit.
March 18, 2014.
560 Fed. Appx. 966
Steven M. Strauss, Cooley LLP, of San Diego, CA, argued for defendants-appellees. With him on the brief were Timothy S. Teter, Jeffrey S. Karr, and Lori R. Mason, of Palo Alto, CA.
PER CURIAM.
Gabriel Technologies Corporation (“Gabriel“) and Trace Technologies, LLC (“Trace“) appeal a final order of the United States District Court for the Southern District of California awarding Qualcomm Incorporated (“Qualcomm“), SnapTrack, Inc. (“SnapTrack“), and Norman Krasner attorneys’ fees pursuant to
BACKGROUND
The district court provided a comprehensive account of the history of this case in its summary judgment decisions, see Gabriel Techs. Corp. v. Qualcomm Inc., No. 08-CV-1992, 2012 WL 4574550, at *1–3 (S.D.Cal. Oct. 1, 2012) (“Inventorship Decision“); Gabriel Techs. Corp. v. Qualcomm Inc., 857 F.Supp.2d 997, 1000-02 (S.D.Cal.2012) (“Trade Secrets Decision“), and its Attorneys’ Fees Order, 2013 WL 410103, at *1-2, and we need only provide a brief summary here. William Clise and Michael Crowson founded Locate Networks, LLC (“Locate“), a company which sought to incorporate global positioning system (“GPS“) technology into paging systems. Trade Secrets Decision, 857 F.Supp.2d at 1000. In 1999, Locate entered into a licensing agreement with SnapTrack, under which Locate obtained a license to use SnapTrack‘s GPS software. Id. The licensing agreement stipulated that the parties would share ownership in technology which was jointly developed in connection with the licensing agreement. Id.
Qualcomm acquired SnapTrack in March of 2000. In 2004, Locate sold its assets to Trace, and then transferred its interest in Trace to Gabriel. Locate subsequently went out of business.
On October 24, 2008, Gabriel and Trace (collectively the “Gabriel plaintiffs“) filed suit against Qualcomm, SnapTrack and Krasner (collectively the “Qualcomm defendants“), seeking more than $1 billion in damages. J.A. 206-39. Their complaint contained eleven causes of action, including claims for correction of inventorship, breach of the 1999 license agreement, fraud/fraudulent inducement, unfair competition, and misappropriation of trade secrets. J.A. 231-78. Each of these claims was grounded on the contention that individuals affiliated with Locate conceived of the inventions disclosed in several Qualcomm patents. The Gabriel plaintiffs asserted that “[o]ver time, Krasner, SnapTrack, and Qualcomm surreptitiously misappropriated Locate‘s valuable enabling technology and other . . . intellectual property rights.” J.A. 243.
In September 2009, the district court dismissed six of the Gabriel plaintiffs’ eleven causes of action, concluding that they had failed to state a viable claim for breach of the 1999 license agreement, J.A. 492-95, and that their unfair competition claims were preempted under CUTSA because they were premised on the same conduct that gave rise to their trade secret misappropriation claims, J.A. 507. Three months later, the court dismissed the Gabriel plaintiffs’ cause of action for fraudulent inducement, concluding that they had failed to plead that claim with the particularity required by
On September 20, 2010, the district court required the Gabriel plaintiffs to post a bond of $800,000 as a condition for continuing their suit. J.A. 2400-23. The
The Gabriel plaintiffs then posted the required $800,000 bond, J.A. 2435-36, and the parties proceeded with discovery. In March 2012, the district court granted the Qualcomm defendants’ motion for partial summary judgment, concluding that the trade secret misappropriation claims asserted by the Gabriel plaintiffs were time-barred. Trade Secrets Decision, 857 F.Supp.2d at 1002-10. Following additional discovery, the district court granted summary judgment against the Gabriel plaintiffs on their remaining inventorship claims, concluding that they had failed to produce any evidence that individuals affiliated with Locate made an inventive contribution to the disputed Qualcomm patents. Inventorship Decision, 2012 WL 4574550, at *4-9.
On February 1, 2013, the trial court issued an order declaring the case exceptional under section 285 and awarding the Qualcomm defendants more than $12 million in attorneys’ fees.1 The court held that the claims advanced by the Gabriel plaintiffs “were objectively baseless and brought in subjective bad faith,” Attorneys’ Fees Order, 2013 WL 410103, at *4, noting that they “brought and maintained [inventorship] claims without knowing the identity of the allegedly omitted inventors, the most basic prerequisite for a successful correction of inventorship patent claim,” id. at *5. An award under section 285 was warranted because the Gabriel plaintiffs were well aware that they “lacked the requisite evidence” to support their claims, but “opted to pursue their claims nonetheless.” Id. at *4 (footnote omitted). The court was “particularly struck by [the Gabriel plaintiffs‘] decision to pursue their claims further following [its] warning that the case would likely be found exceptional based on the evidence before [it] at the bond hearing.” Id. at *5. In addition, the court concluded that an award of fees and costs was appropriate under CUTSA, see
The Gabriel plaintiffs then filed a timely appeal challenging the district court‘s award of attorneys’ fees under both section 285 and CUTSA.2 We have jurisdiction under
I. Standard of Review
The Supreme Court recently granted certiorari to determine whether a district court‘s determination that a party‘s litigation position was “objectively baseless” for purposes of a section 285 fee award is subject to de novo review on appeal. See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1309 (Fed.Cir.2012), cert. granted, --- U.S. ---, 134 S.Ct. 48, 186 L.Ed.2d 962 (2013). Here, even applying de novo review—as opposed to a more deferential standard—we conclude that the district court correctly determined that the claims advanced by the Gabriel plaintiffs were objectively baseless.
In contrast to the objective baselessness component of the exceptional case determination, the question of whether a litigant acted with subjective bad faith is reviewed for clear error. Id. at 1310. Furthermore, “[u]nlike the objective prong, which is a single retrospective look at the entire litigation, the subjective prong may suggest that a case initially brought in good faith may be continued in bad faith depending on developments during discovery and otherwise.” Id. at 1311. We likewise conclude that the district court correctly determined that the Gabriel plaintiffs acted with subjective bad faith by stubbornly continuing to press their claims long after they realized that those claims were without evidentiary support.
II. The Exceptional Case Determination
The determination as to whether to award attorneys’ fees under section 285 is a two-step inquiry. Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1323 (Fed.Cir.2011). First, a district court “determine[s] whether the prevailing party has proved by clear and convincing evidence that the case is exceptional.” Id. Second, if the court finds the case exceptional, it must decide whether the award of attorneys’ fees is warranted. Id.; see Brooks Furniture Mfg., Inc. v. Dutailier Int‘l, Inc., 393 F.3d 1378, 1382 (Fed.Cir.2005) (“Even for an exceptional case, the decision to award attorney fees and the amount thereof are within the district court‘s sound discretion.“). Under existing precedent, “[a]bsent misconduct in conduct of the litigation or in securing the patent, sanctions may be imposed [under section 285] only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Brooks Furniture, 393 F.3d at 1381.3
III. Objective Baselessness
The record here amply supports the trial court‘s conclusion that the inventorship claims advanced by the Gabriel plaintiffs were objectively baseless. The Gabriel plaintiffs “did not know the identity of the allegedly omitted inventors when they filed [their] action in 2008 or at any later point in the case.” Attorneys’ Fees Order, 2013 WL 410103, at *4. Indeed, “they were never able to find individuals
For example, the Gabriel plaintiffs asserted and maintained a claim for correction of inventorship on Qualcomm‘s 6,799,050 patent (the “‘050 patent“), notwithstanding the dearth of evidence showing that any Locate employee contributed in a substantive manner to the conception of the invention disclosed in that patent. The ‘050 patent, which issued on September 28, 2004, listed Krasner as the sole inventor. J.A. 6178-92. When they filed their original interrogatory responses, the Gabriel plaintiffs failed to identify any individual associated with Locate who was a purported omitted inventor. Inventorship Decision, 2012 WL 4574550, at *4. They subsequently amended their interrogatory responses to assert that Philip DeCarlo, a Locate employee, was an omitted inventor. Id. DeCarlo, however, “testified that he did not invent the ‘050 patent, never told anyone he should be a named inventor, and did not know why he was listed as an omitted inventor.” Id. The Gabriel plaintiffs then once again revised their interrogatory responses, this time asserting that Clise was the sole inventor on the ‘050 patent. Clise, however, acknowledged that he did not conceive of important technologies disclosed in the ‘050 patent, and failed to produce any documentation or other credible evidence corroborating his claim of inventorship. Id. at *5. In fact, during his deposition Clise was unable to identify any specific information that he had provided to Krasner which might even arguably qualify him as an inventor on the ‘050 patent. J.A. 5899–900.
On appeal, the Gabriel plaintiffs “acknowledge that it took them some time to precisely identify all omitted inventors,” but argue that “identification of omitted inventors and correlation of their efforts to specific patent claims [was] a difficult and time consuming task.” In support, they note that “Locate developed its inventions in 1999 through 2001, ten years before discovery commenced,” and that many potential omitted inventors “had relocated, requiring extensive travel by Plaintiffs’ counsel.” The problem for the Gabriel plaintiffs, however, is not that it took “some time” to identify the allegedly omitted inventors, but that even after nearly four years of litigation they were unable to produce any credible evidence that anyone affiliated with Locate made any specific inventive contribution to the relevant Qualcomm patents.
IV. Subjective Bad Faith
The Gabriel plaintiffs argue that the record contains strong evidence demonstrating their subjective good faith and that the trial court “committed clear error in ignoring it.” In their view, their willingness to post the $800,000 bond required by the district court constitutes “powerful evidence that they believed in the merits of their claims.” They further assert that the fact that their trial counsel, after performing “substantial due diligence,” agreed to take on their case on a contingency fee basis “corroborated and strengthened [their] subjective good faith belief in their case.”
We do not find this reasoning persuasive. In many cases, unearthing evidence sufficient to establish a litigant‘s subjective bad faith is challenging. See Kilopass Tech., Inc. v. Sidense Corp., 738 F.3d 1302, 1311 (Fed.Cir.2013) (noting that “[s]ubjective bad faith is difficult to prove directly“). This is not such a case. The record contains emails demonstrating that the Gabriel plaintiffs maintained their suit long after they recognized that their claims were without merit. In January 2010, after Gabriel‘s original attorneys, Munck Carter PC (“Munck Carter“), withdrew, John Hall, a Gabriel board member, sent an email to Maurice Shanley, Gabriel‘s chief financial officer, which stated:
[W]e are looking for financing, a new law firm, but with what[?] The cu[p]board is bare. The case [h]as never been developed beyond filing a complaint over something that happened 10 years ago. There is no package with the 20 most important documents and the narrative that supports the case. It doesn‘t exist....
We have been turned down everywhere we go. Why would anyone invest a dime[?] Not even Guido will give us money and why would he[?] The case will cost $10 [million] all in, with half that to be spent the first year.
There are only a few full contingency firms that can afford to take on a case of this size and complexity. They won‘t touch this case because we have no case. Just a lot of talk.
J.A. 5992 (emphasis added).
Likewise, in December 2009, Allan Angus, Gabriel‘s former chief technology officer, sent an email stating that he was “done with” Gabriel because “[t]he real value was never there anyway. The real value was always going to be . . . in the fight . . . how to respond to an opposing attorney‘s questions, how to make the case.” J.A. 6006 (emphasis added). The Gabriel plaintiffs assert that these emails simply reflect frustration that Munck Carter had resigned and they were left with no collection of the key documents neces-
The Gabriel plaintiffs’ willingness to post the $800,000 bond required by the district court is insufficient to establish that they had a good faith belief in the merits of their claims. They raised the money for the cost of their lawsuit from outside investors. The fact that the Gabriel plaintiffs were willing to gamble with someone else‘s money does not establish that they had a bona fide belief in the viability of their claims. Nor does the fact that the Gabriel plaintiffs were, after considerable effort, able to locate a law firm that would agree to pursue their suit on a contingency basis preclude a finding of subjective bad faith.5 Indeed, as discussed previously, one of Gabriel‘s board members recognized in January 2010 that most law firms would not agree to take on its suit “because [it had] no case. Just a lot of talk.” J.A. 5992.
In the September 2010 order requiring the $800,000 bond, the trial court noted that although the Gabriel plaintiffs had “been investigating their claims for several years,” they had been unable “to draw any meaningful connection” between Locate‘s technology and the inventions disclosed in Qualcomm‘s patents. J.A. 2421. The court made clear, moreover, that there was “a strong likelihood” that the Qualcomm defendants would be awarded fees under section 285 at the conclusion of the litigation. J.A. 2421. The Gabriel plaintiffs’ obdurate refusal to abandon their suit—even after being specifically warned about the obvious shortcomings in their claims—strongly supports the trial court‘s conclusion that they maintained this litigation in bad faith. See Kilopass, 738 F.3d at 1311 (emphasizing that a “misguided belief, based on zealousness rather than reason, is simply not sufficient by itself to show that a case is not exceptional in light of objective evidence that [a litigant] has pressed meritless claims“); Highmark, 687 F.3d at 1309 (explaining that subjective bad faith can be established by showing that the “lack of objective foundation for the claim was either known or so obvious that it should have been known by the party asserting the claim” (citations and internal quotation marks omitted)); see also Eon-Net, 653 F.3d at 1327 (affirming a trial court‘s determination that a patentee “acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement” from the accused infringers). Significantly, the trial court awarded attorneys’ fees under section 285 only for the period after September 20, 2010, the date of the bond order which expressly notified the Gabriel plaintiffs of the evidentiary deficiencies in their claims. Attorneys’ Fees Order, 2013 WL 410103, at *10; see Computer Docking Station Corp. v. Dell, Inc., 519 F.3d 1366, 1379 (Fed.Cir.2008) (“If the patentee prolongs litigation in bad faith, an exceptional finding may be warranted.“).
V. Litigation Misconduct
“[I]t is well-established that litigation misconduct and unprofessional behavior
VI. The California Uniform Trade Secrets Act
CUTSA authorizes the award of reasonable attorneys’ fees to the prevailing party in a trade secret misappropriation case. See
As the district court correctly determined, the trade secret misappropriation claims advanced by the Gabriel plaintiffs were objectively specious and maintained in subjective bad faith.6 Contrary to the Gabriel plaintiffs’ assertions, the trial court did not assess fees under section 3426.4 because they failed, at the pleading stage, to specifically identify any trade secrets that had allegedly been misappropriated. Instead, attorneys’ fees were assessed because the Gabriel plaintiffs “made seven failed attempts to articulate their trade secrets,” but were never able to identify the specific secrets that the Qualcomm defendants had allegedly taken. Attorneys’ Fees Order, 2013 WL 410103, at *7.
From an early point in the litigation, moreover, it became clear that the trade
CONCLUSION
Accordingly, the order of the United States District Court for the Southern District of California is affirmed.
AFFIRMED