Lead Opinion
Opinion for the court filed by Circuit Judge LOURIE. Dissenting opinion filed by Circuit Judge NEWMAN.
Ole K. Nilssen (“Nilssen”) and Geo Foundation, Ltd. (collectively “appellants”) appeal from the judgment of the U.S. District Court for the Northern District of Illinois denying appellants’ motion for expert witness fees pursuant to Federal Rule of Civil Procedure 26(b) (4) (C) (i) and granting a motion for attorney fees to Osram Sylvania, Inc. and Osram Sylvania Products, Inc. (collectively “Osram”) pursuant to 35 U.S.C. § 285. Nilssen v. Osram Sylvania, Inc., No. 1:01cv3585,
BACKGROUND
Nilssen is the owner and principal inventor of over 200 patents, many of which concern fluorescent light bulbs and ballasts used in combination with those bulbs. In August 2000, Nilssen brought an action alleging that certain light bulbs and ballasts manufactured and sold by Osram infringed certain of Nilssen’s patents. Os-ram denied the allegations and filed a counterclaim alleging that the patents in suit were invalid. Following a bench trial begun in June 2006, the district court issued a decision holding unenforceable the patents at issue due to inequitable conduct committed by Nilssen in procuring and maintaining those patents. Nilssen v. Osram Sylvania, Inc.,
In their August 2000 complaint, appellants accused Osram of infringing twenty-six of Nilssen’s patents. The complaint did not specifically identify which claims were infringed. On February 18, 2003, appellants produced an infringement claim chart applying Nilssen’s patents to five accused Osram product lines on a claim limitation-by-claim limitation basis. That claim chart contained fifteen additional Nilssen patents, in addition to the twenty-six patents included in appellants’ complaint. One month later, Osram objected to the inclusion of the additional fifteen patents. The court ordered appellants to submit a revised claim chart containing only the original patents at issue by April 18. On that date, appellants served Osram
In November 2003, appellants released their expert’s report, which analyzed only fourteen of the original twenty-six patents at issue. Again, at that time, appellants did not formally release Osram from liability on the six patents that were not included in the expert’s report.
In July 2005, the court ordered a bench trial on inequitable conduct. Initially scheduled for October, and then December 2005, the trial eventually took place in February 2006. Prior to trial, on October 31, 2005, appellants provided a formal statement of non-liability, reducing the number of patents at issue to twelve, and on December 8 provided a second statement of non-liability reducing the number of patents to eleven. Those eleven patents constituted the patents at issue in the inequitable conduct trial.
In addition to the manner in which Nils-sen’s patents were asserted and removed from the case, a number of issues relating to appellants’ litigation conduct are germane to the present appeal. Before trial began, Osram requested a deposition of Lars Evensen, Nilssen’s nephew and the lone officer of Geo Foundation. Appellants insisted that a deposition was unnecessary because Evensen had no relevant knowledge of Geo Foundation’s financial practices. They argued that the expense and effort involved in appearing for a deposition in the United States would be an excessive burden on Evensen, who resided and worked in Norway. The court instructed the parties to reach a compromise on the issue, which they did, and Even-sen’s deposition was taken in Norway.
Both parties exchanged unverified (unsigned) responses to interrogatories before trial. Nilssen’s July 9, 2003 responses
At trial, Nilssen claimed that he had relied on his tax counsel in determining that the Geo Foundation was eligible to pay small entity maintenance fees on the patents at issue; Geo Foundation’s right to make small entity payments was an important element of the inequitable conduct trial. Osram argued that such reliance amounted to waiver of his attorney-client privilege without proper notice. The district court accordingly allowed Osram to conduct a new deposition of Nilssen’s attorney during the time of the trial. Toward the end of the trial, appellants produced a number of documents, several of which related to reimbursements made to Nilssen’s attorneys. Osram objected to the inclusion of those documents in evidence due to their untimeliness. The judge declined to rule on the admission of the new documents until Osram had the opportunity to review them, but promised to listen to any objection Osram might bring in the future regarding the admission of the documents.
At the conclusion of the trial, on July 5, 2006, the district court found that Nilssen had engaged in inequitable conduct, thus rendering unenforceable the eleven patents at issue. Nilssen,
After the inequitable conduct trial, Os-ram filed, inter alia, a motion for reimbursement of attorney fees. Appellants responded with a motion to recover expert deposition fees. The court denied the motion for expert deposition fees, finding that awarding such fees to Nilssen would be a “manifest injustice.” Nilssen,
Appellants timely appealed the district court’s judgment. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).
District courts may award reasonable attorney fees to a prevailing party “in exceptional cases.” 35 U.S.C. § 285. We review a finding that a case is “exceptional” within the meaning of 35 U.S.C. § 285 for clear error. Forest Labs., Inc. v. Abbott Labs.,
A. Exceptional Case and Attorney Fees
On appeal, appellants argue that the district court clearly erred in finding this case exceptional and also that the court abused its discretion in- awarding attorney fees. They argue that a finding of inequitable conduct is an insufficient ground for a finding of exceptionality, and further, that conduct must be “egregious” to qualify as exceptional. Appellants claim that Nilssen’s conduct did not rise to the level of egregiousness to justify attorney fees. Furthermore, appellants argue that the court’s findings of frivolousness and litigation misconduct were clearly erroneous. Finally, they argue that the attorney fee award was not necessary to prevent “a gross injustice,” which they call a requirement for any fee-shifting award under § 285.
In response, Osram notes that the district court’s exceptional case decision relied on three separate grounds: inequitable conduct, frivolous lawsuit, and litigation misconduct. Osram argues that there is overwhelming evidence supporting all three grounds; thus the court did not clearly err in finding exception-ality. Furthermore, Osram argues that after finding the case exceptional, the court was within its discretion to award Osram its attorney fees. It would have been grossly unjust in light of Nilssen’s conduct, Osram argues, not to award fees in this case.
We agree with Osram that the court did not clearly err in finding this case exceptional, nor did it abuse its discretion in awarding attorney fees. The American Rule provides that courts do not award attorney fees to prevailing parties, absent statutory authority. See Buckhannon Bd. & Care Home v. W. Va. Dept. of Health and Human Res.,
As a preliminary matter, we agree with appellants that there is no per se rule of exceptionality in cases involving inequitable conduct. There are numerous instances in our case law in which we have affirmed a district court’s denial of attorney fees in cases involving inequitable conduct. See e.g., Lighting World, Inc. v. Birchwood Lighting, Inc.,
Appellants urge this court to reverse the district court’s finding of an exceptional case because exceptionality, in their view, requires a showing of fraud, and Nilssen’s inequitable conduct was “benign,” had little impact on patentability, and was therefore not fraudulent. We disagree with appellants’ interpretation of the law. We see no distinction, in either our case law or any statutory authority, between inequitable conduct that is somehow benign, and inequitable conduct that is otherwise, and we resist the urge to make such a distinction here. In fact, it is a contradiction to call inequitable conduct benign. If certain conduct has been held to be inequitable, and we have affirmed the district court’s conclusion that it was here, it is hence per se not benign. Likewise, the effect of Nilssen’s inequitable conduct on the examination process is not the sole determinant of exceptionality. Even if it were, appellants’ argument that Nilssen’s inequitable conduct was harmless is not based on any factual findings of the district court. The factual findings underlying the inequitable conduct holding cannot be challenged in this appeal, yet it appears that appellants’ argument concerning an exceptional case based on Nilssen’s inequitable conduct amounts to little more than an impermissible attempt to reargue the merits of that holding. Accordingly, the district court did not clearly err in finding that appellants’ inequitable conduct constituted an exceptional case.
Even if we were to hold that the inequitable conduct conclusion was based on actions that were less egregious than other actions that are more typical of inequitable conduct holdings, we are faced with more than inequitable conduct here. In addition to Nilssen’s inequitable conduct, the district court considered appellants’ litigation misconduct before and during the inequitable conduct trial as support for its finding of exceptional case. Appellants argue that all of the misconduct mentioned in the district court’s opinion — including the Evensen deposition, the withdrawal of patents near trial, Nilssen’s advice of counsel defense, appellants’ late production of documents, and Nilssen’s disavowal of his interrogatory response — amounts to little more than a vigorously tried case. Appellants engaged in numerous tactics which they contend could be described only as legal oversight: Nilssen provided incorrect responses to interrogatories and never filed a formal correction, then attempted to exclude the interrogatories for impeach
As an appellate court, we are ill-suited to weigh such evidence. All of the instances described above are context-specific, and the district court found that, taken in context, they amounted to litigation misconduct. There is sufficient evidence in the record for the district court to have concluded that trial misconduct occurred, and we are not left with the firm conviction that a mistake was committed. Furthermore, it ill behooves an appellate court to overrule a trial judge concerning litigation misconduct when the litigation occurred in front of the trial judge, not the appellate court. Thus, the trial misconduct found by the district court, combined with Nilssen’s inequitable conduct (which is uncontestable at this stage), provides sufficient evidence for this court to conclude that the district court did not clearly err in finding this was an exceptional case. The district court dealt with this case and the parties involved for nearly six years and found it to be an exceptional one; we are not left with the strong impression that the trial court clearly erred, and therefore affirm its ruling of an exceptional case.
Finally, Nilssen argues that, even if this is an exceptional case, the district court abused its discretion by granting attorney fees to Osram. Again we disagree. In determining whether- to award attorney fees, courts must weigh factors such as degree of culpability, closeness of the questions, and litigation, behavior. See Nat’l Presto Indus. Inc. v. W. Bend Co.,
The dissent picks through the various flaws in the conduct of the patentee to argue that they do not individually justify the exceptional label placed on the case by the district court judge. Their multiplicity, however, indicates in part why the district judge ruled as he did. The district court, in its original opinion on the merits, described Nilssen’s testimony on various issues as “not credible,” Nilssen,
B. Expert Fees
Appellants further argue that the court erred in denying their motion for expert fees under Federal Rule of Civil Procedure 26(b)(4)(C), which provides that:
Unless manifest injustice would result, (i) the court shall require that the party seeking discovery pay the expert a reasonable fee for the time spent in responding to discovery under this subdivision; and (ii) with respect to discovery obtained under subdivision (b)(4)(B) of this rule the court shall require the party seeking discovery to pay the other party a fair portion of the fees and expenses reasonably incurred by the latter party in obtaining facts and opinions from the expert.
Fed.R.Civ.P. 26(b)(4)(C).
Osram disagrees with appellants’ interpretation of “manifest injustice,” and instead argues that the term is to be given its plain and ordinary meaning, which, according to Osram, is “an outcome that is plainly and obviously unjust.” The district court, according to Osram, did not abuse its discretion in finding that Nilssen’s conduct at and before trial makes the prospect of forcing Osram to pay expert fees plainly and obviously unjust.
We agree with Osram. There is little case law interpreting “manifest injustice” in Rule 26(b)(4)(C). See Reed v. Binder,
*1360 Even in cases where the court is directed to issue a protective order, it may decline to do so if it finds that manifest injustice would result. Thus, the court can protect, when necessary and appropriate, the interests of an indigent party.
*1361 [T]he words ‘to prevent manifest injustice,’ which appeared in the original rule, have been retained. They have the virtue of familiarity and adequately describe the restraint the trial judge should exercise.
Fed.R.Civ.P. 16, Advisory Committee Notes to 1983 Amendments. The Advisory Committee for the Federal Rules of Civil Procedure felt that the term “manifest injustice” was sufficiently familiar to be a useful guide for trial courts. There is nothing in the familiar understanding of the term “manifest injustice” to suggest that it applies only to indigent parties. Thus, it appears that the Advisory Committee intended “manifest injustice” to encompass traditional notions of trial court discretion. In this case, the court felt it to be manifestly unjust to award fees to appellants, whom the court determined had engaged in litigation misconduct and inequitable conduct. Absent our reversal of those findings, which we reject for the reasons stated in Section A, there is nothing in the Federal Rules-of Civil Procedure to suggest that the district court abused its discretion in refusing appellants’ request for expert fees. We therefore affirm the denial of appellants’ expert fees.
CONCLUSION -
Accordingly, we affirm the district court’s grant of attorney fees to Osram pursuant to 35 U.S.C. § 285 and the denial of appellants’ motion for expert witness fees.
AFFIRMED
Notes
. In the Northern District of Illinois, plaintiffs are barred from introducing expert testimony of infringement for patents that are not included in expert reports. Liquid Dynamics Corp. v. Vaughan Co., No. 1:01cv6934,
. The version of Fed.R.Civ.P. 26(b)(4)(C) quoted above was superseded by a new version effective December 1, 2007. The new version merely added stylistic changes. The version quoted above is the version at issue on appeal, as it was the current version at the time of the district court’s decision.
Dissenting Opinion
dissenting.
The court today promotes unexceptional trial procedures and non-culpable prosecution errors into an “exceptional case” of such severity as to warrant the award of attorney fees. That is not what the statute, or precedent, or policy contemplates. I respectfully dissent.
The premise of the American Rule against fee-shifting is that “one should not be penalized for merely defending or prosecuting a lawsuit.” Summit Valley Indus. v. United Bhd. of Carpenters & Joiners,
Here, the district court referred to both “litigation misconduct” and “inequitable conduct” as rendering the case “exceptional.” The merits of the patents were not reached, leaving unclear the court’s designation of the suit as “baseless.” My colleagues now hold that when “inequitable conduct” is relied on for a fee award, there is “no distinction, in either our caselaw or any statutory authority, between inequitable conduct that is somehow benign, and inequitable conduct that is otherwise.” Maj. op. at 1358. To the contrary, that distinction is critical, as reflected in precedent and in the premises of the statute, and must be considered.
This court’s prior opinion acknowledged that Nilssen’s actions in the PTO were “not per se unreasonable.” Nilssen v. Osram Sylvania,
The panel majority also gives weight as litigation misconduct to the fact that Lars Evenson, the president of co-plaintiff Geo Foundation, objected to coming to the United States to be deposed, stating that he had no knowledge of anything at issue in the case; whereby the parties agreed that his deposition would be taken in Norway. The court also designates as litigation misconduct the listing of some incorrect patent filing dates in Nilssen’s interrogatory response, which dates were corrected at Nilssen’s deposition. The court also deems it litigation misconduct that Nilssen’s late waiver of the attorney-client privilege (relating to advice of counsel as to small-entity status) did not leave time for Osram to depose the lawyer until the time of trial.
Accepting that Nilssen’s litigation procedures were not perfect, there was no assertion of significance, reliance, deliberateness, bad faith, or prejudice. The acts recited by my colleagues do not produce an “exceptional case” under § 285.
My colleagues also rely on the district court’s ruling of inequitable conduct that was affirmed by this court in Nilssen,
The principal ground of the finding of inequitable conduct was Nilssen’s payment of small-entity fees for some patents, for which he stated he relied on the advice of counsel, for both he and his assignee were small entities. This court stated in its earlier opinion that paying small entity fees instead of large entity fees is “not strictly speaking inequitable conduct in the prosecution of a patent, as the patent has already issued if maintenance fees are payable (excepting an issue fee).” Id. at 1231. Another ground of the ruling of “inequitable conduct” was Nilssen’s failure to tell the examiner of ongoing litigation with Motorola involving related patents, an error that was shown to be unintentional, of no interest to the examiner, and of no consequence to the allowance of any claims. This court observed that “Failure to cite the Motorola litigation to the PTO may have been an oversight, as perhaps failure to cite prior art might have been.” Id. at 1235.
Although this court upheld the district court’s ruling of inequitable conduct, this court also stated that Nilssen’s arguments on every issue were “not per se unreasonable.” Id. The egregiousness of the malefactions on which the finding of inequitable conduct was based are highly relevant to whether this is an “exceptional case” and whether fee shifting is appropriate. My colleagues recognize that a finding of inequitable conduct does not always warrant the award of attorney fees, but decline to take cognizance of the facts underlying that ruling, stating that once inequitable conduct has been found, “there is no distinction.” Precedent is otherwise. In Gardco Manufacturing, Inc. v. Herst Lighting Co.,
The precedent of the Federal Circuit is in accord with earlier decisions of the regional circuits, which had viewed § 285 in the larger context of fee-shifting principles in general. For example, in Arbrook, Inc. v. American Hospital Supply Corp.,
The panel majority stresses that the district court did not view the inventor Nils-sen as credible; all of the credibility criticisms relate to the issues on which the district court based its ruling of inequitable conduct in the PTO, issues that this court described as “not per se unreasonable.” Nilssen,
The panel majority departs from precedent in holding that the nature of “inequitable conduct” is not a factor to be weighed in the attorney fee determination.