Auto. Technologies Int'l Inc. v. Siemens Vdo Auto. Corp..

• Decision Date: 30 September 2010
• Docket Number: Case No. 06–15756.
• Citation: 744 F.Supp.2d 646
• Parties: AUTOMOTIVE TECHNOLOGIES INTERNATIONAL, INC., Plaintiff,v.SIEMENS VDO AUTOMOTIVE CORPORATION, et al., Defendants.
• Court: U.S. District Court — Eastern District of Michigan

744 F.Supp.2d 646

AUTOMOTIVE TECHNOLOGIES INTERNATIONAL, INC., Plaintiff,

v.SIEMENS VDO AUTOMOTIVE CORPORATION, et al., Defendants.

Case No. 06–15756.

United States District Court, E.D. Michigan, Southern Division.

Sept. 30, 2010.

Andrew Kochanowski, Lisa R. Mikalonis, Sommers, Schwartz, Southfield, MI, Michael H. Baniak, McDonnell, Boehnen, Chicago, IL, for Plaintiff.Boyd T. Cloern, Bingham McCutchen LLP, Jin–Suk Park, Akin, Gump, Washington, DC, Drew M. Wintringham, III, Mark W. Rueh, DLA Piper U.S. LLP, Mark A. Kirsch, Clifford Chance, New York, NY, Kathleen A. Lang, Michelle Thurber Czapski, Dickinson Wright, Detroit, MI, Andrea L. Moody, Lawrence C. Mann, Bowman & Brooke, Troy, MI, Gregory A. Lewis, Peter J. Brennan, Reginald J. Hill, Jenner and Block LLP, Chicago, IL, for Defendants.

OPINION AND ORDER SUSTAINING DEFENDANTS' OBJECTIONS, REJECTING THE MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION, AND GRANTING DEFENDANTS' MOTION FOR ATTORNEY FEES

ROBERT H. CLELAND, District Judge.

On August 16, 2010, the Magistrate Judge filed a “Report and Recommendation” (“R & R”) on a motion for attorney fees filed by Defendants Continental Automotive Systems U.S., Inc., TRW Automotive U.S., L.L.C., and TK Holdings, Inc.¹ Defendants filed their objections to the R & R on August 30, 2010. Plaintiff responded on September 13, 2010, and Defendants filed a reply on September 20, 2010. For the following reasons, the court sustains Defendants' objections and awards costs and fees in the amount of $2,044,645.25.

I. BACKGROUND

This case began in December 2006 when Plaintiff filed a complaint, which was amended in October 2007, alleging Defendants were infringing on five of Plaintiff's patents. Throughout the course of extensive litigation, Plaintiff voluntarily dismissed one patent from the suit, and Defendants prevailed on summary judgment with respect to the other four patents, each of which the court declared invalid in an October 30, 2009 order. In that order, the court held that U.S. Patent Nos. 7,025,379 (“'379 Patent”), 7,052,038 (“'038 Patent”), and 7,070,202 (“'202 Patent”) were invalid because they were obvious over or anticipated by U.S. Patent No. 5,566,974 (“'974 Mazur Patent”). (Order 8–25.) The court specifically rejected Plaintiff's contentions that 1) it could “swear behind” (i.e., show prior conception for) these three patents, 2) the patents were entitled to an effective filing date of July 9, 1991 (which would have predated the '974 Mazur Patent) based on some earlier U.S. Patent Nos. 5,231,253 (“'253 Patent”) and 6,009,970 (“'970 Patent”), 3) the '038 Patent should have been a continuation-in-part of the '970 Patent, and 4) the '038 Patent was not anticipated by the '974 Mazur Patent because the latter does not teach a transfer structure element. ( Id.)

The court held that Plaintiff could not show prior conception or constructive reduction to practice based on the '253 Patent, because in previous litigation it had declared that patent non-enabled. ( Id. at 13–15.) Similarly, the court found that Plaintiff could not show conception based on some combination of the '253 Patent with the '970 Patent because the ' 970 Patent also did not meet the enablement requirements of 35 U.S.C. § 112, since it fails to “disclose essential portions of the three patents,” namely the side impact sensors, microprocessor, algorithm, or movable sensing mass. ( Id. at 16–19.) For the same reason of lack of enablement, the court held that Plaintiff could not utilize the '253 Patent's priority date for the patents-in-suit and the '038 Patent could not be reissued as a continuation-in-part of the '970 Patent. ( Id. at 19–22.) The court found the transfer structure element obvious, relying on Plaintiff's admission of that fact, and therefore the '038 Patent was rendered obvious by the '974 Patent. ( Id. at 22–25.)

The court held the '824 Patent invalid as anticipated or rendered obvious by U.S. Patent No. 5,439,249 (“'249 Steffens Patent”), and also granted the summary judgment motion regarding this patent on the basis of Eastern District of Michigan Local Rule 7.1, because Plaintiff failed to file a response to the motion despite its purported opposition. ( Id. at 25.)

On December 1, 2009, Defendants filed the pending motion for attorney fees pursuant to 35 U.S.C. § 285. That motion was referred to Magistrate Judge Scheer, who issued the R & R that is currently under consideration by the court. The R & R describes the procedural history of the case and the legal standard for awarding attorney fees under 35 U.S.C. § 285 before turning to a substantive analysis of the motion. (R & R 1–5.) In considering the Plaintiff's failure to respond to the motion for summary judgment on the invalidity of the '824 Patent, the Magistrate Judge wrote:

Defendants, however, would have saved little [if Plaintiff had concurred in the motion], since their effort in drafting the Motion would necessarily have preceded Plaintiff's concurrence with it. Thus, while I am satisfied that ATI might well have recognized and conceded the inadequacy of its '824 patent claims earlier in the case, I do not find that its failure to do so constitutes conduct so inequitable as to render this case “exceptional” for purposes of Section 285.

( Id. at 7–8.) In determining whether the litigation of the '379, '038, or '202 Patents could render the case exceptional, the Magistrate Judge recommended:

I am satisfied that it is unnecessary to review in detail the parties' various arguments on summary judgment or the court's detailed analysis in rendering a decision favorable to the Defendants. Multitudes of cases are decided on motions for summary judgment, and such a disposition is certainly not, in itself, exceptional. The court has rendered a decision and granted a judgment adverse to the Plaintiff. That disposition plainly supports the conclusions that ATI prosecuted a weak case. Nothing in that fact alone, however, constitutes evidence, to say nothing of clear and convincing evidence, that this litigation was unreasonable or frivolous.

... While Plaintiff's efforts were unsuccessful, I do not find that its theories were so insubstantial as to be frivolous. For their part, the movant's attorneys billed nearly $2 million for time devoted to overcoming Plaintiff's arguments from March through November 2009. I tend to doubt that defeating insubstantial and frivolous legal arguments would require such an investment of efforts and recources [sic] by highly competent patent counsel. It is clear that Plaintiff misjudged the limits of its patent rights. I find no clear and convincing evidence that it did so vexatiously or wholly without basis. Plaintiff was wrong in its assessment. That result is hardly exceptional. Litigation generally leaves one party or the other in the same condition.

( Id. at 9–10). In the Magistrate Judge's opinion, Plaintiff did not act in bad faith or engage in misconduct during the litigation, and the R & R cites Plaintiff's voluntary dismissal of the '201 Patent claims and its abandonment of its '824 Patent claims at the summary judgment stage in support of this proposition. ( Id. at 10–11.)

II. STANDARD

A. Review of Reports and Recommendations

The filing of timely objections to a Magistrate Judge's R & R requires the court to “make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1); accord United States v. Raddatz, 447 U.S. 667, 673–82, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980); United States v. Walters, 638 F.2d 947 (6th Cir.1981). This de novo review, in turn, requires this court to re-examine all of the relevant evidence previously reviewed by the magistrate to determine whether the recommendation should be accepted, rejected, or modified in whole or in part. 28 U.S.C. § 636(b)(1). The court may “receive further evidence” if desired. Id.

B. 35 U.S.C. § 285

The attorney fees provision of Title 35 plainly provides: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. Once a party has been determined to be the prevailing party in a suit—an uncontested matter in this case—awarding fees pursuant to § 285 is a two-step process. First, the district court must determine whether the case is an “exceptional” one by clear and convincing evidence, worthy of deviating from the so-called “American Rule” that each party bear its costs in litigation. Digeo, Inc. v. Audible, Inc., 505 F.3d 1362, 1366–67 (Fed.Cir.2007). Second, even if the case is exceptional, the award of fees remains within the court's discretion. Id.

The Federal Circuit has, on many occasions, opined on the meaning of “exceptional” in § 285. A case may be exceptional if a plaintiff brings or maintains a suit that he knows, or reasonably should know, is baseless or frivolous. See id. at 1367; Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1329–30 (Fed.Cir.2003); Haynes Int'l, Inc. v. Jessop Steel Co., 8 F.3d 1573, 1579 (Fed.Cir.1993), Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805, 810 (Fed.Cir.1990). A logical extension of this principle is that, once a plaintiff is confronted with prior art or other facts that render the patents-in-suit invalid, the maintenance of or persistence in that lawsuit can lead to a finding of exceptionality. See Rohm & Haas Co. v. Crystal Chem. Co., 736 F.2d 688, 693 (Fed.Cir.1984); Hughes v. Novi Am., Inc., 724 F.2d 122, 123–26 (Fed.Cir.1984). Factors to consider in the exceptionality inquiry include inequitable conduct before the Patent Office, misconduct in litigation, “vexatious, unjustified, and otherwise bad faith litigation,” and whether the suit is frivolous. Forest Labs., 339 F.3d at 1329.

In the context of fee awards to prevailing accused infringers, we have observed that § 285 is limited to circumstances in which it is necessary to prevent “a gross injustice” to the accused...