Brooks Furniture Mfg. v. Dutailier Intern., Inc.

• Decision Date: 04 January 2005
• Docket Number: No. 03-1379.,03-1379.
• Citation: 393 F.3d 1378
• Parties: BROOKS FURNITURE MANUFACTURING, INC., Plaintiff-Appellee, v. DUTAILIER INTERNATIONAL, INC. and Dutailier, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

393 F.3d 1378

BROOKS FURNITURE MANUFACTURING, INC., Plaintiff-Appellee, v. DUTAILIER INTERNATIONAL, INC. and Dutailier, Inc., Defendants-Appellants.

No. 03-1379.

United States Court of Appeals, Federal Circuit.

January 4, 2005.

R. Bradford Brittian, Pitts & Brittian, P.C., of Knoxville, Tennessee, argued for plaintiff-appellee. With him on the brief were Robert E. Pitts and Melinda L. Doss.

Kevin W. Goldstein, RatnerPrestia, of Valley Forge, Pennsylvania, argued for defendants-appellants. With him on the brief were Kevin R. Casey and Jacques L. Etkowicz.

Before NEWMAN, LOURIE, and DYK, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

Dutailier International, Inc. and Dutailier, Inc. (together "Dutailier"), appeal the decision of the United States District Court for the Eastern District of Tennessee¹ holding that Brooks' action for declaratory judgment that Dutailier's patent is invalid and not infringed constitutes an exceptional case and awarding attorney fees. The award is vacated.

BACKGROUND

Dutailier is the owner of United States Patent No. D417, 983 ("the '983 patent"), a design patent for rocking chair trim, issued December 28, 1999. Brooks and Dutailier are both in the business of manufacturing rocking chairs. In January 2000 Dutailier sent Brooks a cease and desist letter, alleging infringement of the '983 patent and demanding an orderly withdrawal from the market and payment of royalties for past and interim infringement. In response, Brooks filed suit in the Eastern District of Tennessee seeking a declaratory judgment that it did not infringe the '983 patent and that the patent was invalid, along with claims of unfair competition and patent mismarking. Brooks alleged that the action was exceptional pursuant to 35 U.S.C. § 285, 15 U.S.C. § 1117, and Tennessee law, and requested attorney fees and litigation costs. Dutailier then sued Brooks in the District of Delaware, asserting patent infringement, Lanham Act and common law unfair competition, and deceptive trade practices under state consumer protection law. After an unsuccessful attempt to transfer the Tennessee case to Delaware, Dutailier dismissed the Delaware action and filed equivalent counterclaims in the Tennessee action.

The Tennessee district court granted Brooks' motion for summary judgment of noninfringement and denied as moot Brooks' motion for summary judgment of invalidity. By stipulated order, Brooks voluntarily dismissed its invalidity, patent mismarking, and Lanham Act claims, and Dutailier voluntarily dismissed its remaining counterclaims, leaving no outstanding issues and entering final judgment.

The district court granted Brooks' request for attorney fees, concluding that the circumstances of the case were exceptional. See 35 U.S.C. § 285 ("The court in exceptional cases may award reasonable attorney fees to the prevailing party.") The district court held that Brooks had clearly prevailed on the infringement issue and was also a prevailing party to the extent that Dutailier's counterclaims had been dismissed by stipulated order. The court held that attorney fees were warranted under either the Patent or Lanham Acts, or pursuant to state consumer protection law. The court did not set the amount of the award, instead ordering the parties to submit papers and "confer in an effort to see if the amount of attorney fees can be agreed upon."

Dutailier attempted to appeal the attorney fees decision, but this court dismissed the appeal as not ripe since there was no specific award. On remand, the district court determined the amount of the fees and Dutailier re-appealed. Dutailier challenges only its liability for attorney fees, not the amount.

A Procedural Matters

Dutailier argues that the district court erred as a matter of law by placing on it the burden of proving its good faith, instead of placing on Brooks the burden of proving bad faith. Dutailier cites the court's repeated descriptions of the hearing to determine whether the case was exceptional as a "good faith hearing." See Memorandum Opinion (Dec. 18, 2001) ("out of an abundance of caution, the court conducted a hearing on the issue of defendants' good faith"). Dutailier also argues that the court failed to interpret the evidence in its favor as non-movant, as is required in granting a motion for summary judgment. See Fed.R.Civ.P. 56(c); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

We do not share Dutailier's characterization of the district court's procedure. The district court received Brooks' evidence of asserted bad faith, and by "good faith hearing" gave Dutailier an opportunity to respond to this evidence. The facts relevant to the exceptional case analysis were largely uncontroverted, and raised no Rule 56 issue: there was no factual dispute about the contents of the cease and desist letter, Dutailier's size and conduct in the marketplace, its litigation conduct, and the opinions of counsel and design experts upon which Dutailier relied. Although we conclude that the district court erred in its legal conclusion, as we shall discuss, the court did not commit procedural error or misplace the burden of proof.

B Prevailing Party

Dutailier points out that many of Brooks' claims were dismissed by stipulation, and that the Dutailier patent remained valid; thus Dutailier argues that the district court erred in ruling that Brooks was the prevailing party.

Determination of the prevailing party is based on the relation of the litigation result to the overall objective of the litigation, and not on a count of the number of claims and defenses. See Texas State Teachers Ass'n v. Garland Independent School Dist., 489 U.S. 782, 789, 109 S.Ct. 1486, 103 L.Ed.2d 866 (1989) ("`plaintiffs may be considered "prevailing parties" for attorney's fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing the suit.'") (quoting Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)).

Dutailier accused Brooks of infringing its patent and demanded that Brooks cease producing the accused chairs. Brooks brought this declaratory action to preserve its position, and succeeded in doing so. Brooks raised several defenses to the charge of patent infringement, any of which would have achieved Brooks' goal. Thus when Brooks established its non-infringement of the Dutailier patent, it prevailed in the litigation. That other defenses, such as invalidity of the patent, were unsuccessful or withdrawn, does not change the outcome in Brooks' favor. We agree with the district court that Brooks was the prevailing party.

C Exceptional Case

A case may be deemed exceptional when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed.R.Civ.P. 11, or like infractions. See, e.g., Cambridge Prods. Ltd. v. Penn Nutrients, Inc., 962 F.2d 1048, 1050-51 (Fed.Cir.1992); Beckman Instruments, Inc., v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed.Cir.1989). Absent misconduct in conduct of the litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49, 60-61, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993); see also Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1329-31 (Fed.Cir.2003). Since we conclude that the first requirement (subjective bad faith) is not satisfied here, we need not decide whether the second (objectively baseless) standard was met.² That second inquiry does not depend on the state of mind of the plaintiff at the time that the action was commenced, but rather requires an objective assessment of the merits.

There is a presumption that the assertion of infringement of a duly granted patent is made in good faith. Springs Willow Fashions, LP v. Novo Indus., L.P., 323 F.3d 989, 999 (Fed.Cir.2003). Thus, the underlying improper conduct and the characterization of the case as exceptional must be established by clear and convincing evidence. Beckman, 892 F.2d at 1551. Even for an exceptional case, the decision to award attorney fees and the amount thereof are within the district court's sound discretion. See S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed.Cir.1986) (even an exceptional case does not require in all circumstances the award of attorney fees).

The district court found that Dutailier had acted in bad faith in sending the cease and desist letter and filing the Delaware suit against Brooks. The court based its opinion largely, but not solely, on what it considered the frivolousness of the infringement claim. The court also considered the behavior of Dutailier in the marketplace and its policy of suing and acquiring its competitors, most of whom were significantly smaller than Dutailier and, according to the court, little able to afford to defend themselves. Taken together, Brooks argues, these factors render the case exceptional. We address each in turn.

D Infringement

Dutailier states that it had a good faith belief in the strength of its infringement claim, and that it had conducted a thorough investigation of the accused chairs before sending Brooks the cease and desist letter and filing the infringement counterclaims. Dutailier states that its investigation included analyses by its marketing staff and designers, followed by infringement opinions by Canadian and United States patent attorneys, and then evaluations by two independent experts in the field of rocking chair design. All of the experts and attorneys that Dutailier consulted concluded that there was substantial...