Gfi, Inc. v. Franklin Corp.

• Decision Date: 16 October 2002
• Docket Number: No. 3:97CV16-DA.,3:97CV16-DA.
• Citation: 227 F.Supp.2d 602
• Parties: GFI, INC. Plaintiff, v. FRANKLIN CORPORATION; Astro Lounger Furniture MFG.; Parkhill Furniture, Inc.; and Washington Furniture MFG. Defendants.
• Court: U.S. District Court — Northern District of Mississippi

227 F.Supp.2d 602

GFI, INC. Plaintiff, v. FRANKLIN CORPORATION; Astro Lounger Furniture MFG.; Parkhill Furniture, Inc.; and Washington Furniture MFG. Defendants.

No. 3:97CV16-DA.

United States District Court, N.D. Mississippi, Western Division.

October 16, 2002.

James J. Foster, Wolf, Greenfield & Sacks, Boston, MA, for GFI, Inc.

Claude F. Clayton, Jr., Tupelo, MS, for Franklin Corp.

J.T. Martin, J.T. Martin, Attorney, Washington, DC, for Parkhill Furniture, Inc.

OPINION DENYING MOTIONS FOR ATTORNEYS' FEES

DAVIDSON, Chief Judge.

Presently before the court is the Defendant Franklin Corporation's motion for attorneys' fees, and the Defendant Parkhill Furniture's motion for attorneys' fees. Upon due consideration, the court finds that both of the motions should be denied.

A. Factual and Procedural Background

U.S. Patent No. 5,064,244 (the '244 patent) was issued to the Plaintiff GFI by the United States Patent and Trademark Office (PTO) in November of 1991. The '244 patent concerns a sectional sofa in which a pair of reclining seats, on the same side of a wedge, is separated by a fixed console which contains the control means for operating the reclining seats. After initiating several other lawsuits involving the '244 patent, GFI instituted this patent infringement action in February of 1997. The court tried this matter in a nearly month-long bench trial held in November and December of 1999. During the trial, the Defendants raised the defenses of inequitable conduct, obviousness, patent misuse, equitable estoppel and laches.

After the trial's conclusion, the court found that the Defendants had proven by clear and convincing evidence that GFI had obtained the '244 patent through inequitable conduct; for that reason, the court held that the '244 patent is unenforceable.¹ GFI, Inc. v. Franklin Corp., 88 F.Supp.2d 619 (N.D.Miss.2000). The Plaintiff subsequently appealed this court's finding of inequitable conduct to the United States Court of Appeals for the Federal Circuit. On September 7, 2001, the Federal Circuit issued an opinion affirming this court's judgment in all respects. GFI, Inc. v. Franklin Corp., 265 F.3d 1268 (Fed.Cir. 2001).

The Defendants Franklin Corporation and Parkhill Furniture, Inc. have now separately moved for an award of attorneys' fees against GFI pursuant to 35 U.S.C. § 285; against GFI's attorneys pursuant to 28 U.S.C. § 1927; and against both GFI and its attorneys pursuant to the court's inherent power to sanction.

B. Standards for Awarding Attorneys' Fees

1. 35 U.S.C. § 285

35 U.S.C. § 285 provides that, in patent litigation, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." The determination to award attorneys' fees under Section 285 requires a two step analysis:

(1) the party requesting the award of fees must prove by clear and convincing evidence that the case is exceptional; and

(2) having made a finding that the case is exceptional, the court must determine whether an award of attorneys' fees to the prevailing party is warranted; such an award is discretionary on the court's part.

Interspiro USA, Inc. v. Figgie Int'l Inc., 18 F.3d 927, 933 (Fed.Cir.1994).

Section 285 serves two purposes. First, it permits an award of fees "where it would be grossly unjust that the winner be left to bear the burden of his own counsel which prevailing litigants normally bear." Badalamenti v. Dunham's Inc., 896 F.2d 1359, 1364 (Fed.Cir.1990); Rohm & Haas Co. v. Crystal Chem. Co., 736 F.2d 688, 692 (Fed.Cir.1984). Additionally, Section 285 serves to deter parties from bringing litigation in bad faith, thereby protecting litigants, the courts and the judicial process from abuse. Mathis v. Spears, 857 F.2d 749, 753-54 (Fed.Cir.1988).

A case may be deemed exceptional for a variety of reasons, including whether the patent owner engaged in inequitable conduct during the prosecution of the patent, whether the suit is frivolous, and whether the party engaged in misconduct during litigation. Bayer Aktiengesellschaft v. Duphar Int'l Research B.V., 738 F.2d 1237, 1242 (Fed.Cir.1984). The Defendants, as the prevailing parties in this case, bear the burden of establishing that this is an exceptional case. Machinery Corp. of America v. Gullfiber AB, 774 F.2d 467, 471 (Fed.Cir.1985). If the case is deemed exceptional, the court is then to determine whether an award of attorneys' fees to the prevailing party is warranted; in making this determination, the court decides whether an "award of attorney fees [is] appropriate and whether the amount of the award [is] reasonable." Reactive Metals and Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1583 (Fed.Cir.1985).

It is important to note, however, that even though inequitable conduct before the PTO is found — thereby potentially rendering a case exceptional, fees may be refused to the prevailing party. J.P. Stevens Co., Inc. v. Lex Tex Ltd., Inc., 822 F.2d 1047, 1049 (Fed.Cir.1987); Reactive Metals, 769 F.2d at 1582. In addition, fee-shifting statutes such as Section 285 are to be construed narrowly because they are in derogation of the common law "American Rule" that parties are to bear their own attorneys' fees. Fogerty v. Fantasy, Inc., 510 U.S. 517, 533-34, 114 S.Ct. 1023, 1033, 127 L.Ed.2d 455 (1994).

2. 28 U.S.C. § 1927

28 U.S.C. § 1927 provides that "[a]ny attorney ... who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." Section 1927 is essentially penal in nature, and any award otherwise justified should be limited to only those "excess costs" incurred as a result of the attorney's unreasonable and vexatious conduct. Browning v. Kramer, 931 F.2d 340, 344 (5th Cir.1991). Counsel may be held liable for excessive costs under Section 1927 only upon a showing of bad faith, recklessness or improper motive, and only if the multiplication of the proceedings is both unreasonable and vexatious. F.D.I.C. v. Conner, 20 F.3d 1376, 1384-85 (5th Cir.1994).

3. Fees Pursuant to the Court's Inherent Power

Pursuant to the court's inherent power to supervise and control its proceedings, the court may impose sanctions, including an award of reasonable attorneys' fees to the prevailing party, when the losing party or its counsel has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." F.D. Rich Co., Inc. v. United States ex rel. Industrial Lumber Co., Inc., 417 U.S. 116, 129, 94 S.Ct. 2157, 2165, 40 L.Ed.2d 703 (1974); see Carroll v. The Jaques Admiralty Law Firm, P.C., 110 F.3d 290, 292 (5th Cir.1997) (holding that "[w]hen a party's deplorable conduct is not effectively sanctionable pursuant to an existing rule or statute, it is appropriate for a district court to rely on its inherent power to impose sanctions."). An award of attorneys' fees is a permissible sanction under the court's inherent power only when a party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons" or when a party has willfully disobeyed a court order. Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 2133, 115 L.Ed.2d 27 (1991).

C. Discussion

1. 35 U.S.C. § 285

a. General Principles

The federal courts of the United States have adopted what has become known as the "American Rule" in the handling of attorney fee requests. Unlike countries which follow the "English Rule," our courts do not routinely assess attorney fees against the losing party. See Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 247, 95 S.Ct. 1612, 1616, 44 L.Ed.2d 141 (1975) (holding that, under American rule, each party must bear its own expenses during litigation, and that attorneys' fees are not ordinarily recoverable by prevailing litigant in absence of statutory authorization).

The American Rule was recognized by the Supreme Court as early as 1796. Arcambel v. Wiseman, 3 Dall. 306, 3 U.S. 306, 1 L.Ed. 613 (1796). The Rule proscribes the award of attorneys' fees absent statutory authorization or particularly compelling circumstances. Rohm & Haas, 736 F.2d at 690. The policy behind the Rule is simple — to avoid penalizing a party "for merely defending or prosecuting a lawsuit." Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718, 87 S.Ct. 1404, 1407, 18 L.Ed.2d 475 (1967).

Prior to 1946, the Supreme Court, following the American Rule, had consistently held that the award of attorney fees was not available in patent cases. See, e.g., Teese v. Huntingdon, 23 How. 2, 64 U.S. 2, 8, 16 L.Ed. 479 (1859). In 1946, however, Congress amended 35 U.S.C. § 70 and added an attorney fee provision which provided that "[t]he court may in its discretion award reasonable attorney's fees to the prevailing party upon the entry of judgment on any patent case." The next and most recent revision of the pertinent section of the patent statutes, in 1952, codified the present attorney fee provision in 35 U.S.C. § 285. This section omits explicit reference to the court's discretion but adds that the court may award reasonable attorney fees in exceptional cases. See 35 U.S.C. § 285.

Here, the Defendants move for an award of attorneys' fees against GFI pursuant to 35 U.S.C. § 285. Assuming, arguendo, that this is an exceptional case due to the inequitable conduct that took place and resulted in the '244 patent's invalidity, the court holds for the following reasons that an award of attorneys' fees to the prevailing Defendants is nevertheless not warranted.

b. The Berkline decision

The Defendants argue that an award of fees is justified because, in bringing this action, GFI was "attempting to enforce a patent it knew to be unenforceable" due to its inequitable conduct before the PTO. The court finds, however, that GFI was justified in its belief that the '244 patent was enforceable.

In prior litigation concerning the '244 patent, a federal district court...