In re Protegrity Corp.
| Decision Date | 27 February 2017 |
| Docket Number | Case No. 3:15-md-02600-JD |
| Parties | IN RE: PROTEGRITY CORPORATION AND PROTEGRITY USA, INC. PATENT LITIGATION |
| Court | U.S. District Court — Northern District of California |
As the coda to this multidistrict patent litigation, defendants Aptos, Inc. ("Aptos"), Corduro, Inc. ("Corduro") and Informatica, LLC ("Informatica") seek to recover attorneys' fees from plaintiffs Protegrity Corporation and Protegrity USA, Inc. (together, "Protegrity") under 35 U.S.C. § 285. The motions are denied.
This consolidated litigation arises out of Protegrity's efforts to enforce two of its patents, U.S. Patent Nos. 6,321,201 and 8,402,281. The '201 patent was issued on November 20, 2001, and generally claims the invention of cell-level encrypted database technology that functions by allowing or disallowing access to an encrypted data element in one database based on calls to data access rules in a second database. Dkt. No. 127-2 ('201 Patent). The '281 patent was issued on March 19, 2013, is a continuation of the same application as the '201 patent and claims a substantially similar invention. Dkt. No. 127-3 ('281 Patent).
Between 2008 and 2010, Protegrity filed infringement cases asserting the '201 patent against three of its competitors. Dkt. No. 127-1 at 7-8. The first settled after five years of litigation, the second mid-trial, and the third "without much discovery." Id. At oral argument here, Protegrity's counsel represented that the company had collected approximately $20,000,000 in the settlements.
After these successes, Ulf Mattsson, Protegrity's former CTO, was tasked with researching the encrypted database industry to identify other potential infringers of Protegrity's patents. Id. at 8. His investigation led to the filing of a number of lawsuits in several district courts, including the cases involving Aptos (formerly "Epicor Software Corporation"), Corduro and Informatica that are at issue here.
In 2014, Informatica, Aptos and another party petitioned the Patent Trial and Appeal Board ("PTAB") to do a Covered Business Method ("CBM") review of all the asserted claims of the '201 and '281 patents. Dkt. No. 37 at 1-2. On November 7, 2014, while venue challenges were underway in several of the underlying cases, Protegrity moved under 28 U.S.C. § 1407 to centralize all district court proceedings in the District of Connecticut, where Protegrity had originally filed its cases. On February 20, 2015, the Judicial Panel on Multidistrict Litigation consolidated the proceedings but transferred the cases to the Northern District of California and this Court. Dkt. No. 1 at 3.
The Court held an initial case management conference on April 1, 2015. Dkt. No. 17. With an eye toward containing litigations costs and avoiding potentially duplicative adjudications, the Court proposed, without objection by any party, to stay the consolidated actions in their entirety pending the PTAB's response to defendants' petitions to institute review. Id. Over the next three months, the PTAB instituted CBM reviews on all of the claims asserted by Protegrity. Dkt. No. 37 at 1-2. The Court extended the stay through the PTAB's completion of the CBM reviews. Dkt. No. 55. In 2016, the PTAB issued several Final Written Decisions invalidating the '201 and '281 patents primarily for lack of patent eligibility under 35 U.S.C. § 101. See Dkt. No. 84 at 2.
The Court held another case management conference on June 29, 2016, to solicit the parties' views on how to proceed in light of the PTAB determinations. Dkt. No. 91. Protegrity stated its intention not to appeal the PTAB decisions, and said it was in the process of dismissingdefendants. Id. Shortly after the conference, Protegrity stipulated to a judgment of invalidity, Dkt. No. 103, which the Court entered on July 15, 2016. Dkt. No. 106.
While many defendants were content to walk away at this stage, five accused infringers, including the three moving parties here, expressed the intent to pursue attorneys' fees under Section 285 as prevailing parties in an "exceptional" patent case. The Court referred the issue to Magistrate Judge Donna Ryu for a settlement conference. Dkt. No. 107. Protegrity settled with two of the five accused infringers but not with Aptos, Corduro or Informatica. Dkt. No. 110. These defendants filed the separate motions for attorneys' fees that are the subject of this order. Dkt. Nos. 112, 114, 116. While the motions have unique fact details on some specific points, they raise largely overlapping arguments and so are treated together here.
The Patent Act provides that "the court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. In 2014, the Supreme Court overturned the Federal Circuit's "rigid and mechanical formulation" of rules governing fee shifting under Section 285 that had been in effect since 2005. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1754 (2014) (overruling Brooks Furniture Mfg., Inc. v. Dutailier Int'l Inc., 393 F.3d 1378 (Fed. Cir. 2005)). In lieu of the tests under Brooks Furniture of objective baselessness and subjective bad faith, to be proven by clear and convincing evidence, the Supreme Court held that the plain language of Section 285 "imposes one and only one constraint on district courts' discretion to award attorney's fees in patent litigation: The power is reserved for 'exceptional' cases." Id. at 1755-56. Since the Patent Act did not define "exceptional," the Supreme Court adopted its everyday meaning of "rare," "unusual," or "special." Id. at 1756. It added the guidance that "an 'exceptional' case is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Id.
The district court determines whether an action qualifies as exceptional in light of the totality of the circumstances in each case. Id. Relevant factors include, but are not limited to, "frivolousness, motivation, objective unreasonableness (both in the factual and legal componentsof the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Id. at 1756 n.6 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)). A preponderance of the evidence standard applies, id. at 1758, and the disposition of the fee request is entrusted to the district court's sound discretion. Highmark Inc. v. Allcare Health Mgt. Sys., Inc., 134 S. Ct. 1744, 1748 (2014); Site Update Solutions LLC v. CBS Corp., 639 Fed. App'x. 634, 637 (Fed. Cir. 2016).
While Octane Fitness replaced the Federal Circuit's strict tests with a more discretionary inquiry, it did not declare an open season for fee awards in every case where the defendant prevails. The "American Rule" -- where each litigant bears its own fees, win or lose -- remains a bedrock principle. Octane Fitness, 134 S. Ct. at 1753. Section 285 allows for a departure from that rule only in rare and exceptional circumstances. Id. at 1756; see also Stragent, LLC v. Intel Corp., Case No. 6:11-cv-421, 2014 WL 6756304, at *3 (E.D. Tex. Aug. 6, 2014) (Dyk, Circuit Judge, sitting by designation). To be sure, conduct need not be independently sanctionable to warrant fee shifting. Octane Fitness, 134 S. Ct. at 1756-57. But the totality of the circumstances must show that a case was egregious on the merits or in the way it was handled, or in some combination of the two.
Congress created an exception to the usual fee rule in patent cases for a specific reason. As the Federal Circuit has held, "Congress authorized awards of attorney fees to prevailing defendants 'to enable the court to prevent a gross injustice to an alleged infringer.'" Mathis v. Spears, 857 F.2d 749, 758 (Fed. Cir. 1988) (quoting S. Rep. No. 1503, 79th Cong, 2d Sess. (1946)) (emphasis in Mathis); see also Raylon, LLC v. Complus Data Innovations, Inc., 700 F.3d 1361, 1373 (Fed. Cir. 2012) () (Reyna, J., concurring) (citation omitted); Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1329 (Fed. Cir. 2003) () (citation omitted). Octane Fitness reinforces this message. As Judge Dyk has noted, it cites with approval a Ninth Circuit decision holding that fee shifting in patent cases should be "bottomed upon a finding of unfairness" or a similar equitable consideration, "which makes it grossly unjust that the winner ofthe particular lawsuit be left to bear the burden of his own counsel fees which prevailing litigants normally bear." Stragent, 2014 WL 6756304, at *3 (quoting Park-In-Theaters, Inc. v. Perkins, 190 F.2d 137, 142 (9th Cir. 1951)); see also Octane Fitness, 134 S. Ct. at 1753. While the current text of Section 285 is an amendment of the original version of the fee shifting provision in the Patent Act, "the recodification did not substantively alter the meaning of the statute," Octane Fitness, 134 S. Ct. at 1753, and Congress's original purpose remains an important factor in applying it.
Two other points deserve emphasis. Fee shifting is not imposed as a penalty just for losing a patent infringement case. Octane Fitness, 134 S. Ct. at 1753; SFA Systems, LLC v. Newegg, Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015) () (citation omitted). The determinative test is "the substantive strength of a party's litigating position" and specifically whether it was "so merit-less as to 'stand out' from the norm and, thus, be exceptional." SFA Systems, 793 F.3d at 1348 (quoting Octane Fitness, 134 S. Ct. at 1756) (emphasis...
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