Phonometrics, Inc. v. Westin Hotel Co.

• Decision Date: 26 November 2003
• Docket Number: No. 02-1501.,02-1501.
• Citation: 350 F.3d 1242
• Parties: PHONOMETRICS, INC., Plaintiff-Appellant, v. WESTIN HOTEL CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1242

350 F.3d 1242

PHONOMETRICS, INC., Plaintiff-Appellant, v. WESTIN HOTEL CO., Defendant-Appellee.

No. 02-1501.

United States Court of Appeals, Federal Circuit.

Decided: November 26, 2003.

Rehearing and Rehearing En Banc Denied January 8, 2004.

John P. Sutton, Attorney at Law, of San Francisco, California, argued for plaintiff-appellant.

Nicholas L. Coch, Kramer Levin Naftalis & Frankel LLP, of New York, New York, for defendant-appellee. With him on the brief was Vito J. DeBari.

Before NEWMAN, MICHEL, and RADER, Circuit Judges.

Opinion for the court filed by Circuit Judge MICHEL. Dissenting opinion filed by Circuit Judge NEWMAN.

MICHEL, Circuit Judge.

Phonometrics, Inc. appeals from the order of the United States District Court for the Southern District of Florida granting-in-part and denying-in-part the motion of Westin Hotel Co. for attorney fees and costs. Phonometrics, Inc. v. Westin Hotel Co., No. 94-6504-CIV-RYSKAMP (S.D.Fla. May 6, 2002) ("May 6 Order"). Because the district court made an error in determining the amount of attorney fees to award, we affirm-in-part and vacate-in-part the district court's order and remand this case for a re-determination of the amount of fees awarded consistent with this opinion.

BACKGROUND

Westin is one of a number of hotel companies sued in the mid-1990s by Phonometrics. In the actions, each brought in the Southern District of Florida, Phonometrics accused the hotel defendants of infringing U.S. Patent No. 3,769,463 ("the '463 patent"), issued on October 30, 1973 to Philip G. Graham and Lawrence Reich. The '463 patent relates to an "Electronic Long Distance Telephone Call Computer and Recorder." Phonometrics contends that the defendants' use of internal telephone equipment to calculate, display, and record the cost of long distance telephone calls originating in their hotels infringes the '463 patent.

Before it brought its actions against the hotel defendants, Phonometrics had charged various manufacturers and sellers of telephone equipment with infringement of the '463 patent, including Intellicall, Inc. and Northern Telecom Inc. See, e.g., Intellicall, Inc. v. Phonometrics, Inc., 952 F.2d 1384 (Fed.Cir.1992); Phonometrics, Inc. v. Northern Telecom, Inc., 133 F.3d 1459 (Fed.Cir.1998). The claim limitation at issue in Intellicall, Northern Telecom, and in many, if not all, of the hotel cases is the "call cost register means, including a digital display, for providing a substantially instantaneous display of cumulative call cost in dollars and cents."¹ In Intellicall, we affirmed a grant of summary judgment of noninfringement of the '463 patent, holding that the term "digital display" does not include machine-readable devices. Intellicall, 952 F.2d at 1388. Then, in Northern Telecom, we affirmed a summary judgment of noninfringement based on a construction of the "substantially instantaneous" limitation as requiring that the call cost register means provide the caller with "accurate cost information while the call progresses as well as total cost information once the call has ended." Northern Telecom, 133 F.3d at 1467.

Shortly after we issued our opinion in Northern Telecom, we affirmed a grant of summary judgment of noninfringement to a telephone switching system manufacturer, in part on the ground that the manufacturer "introduced evidence that the accused peripheral systems did not and could not provide cost information about calls while the calls were in progress." Phonometrics, Inc. v. Siemens Info. Sys., Inc., 135 F.3d 777, 1998 WL 30488, at *3 (Fed. Cir.1998) (Table). We similarly affirmed a grant of summary judgment of noninfringement to a switching equipment seller because the equipment was "unable to calculate call cost until after the call ends." Phonometrics, Inc. v. Tadiran Elec. Indus., Inc., 135 F.3d 777, 1998 WL 33855, at *1 (Fed.Cir.1998) (Table). To this extent, we based both decisions on the claim construction stated in Northern Telecom. Siemens, 1998 WL 30488, at *2; Tadiran, 1998 WL 33855, at *1.

We had our first opportunity to review a decision on the merits of a Phonometrics infringement claim against a hotel defendant in Phonometrics, Inc. v. Choice Hotels International, Inc., 21 Fed.Appx. 910 (Fed.Cir.2001) ("Choice I"). There, we affirmed the district court's grant of summary judgment of noninfringement based on the claim construction stated in Northern Telecom and the fact that "no evidence showed that Choice Hotels' accused device... provided cost information during a call...." Id. at 911 (emphasis in original). Rejecting as "baffling" Phonometrics' contention that our earlier construction of the "substantially instantaneous" limitation was "pure dictum," we noted that "[u]nder principles of stare decisis, ... future panels like the present panel will follow the claim construction set forth by our court in" Intellicall and Northern Telecom, and specifically cautioned Phonometrics against further litigation of that issue in this court. Id. at 911-12 ("[W]e would not welcome further appeals seeking to re-litigate the meaning of that phrase. Indeed, further appeal on that issue would appear to be subject to possible sanctions as frivolously filed under Fed.R.App.P 38.").² John P. Sutton, counsel for Phonometrics in the present action, also represented Phonometrics in each of Northern Telecom, Siemens, Tadiran, and Choice I.

Choice I issued on October 9, 2001. Thereafter, the district court asked Phonometrics whether it intended to continue to pursue its claims. When Phonometrics responded in the affirmative, the district court lifted the stay it had imposed on all Phonometrics cases pending the outcome of Choice I to entertain motions for summary judgment. Ultimately, it granted Westin's motion for summary judgment of noninfringement. We recently affirmed. Phonometrics, Inc. v. Westin Hotel Co., 319 F.3d 1328, 1334 (Fed.Cir.2003).

After the district court entered judgment in favor of Westin, Westin requested attorney fees and costs pursuant to both 35 U.S.C. § 285 and 28 U.S.C. § 1927. The district court found that Phonometrics' continued maintenance of this action after January 15, 1998 — the date we issued our opinion in Northern Telecom — was vexatious, supported an "inference of bad faith" and "resulted in unjustified multiplication of proceedings." May 6 Order, slip op. at 8. According to the district court, the claim construction we stated in Northern Telecom made clear that Westin infringed only if its hotels provided real-time visual displays of the costs of guest calls to the caller during the call. Id. Noting that Phonometrics never even accused Westin of violating the '463 patent as construed in Northern Telecom, the district court imposed liability for all attorney fees and costs incurred by Westin after January 15, 1998 on Phonometrics pursuant to 35 U.S.C. § 285 and on Phonometrics' counsel pursuant to 28 U.S.C. § 1927. Id. at 8-9. Bills were then submitted. The court subsequently awarded Westin fees and costs in the amount of $24,807.52. Phonometrics, Inc. v. Westin Hotel Co., No. 94-6504-CIV-RYSKAMP (S.D.Fla. May 31, 2002).

DISCUSSION

I.

"The court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285.

The determination of whether a case is exceptional and, thus, eligible for an award of attorney fees under 285 is a two-step process. First, the district court must determine whether a case is exceptional, a factual determination reviewed for clear error. After determining that a case is exceptional, the district court must determine whether attorney fees are appropriate, a determination that we review for an abuse of discretion. A district court abuses its discretion when its decision is based on clearly erroneous findings of fact, is based on erroneous interpretations of the law, or is clearly unreasonable, arbitrary or fanciful.

Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1460 (Fed.Cir.1998) (en banc) (citations omitted). "The prevailing party may prove the existence of an exceptional case by showing: inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement." Epcon Gas Sys., Inc. v. Bauer Compressors, Inc., 279 F.3d 1022, 1034 (Fed.Cir.2002). When "the patentee is manifestly unreasonable in assessing infringement, while continuing to assert infringement in court, an inference is proper of bad faith, whether grounded in or denominated wrongful intent, recklessness, or gross negligence." Eltech Sys., Corp. v. PPG Indus., 903 F.2d 805, 811 (Fed.Cir.1990).

Pursuant to 28 U.S.C. § 1927, "[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." We apply Eleventh Circuit law when reviewing a district court's award of fees and costs under § 1927. Baldwin Hardware Corp. v. Franksu Enter. Corp., 78 F.3d 550, 560-61 (Fed.Cir.1996). The Eleventh Circuit reviews such awards for an abuse of discretion. Id. at 561.

II.

We find no clear error in the district court's finding of exceptionality under 35 U.S.C. § 285, and no clear error in its determination that the continued prosecution of this action after January 15, 1998 was "unjustified, vexatious and [in] bad faith" or abuse of discretion in its determination that the sanction of attorney fees and costs was warranted.

A.

Two fundamental premises underlie the district court's finding of exceptionality and determination that the "unjustified, vexatious and bad faith maintenance of the lawsuit is deserving of an award ... pursuant to both 28 U.S.C. § 1927 and 35 U.S.C. § 285" (May 6 Order, slip op. at 8):(1) our decision in Northern Telecom established, as a matter of law, that "infringement of the '463 patent could only be possible if...