Stone Basket Innovations, LLC v. Cook Med. LLC

• Decision Date: 11 June 2018
• Docket Number: 2017-2330
• Citation: 892 F.3d 1175
• Parties: STONE BASKET INNOVATIONS, LLC, Plaintiff-Appellee v. COOK MEDICAL LLC, Defendant-Appellant
• Court: U.S. Court of Appeals — Federal Circuit

892 F.3d 1175

STONE BASKET INNOVATIONS, LLC, Plaintiff-Appellee

v.COOK MEDICAL LLC, Defendant-Appellant

2017-2330

United States Court of Appeals, Federal Circuit.

Decided: June 11, 2018

Robert E. Freitas, Freitas Angell & Weinberg LLP, Redwood City, CA, argued for plaintiff-appellee. Also represented by Daniel J. Weinberg, Joshua Young.

James Richard Ferguson, Mayer Brown, LLP, Chicago, IL, argued for defendant-appellant.

Before Prost, Chief Judge, Wallach and Taranto, Circuit Judges.

Wallach, Circuit Judge.

Appellee Stone Basket Innovations, LLC ("Stone") sued Appellant Cook Medical LLC ("Cook") in the U.S. District Court for the Southern District of Indiana ("District Court"), alleging infringement of U.S. Patent No. 6,551,327 ("the ’327 patent"). Following a dismissal with prejudice, see Stone Basket Innovations, LLC v. Cook Med. LLC (Stone Basket I ), No. 1:16-cv-00858-LJM-TAB (S.D. Ind. Jan. 11, 2017) (J.A. 1157), Cook filed, inter alia, a motion for attorney fees pursuant to 35 U.S.C. § 285 (2012) ("the § 285 Motion"). The District Court issued an order denying the § 285 Motion. Stone Basket Innovations, LLC v. Cook Med. LLC (Stone Basket II ), No. 1:16-cv-00858-LJM-TAB, 2017 WL 2655612, at *1 (S.D. Ind. June 20, 2017).

Cook appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1) (2012). We affirm.

BACKGROUND

In April 2015, Stone filed its patent infringement suit against Cook in the U.S. District Court for the Eastern District of Texas ("Eastern District"), alleging infringement of the ’327 patent. J.A. 41–44. The ’327 patent relates to a basket-type stone extraction medical device used to remove stones from biological systems. See ’327 patent, Abstract, col. 1 ll. 9–12. The claimed extraction basket includes a "support filament" such as a wire with a slideable outer sheath, "a handle comprising a sheath movement element," and a "collapsible" wire basket used to collect the stone. Id. col. 6 ll. 10, 16, 19; see id. col. 6 ll. 8–45 (claim 1); see also id. col. 5 ll. 1–17.

In May 2015, Cook filed a motion to transfer venue from the Eastern District to the District Court. J.A. 59–71. In October 2015, Cook served its invalidity contentions. J.A. 1598–625. In January 2016, Cook deposed the ’327 patent ’s inventor, during which he was asked questions about his contact with Stone’s managing members, Daniel Mitry and Timothy Salmon, and the conception and filing of the ’327 patent. J.A. 1504–05, 1510, 1526–27. Specifically, the ’327 patent ’s inventor stated, regarding the addition of the "sheath movement element" in claim 1 to overcome an examiner’s rejection, "I realize there is nothing novel about it." J.A. 1510.

In March 2016, Cook petitioned the U.S. Patent and Trademark Office’s ("USPTO") for inter partes review ("IPR") of all claims of the ’327 patent. See J.A. 1628–75; see also Stone Basket II , 2017 WL 2655612, at *3. Meanwhile, upon granting Cook’s Motion to Transfer Venue, J.A. 832–34, the Eastern District transferred the case to the District Court. Then, in April 2016, the parties filed a joint motion to stay the case pending the Patent Trial and Appeal Board ("PTAB")’s consideration of Cook’s petition for an IPR, which the District Court granted. J.A. 841–43.

In September 2016, the PTAB instituted an IPR on all claims of the ’327 patent. Stone Basket II , 2017 WL 2655612, at *3. Following the PTAB’s institution, one of Stone’s managing members offered to license the ’327 patent to Cook in exchange for $150,000.00. Id . ; see J.A. 1714 (confirming license offer in affidavit by Cook’s attorney). However, negotiations broke down. See J.A. 1716–22 (providing an email exchange between counsel). In December 2016, Stone filed a motion requesting adverse judgment in the IPR proceeding, J.A. 1724–26, and the PTAB granted the adverse judgment motion and cancelled all of the ’327 patent ’s claims, J.A. 1729–30.

That same month, Stone moved to dismiss the District Court litigation with prejudice, see J.A. 885, which the District Court granted, see Stone Basket II , 2017 WL 2655612, at *3. In March 2017, Cook filed its § 285 Motion, J.A. 1233–61; however, the District Court denied the § 285 Motion, because it determined the case was not "exceptional," Stone Basket II , 2017 WL 2655612, at *1.

DISCUSSION

I. Standard of Review and Legal Standard

By statute, a "court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. "[A]n ‘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." Octane Fitness, LLC v. ICON Health & Fitness, Inc. , ––– U.S. ––––, 134 S.Ct. 1749, 1756, 188 L.Ed.2d 816 (2014). The Supreme Court explained that "[t]here is no precise rule or formula for making" that determination. Id. (alteration in original) (internal quotation marks and citation omitted). Instead, "[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances." Id.

On appeal, we "review all aspects of a district court’s § 285 determination for abuse of discretion." Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. , ––– U.S. ––––, 134 S.Ct. 1744, 1747, 188 L.Ed.2d 829 (2014). "We apply Federal Circuit case[ ]law to the § 285 analysis, as it is unique to patent law." Digeo, Inc. v. Audible, Inc. , 505 F.3d 1362, 1366 (Fed. Cir. 2007) (citation omitted). A district court abuses its discretion when it "base[s] its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Rothschild Connected Devices Innovations, LLC v. Guardian Prot. Servs., Inc. , 858 F.3d 1383, 1387 (Fed. Cir. 2017) (quoting Highmark , 134 S.Ct. at 1748 n.2 ). "A factual finding is clearly erroneous if, despite some supporting evidence, we are left with the definite and firm conviction that a mistake has been made." Id. (internal quotation marks and citation omitted).

II. The District Court Did Not Abuse Its Discretion in Denying Cook’s § 285 Motion

This appeal involves two main issues, namely, whether the District Court erred in its assessment of: (1) the substantive strength of Stone’s litigating position, and (2) the alleged pattern of vexatious litigation by Stone. We address these issues in turn.

A. The Substantive Strength of Stone’s Litigating Position

Under Octane, a district court may consider "the substantive strength of a party’s litigating position" when determining if the case "stands out from others." 134 S.Ct. at 1756. The District Court analyzed the record—including the ’327 patent ’s prosecution history and prior art, the inventor’s deposition testimony concerning the sheath’s "novelty," and Stone’s decision to cancel its patent—yet ultimately found these factors did not demonstrate that Stone had "willfully ignored the prior art or failed to evaluate its case," or that Stone’s "actions were ... objectively unreasonable in light of the circumstances." Stone Basket II , 2017 WL 2655612, at *5 (internal quotation marks omitted). Cook argues that the District Court "disregarded both the law and the facts showing the weakness of [Stone’s] patent claims." Appellant’s Br. 24 (capitalization modified). We disagree with Cook.

The District Court did not abuse its discretion in finding that the substantive strength of Stone’s ultimately non-prevailing litigating position did not warrant an award of fees. Cook submitted two primary pieces of evidence to support its arguments for exceptionality—Cook’s invalidity contentions served in the Eastern District and the ’327 patent ’s inventor testimony. The District Court did not abuse its discretion in finding that neither piece of evidence, taken alone or together, warranted a finding of exceptionality.

First, the District Court did not err in finding Stone lacked any type of "clear notice" of the ’327 patent ’s invalidity by service of Cook’s invalidity contentions. Id . at 25; see Stone Basket II , 2017 WL 2655612, at *4. Although Cook focuses on the obviousness of the ’327 patent over U.S. Patent No. 6,168,603 ("Leslie") on appeal, that reference was not the focus of Cook’s invalidity contentions, which listed Leslie along with thirty-one other pieces of prior art as anticipatory references. J.A. 1601–02; see also J.A. 1602 (singling out only other prior art references Gilson and Greenhalgh—not Leslie—from that list of thirty-two). After providing that list of thirty-two references, Cook made the general statement that "[e]ach prior art reference disclosed above [in the list of thirty-two], either alone or in combination ..., renders the asserted claims invalid as obvious," J.A. 1602, included a legal standard section for motivation to combine, J.A. 1603–05, and attached inconsistent and unilluminating claim charts, see, e.g. , J.A. 1614–25 (attaching claim charts lacking inclusion of Leslie), J.A. 1601, 1614, 1619 (referencing U.S. Patent No. 6,383,196 ("the ’196 patent"), which is another patent issued to Leslie, in the claim chart for only two of claim 1’s seven claim limitations despite the fact that Cook includes the ’196 patent in its list of anticipatory references). The Eastern District’s Local Patent Rules governing invalidity contentions require that "each such combination, and the motivation to combine such items, must be identified," and "[a] chart identifying where specifically in each alleged item of prior art each element of each asserted claim is found." E.D. Tex. P.R. 3-3(b), (c).¹ While compliance with local patent rules is not always necessary to provide "clear notice" of invalidity, Cook’s invalidity contentions, at minimum, fall short of notifying Stone how Leslie renders the ’327 patent obvious—or even that Stone should conduct a focused investigation on whether Leslie, in particular, renders the ’327 patent obvious.

...