Waymark Corp. v. Porta Systems Corp.

• Decision Date: 10 July 2003
• Docket Number: No. 03-1012.,03-1012.
• Citation: 334 F.3d 1358
• Parties: WAYMARK CORPORATION and Caravello Family LP, Plaintiffs-Appellants, and Joseph J. Zito and Alexander B. Rotbart, Sanctioned Parties-Appellants, v. PORTA SYSTEMS CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

334 F.3d 1358

WAYMARK CORPORATION and Caravello Family LP, Plaintiffs-Appellants, and Joseph J. Zito and Alexander B. Rotbart, Sanctioned Parties-Appellants, v. PORTA SYSTEMS CORPORATION, Defendant-Appellee.

No. 03-1012.

United States Court of Appeals, Federal Circuit.

July 10, 2003.

Joseph J. Zito, of Damascus, MD, argued for plaintiffs-appellants and sanctioned parties-appellants.

Charles R. Hoffmann, Hoffmann & Baron, LLP, of Syosset, NY, argued for defendant-appellee. With him on the brief was Kevin E. McDermott.

Before NEWMAN, RADER, and DYK, Circuit Judges.

DYK, Circuit Judge.

The Waymark Corporation, Caravello Family LP, Joseph J. Zito, and Alexander Rotbart (collectively "appellants" or "plaintiffs") appeal an order by the District Court for the Southern District of Florida imposing sanctions in the form of an award of attorneys' fees. We reverse.

BACKGROUND

This case was previously before us on the merits. We held that summary judgment was properly granted for the defendant with respect to the plaintiffs' claim of patent infringement under 35 U.S.C. § 271(a) but improperly granted as to the claim of infringement under 35 U.S.C. § 271(f)(2); we therefore affirmed on the first issue and remanded on the second. Waymark Corp. v. Porta Sys. Corp., 245 F.3d 1364, 1365, 58 USPQ2d 1456, 1457 (Fed.Cir.2001). The case now comes to us for a second time on the issue of sanctions.

I

The complaint in this action was filed in August of 1998 in the United States District Court for the Southern District of Florida. There were two separate plaintiffs, the Waymark Corporation and the Caravello Family Limited Partnership ("the partnership"). The complaint named Porta Systems Corp. ("Porta Systems") as the sole defendant. Count I sought damages for infringement of U.S. Patent No. 5,705,929 ("the '929 patent"). Count II sought damages and an injunction for trademark and trade dress infringement based on the alleged infringement of the trademark "Battscan" and for the use of distinctive trade dress. The complaint alleged that "[t]he BATTSCAN name is identified with Plaintiffs and the BATTSCAN products have a distinctive trade dress, identifying Plaintiffs as the source of these products." (Compl. at 6.) The complaint did not allege that the trademark was registered.¹

The complaint alleged that the partnership was the "owner of [the '929 patent] and related technology, know-how and good will, as assignee from Ellen Caravello[.]" Id. at 2. It further alleged that "Waymark is the exclusive licensee of the '929 patent." Id. at 3.

A. The Merits Issues

On September 1, 1999, the plaintiffs moved for summary judgment of infringement on the patent count. On September 27, 1999, Porta Systems cross-moved for summary judgment of non-infringement on the patent count. On November 4, 1999, Porta Systems moved for dismissal and summary judgment on the ground that the plaintiffs lacked standing with respect to both the patent and trademark counts.

On February 25, 2000, the district court granted summary judgment for Porta Systems on the patent count (for lack of infringement) and on the trademark and trade dress count (for lack of standing) in an Omnibus Order. Waymark Corp. v. Porta Sys. Corp., No. 98-8545-Civ, slip op. at 15, 22 (S.D.Fla. Feb. 25, 2000) ("Omnibus Order"). It considered patent infringement only under 35 U.S.C. § 271(a). That section provided that "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent." 35 U.S.C. § 271(a) (2000). The district court found § 271(a) inapplicable because there was no evidence that Porta Systems ever produced an infringing device after the assignment to the partnership was made. The court noted that the plaintiffs had produced exhibits that indicated that Porta Systems had produced and shipped some components that, if assembled, would infringe claim 1 of the '929 patent, but that these exhibits did not indicate "that an assembled Battscan device was ever made by Porta Systems." Id. at 13. The court dismissed the trademark count for lack of standing because "the trademark for the name Battscan was registered [with the Patent and Trademark Office] by Plaintiff Waymark on September 14, 1999, more than one year after Plaintiffs filed their Complaint alleging trademark infringement." Id. at 21.

The plaintiffs timely moved for reconsideration, apparently for the first time specifically asserting that Porta Systems had infringed under 35 U.S.C. § 271(f)(2) by shipping to Mexico components that, if assembled, would infringe the patent.² On April 11, 2000, the district court denied the plaintiffs' motion, holding that "[t]here can be no contributory infringement [under 35 U.S.C. § 271(f)(2)] without the fact or intention of direct infringement." Waymark Corp. v. Porta Sys. Corp., No. 98-8545-Civ, slip op. at 2 (S.D.Fla. Apr. 11, 2000). The plaintiffs timely appealed to this court solely on the issue of patent infringement under §§ 271(a) and 271(f)(2). On appeal the plaintiffs did not challenge the grant of summary judgment as to the trademark and trade dress count.

On April 6, 2001, we held that the district court had properly granted summary judgment on infringement under § 271(a) because that section requires assembly, or a nearly complete testing assembly, within the United States, which had not occurred. Waymark Corp. v. Porta Systems Corp., 245 F.3d at 1366-67, 58 USPQ2d at 1458-59. On infringement under § 271(f)(2), however, we held that summary judgment was improperly granted because, contrary to the district court's interpretation of that section, actual combination or assembly of the components by the alleged infringer was not required. Id. at 1368, 245 F.3d 1364, 58 USPQ2d at 1459. "[T]he statutory language in this section does not require an actual combination of the components, but only a showing that the infringer shipped them with the intent that they be combined." Id. Because the district court had granted summary judgment on the lack of combination alone, we vacated and remanded with respect to the claims under § 271(f)(2), while affirming summary judgment of the claims under § 271(a). Id. at 1369, 58 USPQ2d at 1460. We denied Porta Systems' request for sanctions against the plaintiffs for bringing the appeal.

On October 12, 2001, the district court held a hearing on the remanded infringement claim and gave the appellants an additional ninety days of discovery on the issue of infringement under § 271(f)(2). The district court cautioned during the hearing that it "ha[d] a serious question about this [infringement under § 271(f)(2) ], I think you are running the risk of taking one sanction position and making it worse, but that's up to you." On January 17, 2002, the appellants filed a Stipulation of Voluntary Dismissal, which the district court entered on January 25, 2002.

B. The Sanctions Issues

On March 5, 2001, while the appeal to this court was still pending, the district court granted Porta Systems' motion for sanctions in the form of attorneys' fees but did not set the amount. Waymark Corp. v. Porta Sys., No. 98-8545-Civ, slip op. at 2-3 (S.D.Fla. Mar. 5, 2001). The court explained that it was granting the motion for three reasons: (1) the trademark for the name "Battscan" not having been registered until more than a year after suit was filed, there was no basis for the claim of trademark infringement; (2) there was no written exclusive patent license agreement from the partnership to Waymark "as required under 35 U.S.C. § 261, and thus Waymark did not have standing to file suit for infringement of the '929 patent"; and (3) the appellants "provided a misleading response to Defendant's document request and the Court's order to show cause [portion of the Omnibus Order] with regard to the legally insufficient oral agreement" to license the patent. Id. at 2.³ Apparently based on the first two findings, the court concluded that "had Plaintiffs conducted a proper pre-filing investigation, Defendant would not have incurred the substantial attorney[s'] fees and costs it now claims." Id. The court held that the case was "exceptional" under 15 U.S.C. § 1117(a) and 35 U.S.C. § 285, and that "Plaintiffs' attorneys have unreasonably and vexatiously multiplied the proceedings in this case in violation of 28 U.S.C. § 1927." Id. at 3.

On January 29, 2002, after our disposition of the patent appeal, the district court entered a second sanctions order. Waymark Corp. v. Porta Sys. Corp., No. 98-8548-CV (Jan. 29, 2002), slip op. at 7 ("Sanctions Order"). In the order, the district court reaffirmed its earlier sanctions order, recapitulating the bases for sanctions under 15 U.S.C. § 1117(a), 35 U.S.C. § 285, and 28 U.S.C. § 1927. Id. The district court made no mention of our decision on appeal with respect to the patent claims.

The court later awarded a sanction of $44,000, which represented the court's determination of the "reasonable attorneys['] fees and costs due to Plaintiffs' continued pursuit of its claims for which no basis for recovery existed." Waymark Corp. v. Porta Sys. Corp., No. 98-8545-CIV, slip op. at 4-5 (S.D.Fla. Sept.5, 2002). This amount was assessed against the Caravello Family LP, Waymark, and their lawyers, and was not apportioned. The Caravello Family LP, Waymark, and the sanctioned counsel timely appealed to this court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

I

When applying 35 U.S.C. § 285, we follow our own law, as it is a patent statute. Pharmacia & Upjohn Co. v. Mylan Pharms., Inc., 182 F.3d 1356, 1359, 51 USPQ2d 1466, 1468 (Fed.Cir.1999); Baldwin Hardware Corp. v. Franksu Enter. Corp., 78 F.3d 550, 563, 39 USPQ2d 1090, 1099 (Fed.Cir.1996), cert. denied Klayman & Assocs., P.C. v. Baldwin Hardware Corp., 519 U.S. 949, 117 S.Ct. 360, 136 L.Ed.2d 251 ...