TQP v. Branch Banking and Trust Co., 2:12cv055 (1/14/14)
Judge: Roy Payne
Holding: Motion for Declaration of Exceptional Case and Attorneys Fees and Costs Denied
The issue of when attorneys fees and costs are recoverable from an unsuccessful plaintiff in a patent case under 35 USC section 285 is a hot topic right now. Like Garrison Keillor's Lake Wobegon where all of the children are above average, in virtually every case I have been involved in, both sides believe that the case is "exceptional" under section 285 – or at least we always plead that way in case the facts turn out to support such a claim.
As I've noted (repeatedly) in recent months there been a number of infringement verdict adverse to plaintiffs, from which we can presumably expect some judicial determinations as to whether those cases are "exceptional" so as to justify an award of fees, but, interestingly, there have also been a number of voluntary dismissals by plaintiffs shortly before trial which have been followed by motions for declaration of exceptional case status by the defendant(s) – the Adjustacam case I posted on a few months ago comes to mind.
As an aside, that is one of the beneficial things to having a substantial number of cases go to trial locally – issues such as the admissibility of damages testimony under the new Federal Circuit standards, summary judgment motions, space motions for declaration of exceptional case after plaintiff loses a trial, and motions for judgment as a matter of law on a variety of issues are decided on a regular basis, providing a substantial amount of case law on these important issues. If everyone settles early in a case, you never get to see which facts do and do not suffice for various rulings. Of course all this with respect to "exceptional" case status becomes moot if the Supreme Court changes the standards, or Congress revises the statute, but district courts are still going to have to apply the standards to a particular set of facts.
This case provides another data point in this area with respect to voluntary dismissals by plaintiff in lieu of a trial, at least under the existing case law. One of a large number of cases originally filed by plaintiff TQP, after originally being set by Judge Ward for trial in March 2014, the case was accelerated by Judge Gilstrap to a November 2013 jury setting. If you'll recall, TQP actually went to trial against another defendant – Newegg – that month and obtained one of the two plaintiffs verdicts in Marshall last year in patent cases. But this case did not get that far.
In early August, 2013, TQP asked defendant BB&T to consent to a dismissal with prejudice, claiming that after it finally received from BB&T the discovery responses needed to fully evaluate its claims it determined that the damages in the case would be less than $25,000. BB&T declined this offer, after which the plaintiff filed an emergency motion to compel a further mediation session, which was denied by the Court. TQP subsequently filed a motion to dismiss with prejudice. At the hearing on the motion the plaintiff stipulated that the effect of the motion was to make the defendant the prevailing party, and the defendant conceded that the court no longer had jurisdiction over its counterclaim for a declaratory judgment since the plaintiff had dismissed all current claims and the patent has expired, thus no future claims were possible. All the relevant ducks now being in the proverbial row, Defendant BB&T then filed a motion seeking a declaration of exceptional case under 35 USC section 285, as well as asserting arguments of general fee shifting principles and the inherent powers of the court.
With respect to section 285, defendant argued that (1) the plaintiff engaged in litigation misconduct by entering into a contingency – based consulting contract with the inventor in earlier case, and (2) that the plaintiff pursued this case without an evidentiary basis.
Judge Payne noted that the first issue was "thoroughly explored" by Judge Bryson in an order denying a motion to dismiss for unclean hands in a prior case in 2012. While Judge Bryson concluded that the arrangement violated the Texas Disciplinary Rules of Professional Conduct, as well as a line of court decisions disproving the practice of paying contingencies to witnesses in civil cases, the court didn't find sufficient evidence of bad faith to justify the requested relief – dismissal for unclean hands - noting that cross-examination was available, as well as instructions in the charge. Judge Payne similarly found the claim of prejudice to be speculative and that the issue was properly a matter for appropriate jury instructions.
With respect to the second claim – that the plaintiff had no factual basis for its lawsuit – Judge Payne found that the defendant had not carried its burden of showing this by clear and convincing evidence. After reviewing the record and hearing arguments, Judge Payne found that the plaintiff was not as diligent as it might have been in pursuing its discovery from the defendant but that the defendant also delayed in producing information necessary for the plaintiff properly to evaluate its claims, both as to infringement and damages. "Once it determined that the claim against [defendant] was too small to justify prosecution, plaintiff acted reasonably in seeking to this negotiated dismissal. . . . The Court cannot endorse either side's tactics as a model, but there is nothing exceptional about this aspect of the case."
The court found that relief was similarly not available under section 1927, "general fee shifting principles" or under the inherent powers of the court. The court also rejected the defendants claim for disgorgement of any profits of TQP.