Rembrandt v. Comcast was decided on July 27, 2018 on appeal from the District of Delaware. After several years of litigation by plaintiff Rembrandt “against dozens of cable companies, cable equipment manufacturers, and broadcast networks,” the district court “entered final judgment against Rembrandt as to all claims.” After an adverse claim construction, Rembrandt agreed not to pursue infringement claims on some of its patents, Rembrandt moved to dismiss some of its other infringement claims, and Rembrandt stipulated to summary judgment of noninfringement as to the remaining patent. The district court then granted defendant Comcast’s motion for attorney fees, “order[ing] Rembrandt to pay more than $51 million in fees to all [defendants].” Rembrandt appealed.
The Federal Circuit affirmed the determination that the case is exceptional, vacated the award of attorney fees, and remanded.
The district court “did not abuse its discretion, procedurally or substantively,” in finding the case exceptional under § 285. “Specifically, the court found that Rembrandt: (1) wrongfully gave fact witnesses payments contingent on the outcome of the litigation; (2) engaged in, or failed to prevent, widespread document spoliation by Zhone, [the owner of Paradyne, the company that sold Rembrandt the IP]; and (3) should have known that the revived patents were unenforceable.”
After addressing the first two findings, the Federal Circuit addressed inequitable conduct, finding the determination not erroneous. “When a party raises inequitable conduct as a defense to patent infringement, the accused infringer must prove both elements—intent and materiality—by clear and convincing evidence.” However, Octane Fitness held that “patent litigants need only establish their entitlement to fees under § 285 by a preponderance of the evidence.” The district court did not specify which evidentiary it applied, clear and convincing or preponderance, in making the inequitable conduct determination in the attorney fees context. The Federal Circuit did not reach the issue of which standard governs because “the district court did not abuse its discretion under either evidentiary standard.”
“In 2002, Paradyne decided that the expected value of [some of the asserted] patents did not justify paying their maintenance fees, and it therefore let the patents lapse.” Following some third-party interest in acquiring the patents, Paradyne petitioned the USPTO to revive the patents. In seeking revival, Paradyne “represented that the delay in payment of the maintenance fee of this patent was unintentional.” The USPTO granted the revival petitions. Between 2004 and 2005, Paradyne and Rembrandt executed a patent sale agreement that assigned several patents to Rembrandt.
Regarding inequitable conduct, “the first question is whether Paradyne’s statement that the delay in payment was unintentional was material to patentability.” Here, the governing USPTO regulation provided that the Director may revive an expired patent if “the delay in payment of the maintenance fee is shown …to have been unintentional.” The USPTO had further explained that “[w]here the applicant deliberately permits an application to become abandoned (e.g., … that the invention lacks sufficient commercial value to justify continued prosecution), the abandonment of such application is considered to be a deliberately chosen course of action, and the resulting delay cannot be considered as unintentional.” It was thus clear “that the PTO would not have revived the patents if it had known that Paradyne consciously allowed them to expire.” Paradyne’s statement was thus material to patentability.
There was conflicting evidence as to Paradyne’s understanding at the time regarding whether the abandonment was unintentional. However, the district court “could fairly conclude … that [Paradyne’s] claim of mistake was a post hoc rationalization.” Moreover, “the district court found that the same people who deceived the PTO were involved in a variety of other misconduct. In light of the latter findings, the district court reasonably could have decided that intent to deceive the PTO was the single most reasonable inference able to be drawn from the evidence.” Sufficient documentary evidence reasonably supported the district court’s conclusion “conclu[sion] that Rembrandt had sufficient knowledge to learn of the fraud.”
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The district court followed the proper procedures in making its exceptional-case determination. “Rembrandt waived its procedural objection to the lack of an evidentiary hearing” by “not request[ing] an evidentiary hearing at any point before the district court made its exceptional-case determination.” Moreover, under Third Circuit law, the district court “was not required to afford Rembrandt an evidentiary hearing in this case.”
Under Octane Fitness, the district court’s determination of exceptionality was not an abuse of discretion. “The district court found that Rembrandt’s conduct, and Paradyne’s conduct that was attributable to Rembrandt, showed that Rembrandt litigated the case in an unreasonable manner.”
The district court award of $51 million in attorney fees is excessive and unreasonable “because the district court failed to establish a causal connection between the claimed misconduct and the fees awarded.” Attorney fees under § 285 are “compensatory, not punitive.” The “amount of the award must bear some relation to the extent of the misconduct…. [A] finding of exceptionality based on litigation misconduct usually does not support a full award of attorneys’ fees.” “In the run-of-the-mill patent infringement case involving a few patents and a couple of defendants, a finding of pervasive misbehavior or inequitable conduct that affects all of the patents in suit may justify an award of all of the fees incurred. But this massive case featured nine patents and dozens of defendants, and the claimed misconduct affected only some patents asserted against some defendants. Even if Rembrandt’s misconduct, taken as a whole, rendered the case exceptional, the district court was required to establish at least some causal connection between the misconduct and the fee award. What the district court did here—award all fees with no explanation whatsoever of such a causal connection—was not enough.”
The Federal Circuit thus remanded for the district court “to determine in the first instance how much of the claimed fees Rembrandt should pay.”
Rembrandt Techs., LP v. Comcast of Fla./Pa., LP (In re Rembrandt Techs. LP Patent Litig.), 899 F.3d 1254 (Fed. Cir. 2018)