Recently, the United States Court of Appeals for the Federal Circuit addressed an issue that I can only characterize as bizarre.  Among the issues addressed in a somewhat typical patent litigation was whether the district court should have awarded sanctions against the plaintiff for failure to reasonably and adequately investigate the issue of whether the defendant’s product infringed prior to bringing a lawsuit.  This type of Rule 11 failure to investigate issue is one that piqued my interest because failure to investigate infringement is a tell-tale sign of bad actors — the worst actors — in the patent litigation space.

Those who simply don’t care about whether there is infringement engage in what the Federal Circuit has at times referred to as “extortion like” practices, which shakedown those who aren’t infringing for a few thousand dollars, much like the old protection rackets.  It was this mindset that I dove into the Federal Circuit decision in Woods v. DeAngelo Marine Exhaust, Inc. (Fed. Cir., August 28, 2012).

This case came to the Federal Circuit as an appeal brought by DeAngelo Marine, who appealed from the denial by the United States District Court for the Southern District of Florida of DeAngelo’s motion for judgment as a matter of law (“JMOL”) as to invalidity and infringement of U.S. Patents No. 5,740,670 (“’670 Patent”) and No. 6,035,633 (“’633 Patent”) owned by Woodrow Woods and exclusively licensed by Marine Exhaust Systems, Inc. (MES). DeAngelo also appealed the district court’s evidentiary ruling and claim construction underlying the jury verdict and the denial of DeAngelo’s motion to sanction MES for failing to conduct an adequate pre-filing investigation.  Not that the other aspects of the case aren’t fascinating, but I’m going to focus on the Rule 11 issue.

DeAngelo had at least three problems with the argument that MES should be sanctioned for insufficient pre-filing investigation.  First, there was pre-filing investigation.  Second, MES asked for access to the DeAngelo device to help them determine whether there was infringement and for 2 years DeAngelo never provided a device for evaluation.  Third, MES prevailed.  Yes, there was actually infringement found.

There was much discussion of the first of these issues in the Federal Circuit decision, but ultimately the Federal Circuit concluded: “[T]he record is replete with evidence supporting the district court’s conclusion that MES conducted a sufficient pre-filing investigation including photographing and studying photographs of DeAngelo’s accused products.”

Indeed, there was pre-filing investigation and I just don’t know how a sanctions argument can be made with a straight face on failure to engage in investigation where the plaintiff asked the defendant to produce the allegedly infringing product so they could determine whether they should bring a lawsuit.  Not complying is fine, but then whining about being sued seems juvenile and hardly an argument calculated to succeed.

The Federal Circuit went on to explain and then ultimately conclude:

DeAngelo argues that Judin v. United States, 110 F.3d 780 (Fed. Cir. 1997), compels the conclusion that MES’s mere observations of DeAngelo products cannot constitute an adequate investigation. DeAngelo’s reliance on Judin is misplaced. In Judin, the plaintiff observed allegedly infringing products from a distance, but never sought access to investigate them more closely. Id. at 784. Here, MES directly requested from DeAngelo, in writing, information about DeAngelo’s allegedly infringing devices. When that information was not forthcoming, MES took the photographs of DeAngelo’s products that were used as the basis for filing suit. At trial a number of witnesses testified that they could discern the features covered by the asserted claims from the digital color photographs. This is not a case like Judin where the plaintiff sued without seeking access to examine allegedly infringing devices. The district court did not abuse its discretion in declining to sanction MES.

So how exactly it seemed liked failure to adequately engage in pre-filing investigation would be successful after the defendant lost is rather something of a mystery if you ask me.  The cases where I have seen sanctions for failure to engage in appropriate pre-filing investigation relate to situations where there was no infringement.  In fact, sanctions seem most appropriate where there was no viable theory of infringement, which would have been apparent on the face of the matter with even a modicum of investigation.

The Supreme Court precedent shows that courts are and should be reluctant to issue sanctions where there is a legitimate dispute to be resolved at trial.  This is the American way.  The loser does not typically pay the attorneys’ fees of the victor because we want parties to bring cases forward to seek redress without the fear of losing and having to pay double the attorneys’ fees.  The same principle holds, perhaps even with more force, relative to Rule 11 sanctions.  Rule 11 is seldom used because there is virtually always some kind of right that could be violated and appropriate for redress.  Courts would rather allow the case to play out and then, after enough evidence is presented, decide what to do with the case.

I am all for district courts more frequently issuing Rule 11 sanctions when there is a failure to engage in reasonable and adequate investigation prior to bringing a patent infringement lawsuit.  This, however, was not one of those cases.  This was a real red herring issue.

Written by Gene Quinn of IPWatchdog.com

Tags: Rule 11, United States Court of Appeals for the Federal Circuit

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