Patent Law | Expert Legal Commentary
September 14, 2011
Old Reliable Wholesale, Inc. v. Cornell Corp.: Federal Circuit Sets High Bar in 35 U.S.C.A. § 285 Attorney Fee
Old Reliable Wholesale, Inc., v. Cornell Corp.
Jeff Zuber of Zuber Lawler & Del Duca and Sarah S. Brooks of Stradling Yocca Carlson & Rauth
The Federal Circuit recently vacated a 35 U.S.C.A. § 285 fee award because it found that the defendant continued to have a reasonable basis to continue its patent prosecution in light of a potentially damning admission pointing to anticipation. In Old Reliable Wholesale, Inc., v. Cornell Corp., 635 F.3d 539 (Fed. Cir. 2011), the Federal Circuit minimized the district court’s interpretation of plaintiff’s testimony as an admission that a competitor’s product anticipated its patent. Moreover, the Court found the plaintiff had several reasonable arguments on which to maintain its case, and thus the case was not “objectively baseless” as is demanded by § 285.
Old Reliable designs and manufactures insulated roof board. Old Reliable holds a patent on a type of insulated roof board comprised of two layers – a bottom layer of insulation and a top layer of spaced blocks, which are directly attached to the insulation and thus “integral therewith” (the “’950 patent”). Id. at 541.
Cornell sells two similar products which both utilize three layers of construction. Model VT-2, which predates the ‘950 patent, is comprised of a bottom layer of insulation, a middle layer of oriented strand board (a firm, bulky material), and a top layer of spaced blocks. Model VT-1, which came after the ‘950 patent, is comprised of a bottom layer of insulation, a middle layer of thin and flexible felt, and a top layer of spaced blocks. Id.
In 2006, Old Reliable sued Cornell for infringing the ‘950 patent. Cornell argued that the patent was invalid because Cornell’s VT-2 anticipated the ‘950 patent. Further, Cornell also argued that another manufacturer’s product, Branch River Foam Plastics, Inc.’s Air-Flo insulated roof board, anticipated the ‘950 patent. The district court used the testimony of Old Reliable’s president, Old Reliable’s expert witness, and an employee of Branch River to compare the construction of VT-2 and Air-Flo versus the ‘950 patent claims. Id. at 541-42. The court determined that VT-2’s three-layer construction fell within the scope of the two-layer claim made in the ‘950 patent, and thus VT-2 anticipated the patent. In addition, the court determined that Air-Flo contained a cross-ventilation feature, which anticipated another claim in the patent. Therefore, the court invalidated the ‘950 patent and granted summary judgment for defendant Cornell. Id. at 542. The Federal Circuit affirmed this decision in 2009. Id.
In 2009, the district court awarded Cornell attorney’s fees under 35 U.S.C. § 285 in the amount of $183,517.11, plus costs of $13,111.53. Id. Such an award may be granted if the case is “exceptional”. The court found the case “exceptional” after Old Reliable’s president testified that Cornell’s VT-2 “did the same thing” as the claims made in the ‘950 patent. Id. The court interpreted this statement as an admission that VT-2 anticipated the ‘950 patent and that “any further action against Cornell was baseless.” Id. Thus, Old Reliable’s decision to maintain the action after that deposition was “improper and unjustified” and “warranted a finding of an exceptional case” under statute. Id. at 543.
In 2010, Old Reliable appealed the § 285 award to the Federal Circuit (the main patent prosecution was not at issue). The Court utilized the two-part Brooks Furniture Mfg. test, which allows sanctions only if both (1) the litigation is brought in subjective bad faith; and (2) the litigation is objectively baseless. Id. at 544, citing Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). The Court focused on the “objectively baseless” prong and asserted that “(u)nless an argument or claim asserted in the course of litigation is so unreasonable that no reasonable litigant could believe it would succeed, it cannot be deemed objectively baseless for purposes of awarding attorney fees under section 285.” Id. Thus, the Court sought any genuine dispute underlying Old Reliable’s factual arguments that could be maintained in light of Old Reliable’s president’s testimony.
First, the Court disagreed with the district court and found that a genuine dispute existed as to whether VT-2 and Air-Flo anticipated the ‘950 patent. Id. at 546. The Court minimized the magnitude of Old Reliable’s president’s testimony that VT-2 and the ‘950 patent did the same thing. Instead, the Court noted that case law demands that “there could be no anticipation unless the VT-2 disclosed…all the structural limitations contained in the claims.” Id. at 545. The Court noted that while the competing products may perform the same function, the structural difference between VT-2’s three-layer construction and the ‘950 patent’s two-layer construction gave Old Reliable a valid argument that VT-2 did not anticipate the ‘950 patent. Id.
Moreover, the Court noted the challenge that Old Reliable faced in arguing that VT-2 did not anticipate the ‘950 patent while simultaneously alleging that VT-1 infringed. Id. For the district court, Old Reliable was trying to have it both ways by arguing the three-layer VT-2 was different from the ‘950 patent, but that the three-layer VT-1 was infringing. Id. On appeal, the Court discussed the differences in the middle layer materials used in VT-2 versus in VT-1. The Court found that the stiff middle layer within VT-2 was distinct from the two-layer construction in the ‘950 patent, while the thin felt middle layer within VT-1 encroached the “integral” claim made by the ‘950 patent. Further, the Court buttressed itself by noting a secondary consideration – VT-1’s rapid sales success over VT-2 seemed to indicate distinction between the products. Id. at 546.
Second, the Court validated Old Reliable’s argument on the inadequacy of Branch River’s employee’s testimony. Id. at 547. The employee testified that its competing product, Air-Flo, anticipated the ‘950 patent because some examples of Air-Flo utilized a claim made by the ‘950 patent before the patent’s critical date. Id. However, Old Reliable contended that the employee appeared uncertain about when key events occurred and that his testimony was uncorroborated by other witnesses or documentation. Id. at 547-48. The Court cited Lazare Kaplan Int’l, Inc. v. Photoscribe Techs, Inc., 628 F.3d 1359, 1374 (Fed. Cir. 2010) for the rule that “corroboration is required of any witness whose testimony alone is asserted to invalidate a patent.” Id. Thus, the Court found that Old Reliable had reasonable grounds for challenging the employee’s testimony. Id. at 547.
Third, the Court took notice of a United States Patent and Trademark Office reexamination conducted after the district court’s § 285 proceedings. In a notice of intent, the PTO signaled it would affirm the ‘950 patent claims after examining prior art references, including the products made by Cornell and Branch River. Id. at 548. Thus, the Court concluded that the PTO’s reexamination provided Old Reliable with probative evidence that its ‘950 patent was not anticipated. Id. at 549.
Thus, in light of these valid arguments, the Court found that Old Reliable had an objectively reasonable basis for maintaining the infringement prosecution, even in light of Old Reliable’s president’s testimony that VT-2 and the ‘950 patent “did the same thing.” The Court reversed and vacated the award of attorney fees. Id. at 549-50.
Old Reliable signals that the Federal Circuit is imposing a high bar for parties bringing 35 U.S.C.A. § 285 claims for attorney fees. The Court, in conducting a technical comparison of the products involved, showed a strong will to seek out any argument which would allow Old Reliable reasonable grounds to maintain its suit. The Court also signaled its deference to the PTO reexamination in terms of upholding its value as a technical evaluation, as well as its acceptance of using secondary considerations, such as sales comparisons. Thus, parties may be well served by such evidence if it is available. Patent holders facing a § 285 action and parties considering a § 285 award should be well advised in light of Old Reliable and are advised to seek experienced patent counsel.
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