Covenant Not to Sue Does Not Prevent Finding of Exceptional Case and Award of Attorneys' Fees Where Adverse Determinations Were Already Made

October 30, 2013

Plaintiffs Kim Laube & Co. ("Laube") brought this patent infringement action against Defendant Wahl Clipper Corp. ("Wahl") for infringement of U.S. Patent No. 6,473,973 ("the '973 Patent"), which is titled "Disposable Cutting Head for Clippers." After jury and bench trials, Laube filed a motion dismiss all patent related claims and counterclaims because the Federal Circuit rejected Laube's challenge to the reexamination's invalidation of claims 1-5 of the '973 Patent; and (ii) Laube granted Wahl a covenant not to sue. Wahl opposed the Motion.

The district court found that the covenant not to sue came far too late and after too many adverse rulings. "Plaintiffs' covenants not to sue, issued after adverse rulings of invalidity and noninfringement, and after a bench trial determined that the '973 Patent is unenforceable for inequitable conduct, come far too late to avoid entry of judgment on those issues. Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1348 (Fed. Cir. 2005). This position is reinforced by a recent decision by the Federal Circuit. Monolithic Power Sys., Inc. v. O2 Micro Int'l Ltd., 726 F.3d 1359, 1367 (Fed. Cir. 2013) (upholding $8.4 million fee award). Monolithic Power held that, even where a party covenants not to sue prior to the merits determination, a pattern of doing so after substantial litigation has taken place was a vexatious litigation strategy that supported an exceptional case finding and award of fees. Although the Court does not have the same level of familiarity with Plaintiffs' prior litigation as the district court in Monolithic Power had with respect to the litigation at issue there, Monolithic Power makes clear that covenants not to sue do not allow parties to escape the consequences of their litigation choices, and specifically, do not provide a means of voiding adverse findings and precluding attorney fee awards."

With respect to the reexamination issue, the district court found that even if the reexamination were final, it would not matter as the district court had already determined issues of inequitable conduct. "Even if the reexamination were final, and even if Plaintiffs' covenant not to sue had come prior to the Court's determinations regarding infringement and invalidity, the Court would still have jurisdiction under 35 U.S.C. § 285 to determine inequitable conduct and make a fee award. Monsanto Co. v. Bayer Bioscience N.V., 514 F.3d 1229, 1242-43 (Fed. Cir. 2008). And, once a court makes that finding in the fee award context, it renders the patent unenforceable. Id. at 1243 ("A district court has no discretion to decide whether a patent is unenforceable once it enters a finding of inequitable conduct. To the contrary, this court has long held that the unenforceability of a patent follows automatically once a patent is found to have been obtained via inequitable conduct.") (citing Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 877 (Fed. Cir. 1988) (en banc in pertinent part) (holding that inequitable conduct as to a single claim renders the entire patent unenforceable)). Thus, jurisdiction pursuant to 35 U.S.C § 285 "to decide whether a patent was obtained through inequitable conduct necessarily includes the jurisdiction to declare a patent unenforceable as a result of that inequitable conduct." Monsanto, 514 F.3d at 1243; see also Buildex, Inc. v. Kason Indus., Inc., 849 F.2d 1461, 1466 (Fed Cir. 1988) (remanding for determination of inequitable conduct and attorney fees after reversing judgment that patent was not invalid)."

Laub also argued that the reexamination result precludes Wahl from further pursuing its inequitable conduct claim. As explained by the district court, Laub's "argument is premised on the following, four-step analysis: (i) Wahl is estopped from pursuing its invalidity challenges to claims 6 and 7 because, pursuant to 35 U.S.C. § 315(c) and 37 C.F.R. § 1.907, a participant in inter partes reexamination cannot seek invalidity based on any ground it raised or could have raised in the reexamination; therefore, (ii) Wahl is precluded from asserting that the allegedly withheld art is "material," and (iii) because an inequitable conduct claim requires a finding of materiality; (iv) the inequitable conduct claim fails as a matter of law."

The district court also rejected this argument. "Plaintiffs' argument is incorrect. First, even assuming that the reexamination has become final -- which it has not -- the Court already has found inequitable conduct. Therefore, Defendant would not at this point be affirmatively raising any arguments concerning materiality. Second, the Court's decision finding inequitable conduct was based largely on physical prior art combs. Decision Following Bench Trial on Inequitable Conduct, Dkt. 425 at 11-13. Because such physical prior art cannot be considered in a reexamination, reexamination estoppel could not apply to that art.3 See Manual of Patent Examining Procedure § 2609 ("[p]rior art considered during [inter partes] reexamination is limited to prior patents or printed publications applied under the appropriate parts of 35 U.S.C. 102 and 103"). Third, inequitable conduct as to a single claim renders the entire patent unenforceable. Kingsdown Medical Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 877 (Fed. Cir. 1988). Finally, Plaintiffs' argument ignores the fact that the affirmance by the Federal Circuit of the BPAI's holding that claims 1-5 are invalid supports the conclusion that the withheld prior art was material."

Accordingly, the district court denied Laube's motion to dismiss based on the covenant not to sue and the allegation that the reexamination was final.


Kim Laube & Co. v. Wahl Clipper Corp., Case No. CV09-00914 JAK (JCx) (C.D. Cal. Oct. 17, 2013)

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