The Consequences of Converting Voluntary Dismissals

FUTURE LINK SYSTEMS, LLC v. REALTEK SEMICONDUCTOR CORPORATION

Before Reyna, Bryson, and Stoll.  Appeal from the United States District Court for the Western District of Texas.

Summary: The district court’s conversion of the plaintiff’s voluntary dismissal to a dismissal with prejudice made the defendant the prevailing party.

Future Link Systems, LLC initiated two patent infringement suits against Realtek Semiconductor Corp.  After initiating the suits, it was revealed that Future Link entered into a licensing agreement with a third-party rival of Realtek stating that the third-party would pay Future Link a lump sum payment for filing a lawsuit against Realtek. Subsequently, Future Link voluntarily dismissed both cases without prejudice. Realtek filed motions for sanctions and requested attorneys’ fees under 35 U.S.C. § 285, Rule 54, and 28 U.S.C. § 1927.  The district court denied Realtek’s motions for attorneys’ fees and costs but sanctioned Future Link by converting its voluntary dismissal into a dismissal with prejudice. Realtek appealed the denial of its attorneys’ fees and costs.

The Federal Circuit held that the district court erred in denying Realtek’s request for fees under 35 U.S.C. § 285, which permits an award of reasonable attorneys’ fees to the prevailing party in exceptional cases. Although Future Link voluntarily dismissed the cases without prejudice, the Federal Circuit held that Realtek became the prevailing party when the district court converted Future Link’s voluntary dismissal into a dismissal with prejudice. It noted that such a conversion changes the legal relationship between the parties since it ensures that Future Link can never again assert the patents at issue against Realtek. Further, the district court abused its discretion by not addressing costs under Rule 54. Therefore, the Federal Circuit vacated the district court’s denial of fees and costs and remanded to the district court to determine whether the case was exceptional. The Federal Circuit affirmed the district court’s denial of Rule 11 sanctions and denial of fees under 28 U.S.C. § 1927.

Editor: Sean Murray