| David M. Cohen

Federal Circuit Summary

Before O’Malley, Mayer, and Reyna.  Appeal from the U.S. District Court for the District of Delaware.

Summary: A case may be exceptional if: (1) fact witnesses are compensated based on the outcome of the case, (2) relevant documents are destroyed, or (3) asserted patents were improperly revived during prosecution.  However, an award of attorneys’ fees must have some causal connection to the misconduct. 

Rembrandt Technologies, LLC and Rembrandt Technologies, L.P. (“Rembrandt”) filed suit against dozens of cable companies, cable equipment manufacturers and broadcast networks.  These cases were consolidated in the District of Delaware.  The district court entered judgment against Rembrandt as to all claims, determined that the case was exceptional and awarded over $51 million in attorneys’ fees.  The district court found the case to be exceptional because Rembrandt improperly compensated its fact witnesses based on the outcome of the case, engaged in document spoliation, and should have known that two of the asserted patents were improperly revived and thus unenforceable.

The Federal Circuit reviewed the exceptional case determination for abuse of discretion.  The Federal Circuit did not find that any of the district court’s findings were based on an “erroneous view of law or clearly erroneous assessment of the evidence.” First, Rembrandt’s agreement with its patent consultants granted them a stake in any litigation involving some of the asserted patents, and it was foreseeable at the time the agreement was signed that the consultants would become fact witnesses in the litigation. Second, after the original owner of the asserted patents was acquired, Rembrandt knew that documents were being destroyed at the original patent owner’s facilities and there was a significant risk that relevant documents were being destroyed.  Third, there was evidence that two of Rembrandt’s asserted patents were intentionally abandoned due to the belief that the inventions lacked commercial value.  However, the patents were later revived based on a statement to the USPTO that the abandonments were unintentional. Although Rembrandt was not involved in the prosecution, it had access to documents that outlined the strategy for the petitions to revive, and thus Rembrandt at least “should have known” that the revivals were improper.

The Federal Circuit determined that the district court’s fee award did not have a causal connection to the misconduct.  In fact, the Federal Circuit found that the district court did not even attempt to assess which issues the misconduct affected, and thus remanded to the district court to conduct the proper analysis of the fee award.    


Editor: Paul Stewart