The opinion of the court was delivered by: Hon. Anthony J. BattagliaU.S. District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR ATTORNEYS' FEES AS TO PLAINTIFFS AND NON-PARTY WANG, HARTMAN, GIBBS & CAULEY, (Doc. No. 332)
Before the Court is Defendants' Motion for Attorneys' Fees as to Plaintiffs and Non-Party Wang, Hartman, Gibbs & Cauley, PLC ("WHGC"), Plaintiffs' local counsel.*fn1 (Doc. No. 332.) Plaintiffs and WHGC filed separate opposition briefs to Defendants' motion. (Doc. No. 355 and 354, respectively.) On January 17, 2013, the Court held a motion hearing and took the matter under submission for further review. (Doc. No. 367.) For the reasons set forth below, Defendants' motion is GRANTED IN PART and DENIED IN PART.
On October 24, 2008, Plaintiffs filed this lawsuit, which initially contained eleven causes of action against Defendants, including: (1) breach of the 1999 license agreement; (2) breach of the 2006 license agreement; (3) fraud/fraudulent inducement; (4) tortious interference with contract; (5) correction of inventorship; (6) declaration of ownership; (7) equitable patent infringement; (8) misappropriation of trade secrets pursuant to California's Uniform Trade Secrets Act ("CUTSA"); (9) conversion; (10) unfair competition pursuant to Cal. Bus. & Prof. Code section 17200; and (11) unjust enrichment. (Doc. No. 1.) Plaintiffs sought over $1 billion in damages. (Id.)
On September 3, 2009, (Doc. No. 35), the Court granted in part and denied in part the Defendants' motion to dismiss, and ordered Plaintiffs to file an amended complaint by September 14, 2009. In the September 3, 2009 Order, Judge Anello dismissed Plaintiffs' first, fourth, seventh, ninth, tenth, and eleventh causes of action with prejudice and dismissed Plaintiffs' third cause of action with leave to amend. On September 14, 2009, Plaintiffs filed a Second Amended Complaint, which contained an amended fraud and fraudulent inducement claim and incorrectly re-alleged claims that were previously dismissed with prejudice. (Doc. No. 36.) On October 8, 2009, the Court held a telephonic status conference with the parties and granted Plaintiffs leave to file a Third Amended Complaint that did not include the claims previously dismissed with prejudice. (Doc. No. 39.) On October 9, 2009, Plaintiffs filed their Third Amended Complaint, which included the amended fraud and fraudulent inducement claims. (Doc. No. 40.) Defendants again moved to dismiss Plaintiffs' fraud claim. (Doc. No. 41.) On December 14, 2009, the Court granted Defendants' motion and dismissed Plaintiffs' fraud and fraudulent inducement claim with prejudice. (Doc. No. 48.) On January 11, 2010, Plaintiffs filed their Fourth Amended Complaint ("FAC"), which did not contain any causes of action alleging fraud. (Doc. No. 53.) On August 13, 2010, the Court denied Plaintiffs' motion for leave to file a fifth amended complaint, which sought to add a fraudulent concealment claim. (Doc. No. 104.)
On July 2, 2010, Defendants filed a motion for bond pursuant to California Code of Civil Procedure Section 1030. (Doc. No. 81.) Having reviewed all of the relevant evidence and the parties' arguments, the Court granted in part and denied in part Defendants' motion for a bond on September 20, 2010. (Doc. No. 110.) The Court reduced the amount of the requested bond from $1,291,580 ($1,000,000 in fees and $291,580 in costs) to $800,000 in light of Plaintiff's financial condition at the time. (Id. at 23.) Pursuant to this order, Plaintiffs posted the $800,000 bond in order to avoid dismissal of their claims. (Doc. No. 121.)
On September 27, 2011, Defendants filed a partial motion for summary judgment with regard to Plaintiffs' claims for misappropriation of trade secrets and breach of contract, arguing the claims were barred by the statute of limitations. (Doc. No. 188.) On March 13, 2012, the Court granted Defendant's motion for summary judgment as to Plaintiff's eighth claim for misappropriation of trade secrets and second claim for breach of contract on ground one as to trade secrets only and grounds two, three, four, and five. (Doc. No. 252.) The Order denied partial summary judgment as to ground one and ground six of Plaintiffs' second claim for breach of contract. (Id.)
On August 10, 2012, Defendants filed a motion for summary judgment as to Plaintiffs' three remaining claims, which were as follows: (1) Breach of the Amended and Restated License Agreement in Ground One and Ground Six (COUNT TWO); (2) Correction of Inventorship (pursuant to 35 U.S.C. § 256) (COUNT FIVE); and (3) Declaratory Judgment of Ownership Interest in the Patents (pursuant to 28 U.S.C. § 2201) (COUNT SIX). (Doc. No. 296.) On October 1, 2012, the Court granted Defendants' motion for summary judgment and directed the Clerk to enter judgment in favor of the Defendants. (Doc. No. 328.) Plaintiffs are appealing the judgment to the Federal Circuit. (Doc. No. 340.) Defendants filed the instant motion for attorneys' fees on October 12, 2012. (Doc. No. 351.)
I. Defendants' Motion for Attorneys' Fees as to Plaintiffs
As support for the requested attorneys' fees award, Defendants contend that Plaintiffs pursued objectively baseless patent and misappropriation claims in bad faith. Accordingly, Defendants seek attorneys' fees with regard to Plaintiffs' patent claims under 35 U.S.C. § 285 and with regard to Plaintiffs' misappropriation claims under Section 3426.4 of CUTSA. The Court addresses each statutory basis for awarding attorneys' fees in turn.
A. Attorneys' Fees Pursuant to 35 U.S.C. § 285
Under 35 U.S.C. § 285, a "court in exceptional cases may award reasonable attorney fees to the prevailing party" in a patent case. Defendants argue that Plaintiffs pursued frivolous patent claims and engaged in litigation misconduct such that attorneys' fees are warranted under 35 U.S.C. § 285.
Once it is determined that the party seeking fees is a prevailing party, determining whether to award attorneys' fees under 35 U.S.C. § 285 is a two-step process. Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1308 (Fed. Cir. 2012) (citing Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1327--28 (Fed. Cir. 2003)). First, a prevailing party must establish by clear and convincing evidence that the case is "exceptional." Id. (citing Forest Labs, Inc., 339 F.3d at 1327). "A case is exceptional under Section 285 if there has been some inappropriate conduct relating to the matter in litigation." Raylon, LLC v. Complus Data Innovations, Inc., 700 F.3d 1361, 1370 (citing Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). Cases may be considered "exceptional" based upon a party's frivolous claims, inequitable conduct before the Patent and Trademark Office, or misconduct during litigation. Id. (citing Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989)). Second, "if the case is deemed exceptional, a court must determine whether an award of attorneys' fees is appropriate and, if so, the amount of the award." Id. (citing Forest Labs., 339 F.3d at 1328). "[T]he amount of the attorney fees [awarded] depends on the extent to which the case is exceptional." Special Devices, Inc. v. OEA, Inc., 269 F.3d 1340, 1344 (Fed. Cir. 2001). The purpose of section 285, unlike that of Rule 11, is not to control the local bar's litigation practices-which the district court is better positioned to observe-but is remedial and for the purpose of compensating the prevailing party for the costs it incurred in the prosecution or defense of a case where it would be grossly unjust, based on the baselessness of the suit or because of litigation or Patent Office misconduct, to require it to bear its own costs. See Badalamenti v. Dunham's, , 896 F.2d 1359, 1364 (Fed. Cir. 1990); Cent. Soya Co., Inc. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1578 (Fed. Cir. 1983).
As noted above, the Court has either dismissed or granted summary judgment in Defendants' favor as to all of Plaintiffs' claims, and thus considers Defendants to be the prevailing party in this action. Therefore, the first step when considering whether to award attorneys' fees under Section 285 is to determine whether the case is exceptional. Here, Defendants argue that this case is exceptional based upon Plaintiffs' frivolous claims and misconduct during litigation.Defendants offer the following as the primary evidence of the frivolousness of Plaintiffs' claims: (1) Plaintiffs originally alleged patent violations of 92 patents and ultimately reduced their claims down to violations of only 16 patents; (2) the majority of Plaintiffs' claims were dismissed at the pleadings stage; (3) Plaintiffs' remaining claims did not survive summary judgment because the Court found that Plaintiffs did not have sufficient evidence to create a triable issue of fact on the issue of inventorship; (4) emails between Plaintiffs' former employees suggest that Plaintiffs knew they had no case and pursued the claims anyway; and (5) Judge Anello required Plaintiffs' to post an $800,000 in order to proceed with the case after finding "a strong likelihood Defendants will ultimately prove this case is exceptional, and attorneys' fees will be warranted at the conclusion of the litigation."
First, the Court will determine whether the case is exceptional based upon the alleged frivolousness of Plaintiffs' claims. Under Section 285, sanctions may be imposed for frivolous claims only if two separate criteria are satisfied: (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. Highmark, Inc. v. Allcare Health Mgmt. Sys., 687 F.3d 1300, 1308 (Fed. Cir. 2012) (citing Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005)).
Highmark, Inv. v. Allcare Health Mgmt. Sys., the Federal Circuit detailed the analysis afforded to these two factors as follows:
The requirement that the litigation be objectively baseless "does not depend on the state of mind of the [party] at the time the action was commenced, but rather requires an objective assessment of the merits." Brooks Furniture Mfg. 393 F.3d at 1382. "To be objectively baseless, the infringement allegations must be such that no reasonable litigant could reasonably expect success on the merits." Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008) (internal quotation marks omitted). Furthermore, even if the claim is objectively baseless, it must be shown that lack of objective foundation for the claim "was either known or so obvious that it should have been known" by the party asserting the claim. In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007); see also iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011). This is known as the subjective prong of the inquiry. This same objective/subjective standard applies for both patentees asserting claims of infringement and alleged infringers defending against claims of infringement. See iLOR, 631 F.3d at 1377. at 1308-09.
Having reviewed the allegations of both parties and taking particular note of Judge Anello's analysis in his bond decision, the Court concludes that Plaintiffs' claims in this case were objectively baseless and brought in subjective bad faith. Here, Plaintiffs could not have reasonably expected success on the merits of the patent claims without knowing the identify of the allegedly omitted inventors. As this Court noted in its summary judgment order, there is a " 'presumption that the inventors named on an issued patent are correct, so misjoinder of inventors must be proven by clear and convincing evidence.' " (Doc. No. 328 at 6 (quoting Fina Oil and Chem. Co. v. Ewen, 123 F.3d 1466, 1472 (Fed. Cir. 1997)). At no point during this case has Plaintiff been able to offer the evidence ...