Phigenix, Inc. v. Genentech, Inc.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR AWARD OF ATTORNEY FEES AGAINST DR. DONALD AND DETERMINATION OF FEE AMOUNT [RE: ECF 451]

          BETH LAB SON FREEMAN, United States District Judge.

         Before the Court is Defendant Genentech Inc.'s (“Genentech”) motion for award of attorney fees against third-party Defendant Dr. Carlton DeWitt Donald (“Dr. Donald”) and for determination of the amount of reasonable fees owed to Genentech, pursuant to the Court's order granting fees against Plaintiff Phigenix, Inc. (“Phigenix”) (“Fees Order”, ECF 442). Mot., ECF 451. For the reasons that follow, the Court finds that Genentech is not entitled to fees from Dr. Donald and that Genentech is entitled to $1, 756, 764.49 in fees from Phigenix. The motion is thus GRANTED IN PART AND DENIED IN PART.

         I. BACKGROUND

         The Court provided a detailed factual background of this case in its Fees Order from August 13, 2018. Phigenix, Inc. v. Genentech, Inc., No. 15-CV-01238-BLF, 2018 WL 3845998, at *1-*3 (N.D. Cal. Aug. 13, 2018) (discussing history of this litigation). Because many of those facts are relevant to resolving a portion of the instant motion, the Court recounts them again here, and then discusses the relevant details of the Fees Order.

         A. Factual and Procedural Background

         Phigenix is a pharmaceutical and biomedical research company founded in 2007 by Dr. Donald, who is a named inventor on numerous issued patents and pending patent applications, including U.S. Patent No. 8, 080, 534 (“the '534 patent”). First Am. Compl. (“FAC”) ¶¶ 1, 9, ECF 21. The '534 patent is titled “Targeting PAX2 for the Treatment of Breast Cancer.” Ex. A to FAC (“'534 patent”), ECF 21-1. Phigenix brought this action against Genentech alleging infringement of the '534 patent based on Genentech's drug Kadcyla, a drug targeting a type of metastatic breast cancer. See generally FAC.

         1. Genentech and Kadcyla

         In 1998, Genentech obtained FDA approval of Herceptin (trastuzumab)^[1] for the treatment of HER2 breast cancer. Weiner Expert Report in Supp. of Mot. for Summ. J. ¶¶ 39, 120, ECF 349-1. At that time, Herceptin also received approval as a “first-line treatment in combination with the taxane paclitaxel.” Id. ¶ 120. According to Genentech, it then began working on a next-generation treatment: conjugates of Herceptin (trastuzumab) and the maytansinoid DM1, which were disclosed in a Genentech patent application that published in 2001 (“'244 application, ” ECF 37-6). ECF 400 at 2. Those conjugates work with the precise molecule that eventually would be approved as Kadcyla. Id.

         2. Phigenix Contacts Genentech

         In 2013, the FDA approved Kadcyla. Ex. 3 to Kreeger Decl. in Supp. of Mot. for Summ. J. (“Kadcyla Label”), ECF 348-3. The approved indication was for patients previously treated with Herceptin and a taxane. Id. at 1. Thereafter, in June 2013, Phigenix sent multiple letters signed by Dr. Donald to Genentech about securing “patent protection” for Kadcyla by offering to negotiate a license for Phigenix's patent portfolio. Exs. A and B to Schwartz Decl. in Supp. of Mot. to Dismiss, ECF 37-4, 37-5. Dr. Donald included a diagram hypothesizing that trastuzumab-DM1 conjugates affect a signal pathway, resulting in the inhibition of PAX2 in breast cancer cells. Dr. Donald asserted that this infringed Phigenix's patent. See Ex. B to Schwartz Decl. in Supp. of Mot. to Dismiss; Ex. 3 to Ackerman Decl. in Opp'n to Mot. for Sanctions, ECF 215-3.

         In September 2013, Genentech declined the offer and stated that its '244 application discloses “trastuzumab-DM1 conjugates . . . for the treatment of breast cancer” and was published more than four years before the priority date of the earliest-filed application in Phigenix's patent portfolio. Ex. D to Schwartz Decl. in Supp. of Mot. to Dismiss, ECF No. 37-7. In November 2013, Genentech sent an email letter to Phigenix stating that if Phigenix's patent claims cover “direct or indirect inhibition of PAX2 for the treatment of cancer, ” they would be inherently anticipated by the '244 application. Ex. F to Schwartz Decl. in Supp. of Mot. to Dismiss, ECF 37-9.

         3. This Litigation

         On January 31, 2014, Phigenix initiated its suit against Genentech in the United States District Court for the Northern District of Georgia. ECF 1. The Northern District of Georgia granted Genentech's motion to transfer the action to this District. ECF 66.

         In June 2014, Genentech told Phigenix that the complaint warrants Rule 11 sanctions; Phigenix disagreed. Mot. for Sanctions at 5, ECF 198; Opp'n to Mot. for Sanctions, ECF 214. On May 10, 2016, Genentech filed its motion for sanctions under Rule 11. ECF 198. The parties submitted supplemental briefing after Phigenix provided results on its testing of Kadcyla. On October 31, 2016, this Court found that Phigenix had “properly relied on scientific, peer-reviewed articles to formulate its infringement theory” and that Genentech had not demonstrated how Phigenix's complaint was “baseless.” Sanctions Order at 7, ECF 290. The parties' briefing on Phigenix's test results did not compel a different conclusion. Id. In declining to take a deep dive into the scientific articles submitted, the Court noted that weighing the value of different experimental studies without the aid of experts would not assist the Court in deciding the sanctions motion. Id. Furthermore, the Court found that Genentech had not shown that the '244 application inherently anticipates the '534 patent for the purpose of the sanctions motion. Id. at 11. Nevertheless, the Court recognized the “potentially significant weaknesses in Phigenix's theory of infringement.” Id. As such, this Court allowed Genentech to request Rule 11 sanctions or extraordinary case fees under § 285 in the event that Genentech obtained judgment in its favor. Id. at 11-12.

         On September 22, 2016, Genentech filed its first motion for summary judgment. First Mot. for Summ. J., ECF 257. The parties disputed whether the '534 patent was entitled to the October 14, 2005 priority date. The '534 patent is a continuation-in-part of U.S. Application No. 12/090, 191 (“'191 application”), which is a national stage entry of WO 2007/047512 (“PCT application”). Exs. 2, 3 to Chivvis Decl. in Supp. of First Mot. for Summ J., ECF 258-2, 258-3. The PCT application claims priority to U.S. Provisional Application No. 60/726, 921, filed on October 14, 2005 (the “2005 provisional application”). Exs. 3, 4 to Chivvis Decl., ECF 258-3, 258-4. On February 24, 2017, the Court found that no reasonable trier of fact would find adequate written description support in the 2005 provisional application for the asserted claims. First Summ. J. Order 12-19, ECF 327. As such, Phigenix lost the 2005 priority date for the asserted '534 patent.

         The Court further addressed Genentech's argument that the asserted claims are anticipated by the use of Kadcyla in clinical trials, which were made public in 2007. See Id. at 23-24. Phigenix asserted that there was a factual dispute as to whether the public use necessarily met the claim limitations. Id. The Court agreed that there was a genuine issue of material fact as to whether Kadcyla's public use in 2007 anticipated the asserted claims. Id. at 24. The Court noted that one of the documents submitted by Genentech states that “[i]n addition to Trastuzumab, all patients with objective responses had previously been treated with paclitaxel, docetaxel, and/or vinorelbine.” Id. (citing Ex. C to Girish Decl., ECF 259-3; Ex. G to Girish Decl. at 27, ECF 259-7). While paclitaxel and docetaxel are taxanes, vinorelbine is not. Id. Given the disjunctive in the list of “paclitaxel, docetaxel, and/or vinorelbine, ” the Court found that it was possible that the patients of the clinical trials received vinorelbine but not either of the two taxanes. Id. On this basis, the Court ruled that there was enough evidence for the trier of fact to find that the public use and the asserted infringing methods are not identical. Id.

         Thereafter, Genentech filed a second motion for summary judgment of non-infringement and invalidity on June 9, 2017. Second Mot. for Summ. J., ECF 347. During a May 23, 2017 deposition, Phigenix's expert Dr. Richard Pestell testified that his infringement opinion was limited to patients who had previously been treated with Herceptin and a taxane and nothing else. Id. at 5 (citing Ex. 2 to Kreeger Decl. at 51:5-12, 53:20-25, 53:14-19, ECF 348-2). According to Genentech, only in an email dated May 31, 2017, did Phigenix restrict its infringement theory to apply to patients who had previously received trastuzumab and a taxane “and nothing else.” Second Mot. for Summ. J. 10 (citing Ex. 6 to Kreeger Decl. in Supp. of Second Summ. J. (“2017 Email”), ECF 348-6). Genentech moved to strike Dr. Pestell's “new” infringement opinion.

         On August 18, 2017, the Court granted in part Genentech's second motion for summary judgment. Second Summ. J. Order, ECF 391. The Court noted that “Phigenix only narrowed its infringement theory in response to the Court's [first] summary judgment order finding that the '534 patent was not entitled to an earlier priority date.” Id. at 16. But Phigenix neither moved to amend its infringement contentions nor notified Genentech of the new infringement theory. Id. As such, the Court sustained Genentech's objection and struck Dr. Pestell's infringement opinion. Id. Without evidence of infringement, the Court granted summary judgment of no infringement. Id. In addition, the Court granted summary judgment of no induced infringement for lack of specific intent due to the absence of evidence of Genentech's intent to induce infringement as to the narrow patient subpopulation who previously received “trastuzumab and a taxane and nothing else” under Phigenix's newly disclosed infringement theory. Id. at 9-14. Accordingly, the Court entered judgment in favor of Genentech and against Phigenix. Judgment, ECF 396.

         B. The Previous Fees Order

         After judgment, Genentech moved the Court to join Dr. Donald under Federal Rule of Civil Procedure 19 (ECF 398) and for an exceptional case finding under 35 U.S.C. § 285 and an award of attorney fees against Dr. Donald and Phigenix (ECF 400).

         The Court first held that it could not impose fees against Dr. Donald because he had not been given an opportunity to oppose the motion. Fees Order at 8. So the Court denied Genentech's request for fees against Dr. Donald without prejudice to Genentech's reasserting the argument in the instant fees motion.

         The Court next held that “there came a point in this case when Phigenix's continued prosecution of the case became ‘exceptional'”: when Phigenix changed its theory of infringement seemingly to skirt the holdings in the Court's first summary judgment order. The Court first noted that Phigenix was “on notice about issues concerning potential anticipation of the '534 patent by prior art” before the lawsuit began and that Phigenix was continually reminded throughout the litigation of the weaknesses of its infringement theory, including in the Court's sanctions order. Id. at 9-10. Though these facts alone were insufficient to find the case exceptional, the Court held that the “tipping point” at which Phigenix's actions made the case exceptional was after the Court determined that Phigenix could not maintain its 2005 priority date, and yet Phigenix “unreasonabl[y] determin[ed] to forge ahead with prolonged litigation when it had no tenable theory of infringement.” Id. at 10-11. Instead of conceding defeat, Phigenix narrowed its infringement theory in response to the Court's order but failed to amend its infringement contentions or notify Genentech of the change, instead electing to disclose its new theory in a deposition after the close of fact discovery. See Id. at 11. The Court found that “Phigenix unreasonably manipulated its theories to postpone defeat” based on anticipation of the '534 patent, evincing “gamesmanship” that warranted an exceptional case finding. Id. Moreover, additional facts supported the Court's holding, including that Phigenix's infringement theory defied common sense, that Phigenix chose to submit IPR petitions on Kadcyla-related patents that it was not accused of infringing, and that Phigenix's testing of Kadcyla was unreliable. See Id. at 12-13 (citing Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014)). Given these facts, the Court concluded that “Genentech is entitled to reasonable attorneys' fees accrued since the issuance of the First Summary Judgment Order on February 24, 2017.” Id. at 13.

         As to joinder, the Court held that joinder of Dr. Donald was both necessary and feasible under Federal Rule of Civil Procedure 19(a)(1). The Court first held that Dr. Donald's joinder was necessary because the evidence indicated that Phigenix did not have the financial resources to provide full relief to Genentech. Id. at 18-20. The Court also held that Genentech was not attempting to join Dr. Donald by “piercing the corporate veil, ” but instead aimed to join him because of his own conduct. Id. at 19. The evidence “support[ed] Genentech's position that Dr. Donald had control over this litigation” because “[h]e alone holds more than 50% ownership of Phigenix, ” and the evidence showed that Dr. Donald's wife “is the only other employee of Phigenix.” Id. at 20-21 (citing Ex. 1 to Chivvis Decl. in Supp. of Mot. for Joinder at 237:15-22, ECF 399-1; Ex. A to Jacobs Decl. in Supp. of Mot. for Sanctions at 11:16-22, ECF 199-1). The Court rejected Phigenix's contention that its five-person Board of Directors voted to initiate the litigation because Phigenix did not provide any evidence of this fact or of the fact that anyone else directed the litigation. See Id. at 21. The Court then held that joinder was feasible because the Court has personal jurisdiction over Dr. Donald due to his actions in this district. See Id. at 22-27.

         After the Court issued its Fees Order, Genentech filed this motion, renewing its attempt to hold Dr. Donald jointly and severally liable for fees and seeking a determination by the Court of reasonable attorneys' fees.

         II. LIABILITY OF DR. DONALD

         Genentech argues that the Court should hold Dr. Donald liable on two theories: (1) Dr. Donald was individually responsible for Phigenix's exceptional conduct in the case, Mot. at 3-5; and (2) Dr. Donald is liable because he is Phigenix's alter ego, Mot. at 5-7. The Court discusses each theory in turn.^[2]

         A. Genentech Has Not Shown that Dr. Donald Was Responsible for Phigenix's Exceptional Conduct

         The Court first discusses the relevant case law and then analyzes the parties' competing evidence.

         1. Relevant Law

         A court may hold an individual liable under 35 U.S.C § 285 where it finds that the individual's “personal conduct was the dominant cause” or “the driving force” making the case exceptional. Iris Connex, LLC v. Dell, Inc., 235 F.Supp.3d 826, 843-44, 852 (E.D. Tex. 2017); see also Ohio Cellular Products Corp. v. Adams USA, Inc., 175 F.3d 1343, 1349-50 & n.6 (Fed. Cir. 1999). This rule reflects “a more general and uncontroversial principle: that the corporate form cannot be used as a shield to insulate officers and parent corporations against liability for their own tortious conduct or tortious conduct they control.” Iris Connex, 235 F.Supp.3d at 844.

         The Federal Circuit elaborated on this rule in Machinery Corp. of America v. Gullfiber AB, 774 F.2d 467 (Fed. Cir. 1985). In that case, the Federal Circuit remanded for the district court to apply the correct legal standard to determine whether the case was exceptional. See Id. at 473. The court also addressed the defendant's argument that its agent could not be held liable for any fees awarded. The court recognized that it had previously held that “an individual may be assessed fees under § 285 if his conduct supports a finding that the case is exceptional.” Id. at 475. As such, the Court held that the agent “may be assessed fees individually, ” but “only if the district court finds that [the plaintiff] has proved by clear and convincing evidence that his actions were in fact tortious or were undertaken in a personal capacity and not as agent of [the defendant].” Id.

         The Federal Circuit again addressed the issue in Ohio Cellular.^[3] There, the Federal Circuit affirmed the district court's imposition of individual liability on third-party defendant Nelson, the president and sole stockholder of Ohio Cellular. 175 F.3d at 1345, 1350. The district court had held that the case was exceptional under § 285 because Ohio Cellular had committed inequitable conduct when Nelson withheld material prior art during a patent prosecution. Id. Importantly, the court noted that there was no evidence “that the attorney who prosecuted the application was aware of the undisclosed material prior art. Instead, it appears that Nelson withheld the prior art from his attorney and thus from the Patent Office.” Id. at 1345 n.3. Because Nelson was an inventor on the relevant patent, was the president and sole shareholder of Ohio Cellular, was intimately involved in the patent's prosecution, and “was the sole basis” for the inequitable conduct, the district court held that Nelson could be held individually liable. Id. at 1346, 1348.

         The Federal Circuit agreed. The Federal Circuit emphasized that Nelson's own conduct underpinned the exceptional case holding and that, “as president and sole shareholder of Ohio Cellular[, ] Nelson could control and did control litigation decisions made on behalf of Ohio Cellular.” Id. at 1349-50; see also Hughes v. Novi Am., Inc., 724 F.2d 122, 126 (Fed. Cir. 1984) (upholding award of fees against the plaintiff patent inventor based on his “personal conduct during the trial, ” including false interrogatory responses and awareness that the defendant had not infringed, as well as his individual fraud in procuring the patents).

         Recently, the Eastern District of Texas issued a comprehensive opinion on the matter in Iris Connex. In that case, individual-plaintiff Yates was the sole owner of the plaintiff-corporation Iris Connex's parent corporation. 235 F.Supp.3d 826, 833-34. The Court found that Iris Connex had no assets except the patent, no working capital, and no employees and was formed by Yates solely to enforce the patent. Id. at 840. From this the court concluded that Mr. Yates had created Iris Connex as “the first level of two shell corporations which were intended to shield the real actor, Mr. Brian Yates, from personal liability.” Id. at 833; see also Id. at 851. After holding that the case was exceptional because the plaintiffs had filed suit with an infringement theory that was wholly unsupportable, the court held that Mr. Yates could be held individually liable. “From start to finish, ” it said, “Mr. Yates ha[d] been the driving force behind th[e] litigation, ” such that “[e]very reason for th[e] Court's exceptional case finding emanate[d] from Mr. Yates.” Id. at 852.

         Specifically, “Mr. Yates conceived and then carried out each step leading up to the filing of th[e] meritless lawsuit, ” including negotiating a license before either creating Iris Connex or consulting an attorney. Id. Mr. Yates was also solely responsible for forcing Iris Connex to file the lawsuits, such that the court found “[i]t is hard . . . to understate the importance of Mr. Yates' direct and personal control through pre-suit process of finding and acquiring the '950 patent, as Iris Connex had no other purpose than to enforce its only asset.” Id. at 852-53. Mr. Yates also “independently performed pre-suit diligence” and “personally controlled the events occurring toward the end of th[e] lawsuit, ” including personally calculating the damages model for settlement purposes. Id. at 853. “Ultimately, ” the Court concluded, “the interposing of an ‘Iris Connex' between the real actor [Yates] and an exceptional case” would encourage frivolous lawsuits and thus be contrary to § 285's purpose. Id. at 846.

         2. Parties' Evidence

         Genentech argues that under this law, Dr. Donald should be held personally liable because “Dr. Donald acted as the driving force behind Phigenix's litigation strategy from the start.” Mot. at 3. Specifically, Genentech points to the following facts to support this contention, ^[4] id. at 3-4:

(1) Dr. Donald holds more than 50% ownership of Phigenix; see 12/2/2016 Donald Depo. at 237:15-22, ECF 399-1;

(2) Dr. Donald's wife is the only other employee of Phigenix; see 8/4/2015 Donald Depo. 11:16-22, ECF 199-1;

(3) Before the litigation began, Dr. Donald “developed Phigenix's infringement theories and directly communicated them to Genentech, ” see ECF 37-4 (6/10/2013 Dr. Donald Letter to Genentech offering to negotiate licensing of Phigenix's patents); ECF 37-5 (6/17/2013 Dr. Donald Letter to Genentech offering to negotiate licensing of Phigenix's patents and including pathway diagram); 8/4/2015 Donald Depo. at 118:17- 119:13, ECF 399-2.

(4) Dr. Donald “raised money to fund the litigation and contributed his own, ” see 12/2/2016 Donald Depo. at 180:25-181:4, ECF 399-1; 12/2/2016 Donald Depo. at 79:1-10, 180:6-9, 180:25-181:2, ECF 425-2;

(5) Dr. Donald “personally attended court hearings and depositions in this lawsuit, holding himself out as Phigenix's sole representative, ” see, e.g., ECF 228 at 3:14 (Claims Constr. Hearing Tr.).

         According to Genentech, these facts make clear that Dr. Donald “was, and is, the party ultimately responsible for the conduct that the Court found exceptional, ” including authorizing the case without pre-suit testing and, in the face of potentially anticipating prior art, filing IPRs and proceeding with the case after the Court's first summary judgment order on February 24, 2017. Mot. at 4.

         Dr. Donald^[5] submitted a declaration in opposition to Genentech's motion.^[6] Donald Opp., ECF 460. He presents the following counter-testimony and evidence to oppose Genentech's positions:

(1) Dr. Donald avers that Phigenix has over one hundred shareholders and has gone through multiple rounds of fundraising. He states and submits documentation showing that he is one of five members of Phigenix's Board of Directors and that “the Board, by majority vote, made the decision to file the lawsuit in this case.” Donald Opp. Decl. ¶¶ 7, 12 & Ex. 9.

(2) Dr. Donald submits a 2013 Executive Summary showing at least two organizational leaders who were not also Directors of the Board. Id. ¶ 9 & Ex. 3.

(3) Dr. Donald states that he sent Genentech a diagram of how KADCYLA worked not as an infringement theory, but instead to teach Genentech's General Counsel the scientific mechanisms at issue. Id. ¶¶ 5, 15 & Exs. 8-9. He avers that his attorneys developed all of the legal theories at issue in the case, not him. Id. Specifically, as to the 2017 narrowing of the infringement theory, he testifies that he did not have any reason to change the infringement contentions because he believed that Genentech's understanding of Phigenix's infringement theory was the same as Phigenix's and because he understood Phigenix to have been able to keep its '534 patent priority date. Id. ¶¶ 28-36. He also submits an email exchange with his counsel in which his counsel sent him a draft response to Genentech's accusation that Phigenix had narrowed its theory of infringement, and Dr. Donald responded “I agree with the points that you've raised in the draft response” and pointed out relevant statements by Genentech's counsel at a court hearing. Id. ¶ 38, Ex. 20. He also states that he has never communicated with Dr. Pestell. Id. ¶ 39.

(4) Dr. Donald testifies that Phigenix authorized and sold 3, 000, 000 shares between 2007 and 2013 to support pre-suit activities, showing that his raising money for the company was not for the purposes of litigation. Id. ¶ 9. He also submits documentation that his provision of ...