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Armacell LLC v. Aeroflex USA, Inc.

United States District Court, M.D. North Carolina

June 24, 2015

ARMACELL LLC, Plaintiff,
v.
AEROFLEX USA, INC., Defendant.

MEMORANDUM OPINION AND ORDER

JAMES A. BEATY, Jr., District Judge.

This matter is before the Court on a Motion for Attorneys' Fees [Doc. #32] filed by Defendant Aeroflex USA, Inc. ("Defendant") pursuant to 35 U.S.C.§ 285. Plaintiff Armacell LLC filed a Response [Doc. #39]to the Motion for Attorneys' Fees and Defendant filed a reply [Doc. #42]. For the reasons discussed herein, the Court will deny Defendant's Motion for Attorneys' Fees.

I. BACKGROUND

The Plaintiff and Defendant in this action are competitors in the field of foam insulation materials for pipes and cables. This dispute involves two patents related to such field. First, is the Plaintiff's United States Patent 6, 902, 784 (the "'784 Patent"), which was issued on June 7, 2005 and entitled "Composite Pressure Sensitive Insulation Joining Construction." Second, is the later filed United States Patent 13, 774, 497 (the "'497 Patent") filed by Defendant on February 22, 2013, entitled "Connecting System for Adjacent ends of Insulation Tubing." The 497 was published by the United States Patent and Trademark Office ("PTO") on August 28, 2014, after this action was initiated. Both patents appear to be patents for connector products associated with connecting thermal insulation tubing.

On August 5, 2013 a little over a year prior to the publication of the 497 Patent, Plaintiff wrote a letter to Defendant alleging that Defendant appeared to be marketing a product by the name of Cel-Link II that Plaintiff believed infringed on Plaintiff's 784 Patent. This product would later be determined to be the product associated with the 497 Patent. Plaintiff indicated that its concern over possible infringement related to the fact that in 2010, Defendant previously marketed a product by the name of Cel-Link, which Plaintiff believed also infringed on the 784 Patent. The original Cel-Link product was withdrawn from the market and the patent application from the original Cel-Link product was allegedly abandoned. In the same August 2013 letter, Plaintiff also stated that because the patent application for the original Cel-Link product was abandoned, Defendant appeared to be falsely marketing the Cel-Link II product as "patent-pending." Based on Plaintiff's belief that the Cel-Link II product infringed on the 784 Patent, Plaintiff requested that by August 13, 2013, Defendant provide certain written assurances to Plaintiff. Specifically, Plaintiff requested assurances that Defendant had ceased all manufacturing and sales efforts related to the Cel-Link products or any other thermal insulation tubing that fell within the scope of Plaintiff's 784 Patent.

Based on the Plaintiff's accusations of infringement, Defendant filed a Complaint in the United States District Court for the Eastern District of Tennessee ("Tennessee action") seeking a declaration that the Cel-Link II product did not infringe on Plaintiff's 784 Patent or that the 784 Patent is invalid or unenforceable. Plaintiff, however, then filed this action alleging that the Cel-Link II product infringed on the 784 Patent. Therefore, the infringement of the 784 Patent was at issue in both actions filed by the parties. Additionally, Plaintiff asserted other claims in this action for false marking, unfair competition and false advertising, and unfair and deceptive trade practices (collectively "false marking claims") based on Defendant's marketing statements for Cel-Link II, which stated that the product was "patent pending." The false marking claims were not present in the Tennessee action filed by Defendant. Defendant's Tennessee action was eventually dismissed in February 2014, as the court in Tennessee declined to exercise jurisdiction over the declaratory judgment action. See Aeroflex USA, Inc. v. Armacell Enterprise GmbH, No. 3:13-CV-485, 2014 WL 652912 (E.D. Tenn. Feb. 20, 2014). In declining to exercise jurisdiction, the Tennessee court noted that Defendant's Tennessee action would not resolve the entirety of the claims between the parties, as the false marking claims would still be at issue in the action before this Court and would not be resolved by the declaratory judgment sought by Defendant in its Tennessee action. Id. at *3-6. Additionally, the Tennessee court found that the factor involving procedural fencing weighed in favor of the court declining to exercise jurisdiction, as it appeared Defendant filed the Tennessee action in an attempt to obtain its choice of forum. Id. at *5.

Between the time that Defendant filed the Tennessee action and Plaintiff filed the action before this Court, counsel for Plaintiff and Defendant engaged in email discussions concerning the patents at issue and the infringement alleged by Plaintiff. Plaintiff stated that the current the action before this Court resulted from Defendant's refusal to engage in substantive discussions concerning the alleged infringement. Additionally, Plaintiff asserted that it did not file thethis action until after it had obtained samples of the Cel-Link II product and had multiple outside patent counsel conduct a thorough infringement analysis of such samples. Plaintiff stated that it also had a legitimate basis for the false marking claims because Plaintiff believed Defendant had previously abandoned the patent application for the original Cel-Link product and Plaintiff was unaware for any pending patent application covering the Cel-Link II product. Thus, if a patent was not pending, Plaintiff asserted that Defendant was engaging in false marking by advertising that there was a patent pending. Plaintiff alleged that it was not until Plaintiff filed this action in October 2013, that Defendant informed Plaintiff that Cel-Link II was in fact covered by a pending unpublished patent application.

In February 2014, Defendant filed a request with the PTO for ex parte reexamination of Plaintiff's 784 Patent. The PTO granted the request and the parties requested a stay of this action based on the PTO's finding that the new prior art submitted by Defendant raised a new question of patentability concerning Plaintiff's 784 Patent. This case was stayed on May 2, 2014. On May 13, 2014, the PTO issued its non-final office action in the reexamination proceeding, rejecting the patentability of the claims of Plaintiff's 784 Patent. The parties then consented to a dismissal of this action with prejudice as to Plaintiff's claims and without prejudice as to Defendant's counterclaims.

Defendant, thereafter, filed the pending Motion for Attorneys' Fees. In its Motion, Defendant argues that it is entitled to attorneys' fees because Defendant was the prevailing party in this matter and this an exceptional case pursuant to 35 U.S.C. § 285. Specifically, Defendant argues that this is an exceptional case because Plaintiff's allegations of patent infringement were baseless because the Cel-Link II product does not meet the claim limitations of Plaintiff's 784 Patent. Additionally, Defendant argues that Plaintiff's assertion of the false marking claims make this an exceptional case because Plaintiff did not have any evidence to support such claims. Plaintiff opposes Defendant's arguments, stating that it acted in good faith as to both the procedure it followed in filing the claims and later dismissing this action, and as to filing the false marking claims against Defendant. For the reasons more fully explained below, the Court will deny Defendant's Motion for Attorneys' Fees.

II. DISCUSSION

Pursuant to 35 U.S.C. § 285, a district court in a patent case may award attorneys' fees to the prevailing party[1] in "exceptional cases." 35 U.S.C. § 285. In the past, absent a finding of sanctionable litigation-related misconduct, a party seeking attorneys' fees under § 285 was tasked with proving both that the litigation was brought in subjective bad faith and that the litigation was objectively baseless. See Brooks Furniture Mfg., Inc. v. Dutailer Int'l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). Recently, the Supreme Court overruled this standard, finding it "overly rigid." Octane Fitness, LLC v. Icon Health & Fitness, Inc., ___ U.S. ___, 134 S.Ct. 1749, 1756, 188 L.Ed.2d 816 (2014). Under the newly declared standard for determining what constitutes an exceptional case, the analysis"begins and ends with the text of § 285." Id . As the statute does not define what makes a case exceptional, the ordinary meaning is used. Id . Thus, an exceptional case "is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Id.

Courts are directed to use their discretion in determining what constitutes an exceptional case on a "case-by-case" basis by "considering the totality of the circumstances." Id . As examples of the circumstances to consider, the Supreme Court cited to its opinion in Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994). In Fogerty, while discussing a similar fee provision in the Copyright Act, the Supreme Court stated that district courts could consider factors that included "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." 510 U.S. at 534; see also Octane Fitness, 134 S.Ct. at 1756 (citing to Fogerty for support and explanation of the standard to be applied to cases pursuant to § 285).

Recently, the Fourth Circuit outlined three distinct situations wherein a court should award attorneys' fees under § 285 based on the holding in Octane Fitness.[2] The Fourth Circuit stated that a district court should award attorneys' fees to the prevailing party,

when it determines, in light of the totality of the circumstances, that (1) there is an unusual discrepancy in the merits of the positions taken by the parties, based on the nonprevailing party's position as either frivolous or objectively unreasonable; (2) the non-prevailing party has litigated the case in an unreasonable manner; or (3) there is otherwise the ...

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