The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge
At the close of Plaintiff's evidence during the jury trial of this patent infringement action, the Court granted the motion of Defendants Rome Fastener Corporation, Rome Fastener Sales Corporation, Romag Fasteners Inc., and Rings Wire, Inc. (collectively "Romag" or "Defendants") for judgment as a matter of law pursuant to Rule 50(a), Fed. R. Civ. P. (See Transcript of Trial ("Trial Tr.") 370:22-371:15.) Romag now moves for attorney fees and costs from Plaintiff Advanced Magnetic Closures ("AMC" or "Plaintiff"), urging that this case is "exceptional" pursuant to 35 U.S.C. § 285 because:
(1) AMC's U.S. Patent No. 5,572,773 (the "'773 Patent") issued upon inequitable conduct before the U.S. Patent and Trademark Office ("PTO"); and (2) AMC engaged in substantial litigation misconduct throughout the course of this decade-long lawsuit. Romag also claims that AMC's counsel was complicit in much of the alleged wrongdoing, from the patent application through the trial. It argues that AMC's counsel unreasonably and vexatiously multiplied and unduly prolonged this litigation and should be held jointly and severally liable for any resulting fee award pursuant to 28 U.S.C. § 1927. Finally, Romag claims that AMC is a shell corporation lacking assets and seeks to hold its President and owner, Irving Bauer ("Bauer"), as well as his purported corporate alter ego, G. Bauer, Inc.,*fn1 jointly and severally liable for fees. In separate opposing memoranda, AMC, Bauer, and Plaintiff's trial counsel, David Jaroslawicz, contend that no fee award is warranted.
For the reasons set forth below, Romag's request for attorney fees is granted as to AMC, granted in part as to AMC's counsel, and denied as to Bauer and G. Bauer, Inc.
In deciding whether to award fees, a district court must give careful consideration to the litigation as a whole and set forth the reasons for its conclusions in detail to afford a meaningful basis for appellate review. See Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1377 (Fed. Cir. 2001); see also Yamanouchi Pharm. Co. v. Danbury Pharmacal, Inc., 231 F.3d 1339, 1347 (Fed. Cir. 2000) (noting the requirement that a district court must evaluate the "totality of the circumstances" in deciding whether an award of fees is appropriate). To that end, the Court provides a comprehensive summary of "exceptional" conduct that occurred throughout the almost ten years of this litigation. This ruling presumes familiarity with the opinions of this Court at the summary judgment stage, Advanced Magnetic Closures, Inc. v. Rome Fastener Corp., No. 98 Civ. 7766 (PAC), 2006 WL 3342655 (S.D.N.Y. Nov. 16, 2006) (Advanced II) and 2007 WL 1552395 (S.D.N.Y. May 29, 2007) (Advanced III), which are incorporated by reference. Nonetheless, various references and findings which are set out in detail in the summary judgment opinions are briefly described here.
By way of introduction, this dispute involves magnetic snap fasteners commonly used in the fashion industry to secure the flaps on ladies' handbags. AMC's principal contention was that the magnetic snap fastener developed, manufactured, and marketed by Romag practices the claims of, and therefore infringes, AMC's '773 Patent. Romag maintains that its fasteners do not infringe any magnetic fastener patents and are instead covered by its own patent, U.S. Patent No. 5,722,126 (the "'126 Patent"). The '773 Patent issued on November 12, 1996. (Plaintiff's Trial Exhibit ("PX") 1.) The '126 Patent followed on March 3, 1998. (Defendants' Trial Exhibit ("DX") AB.) Each patent claims a magnetic fastener with a central hole, but the '773 Patent claims a central hole that increases the magnetic attraction of the fastener*fn2 , while the '126 Patent claims a central hole that both maximizes the magnetic attraction and provides additional manufacturing advantages*fn3 . The named inventor of the '773 Patent is Bauer, AMC's President and sole owner. The named inventor of the '126 Patent is Howard Reiter ("Reiter"), President of Defendant Romag Fasteners, Inc. and Vice President of the other Romag Defendants.
AMC filed its complaint on October 30, 1998. The case was originally assigned to Judge William H. Pauley III, who handled a number of pretrial motions and discovery matters. On April 18, 2000, the case was reassigned to Judge George B. Daniels, who conducted a Markman hearing on claim construction on September 14, 2000. Judge Daniels issued his Markman order on May 24, 2005, and then the case was reassigned to this Court on August 9, 2005. After the parties' claims were narrowed on summary judgment, see Advanced II, 2006 WL 3342655, and Advanced III, 2007 WL 1552395, the case proceeded to trial on November 5, 2007. On November 7, 2007, at the conclusion of AMC's evidence, the Court granted Romag's Rule 50 motion on the record in open court.
I. Claim pursuant to 35 U.S.C. § 285--"Exceptional" Case
A. 35 U.S.C. § 285--Legal Standard
In a patent matter, the court may award attorney fees and expenses if the prevailing party has established by clear and convincing evidence that the case is "exceptional." 35 U.S.C. § 285; see Digeo, Inc. v. Audible, Inc., 505 F.3d 1362, 1366-68 (Fed. Cir. 2007). An "exceptional" case finding may be predicated on various grounds, such as: inequitable conduct before the PTO; litigation misconduct; vexatious and otherwise bad faith litigation; frivolous suit; and willful infringement. See Stephens v. Tech Intern., Inc., 393 F.3d 1269, 1273 (Fed. Cir. 2004); Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1380 (Fed. Cir. 2001). If the case is exceptional, the Court then has discretion to determine separately whether fees are warranted, Interspiro USA, Inc. v. Figgie International Inc., 18 F.3d 927, 933 (Fed. Cir. 1994), by weighing factors-including the closeness of the case, the tactics of counsel, and the conduct of the parties-that contribute to a fair allocation of the burdens of litigation, S.C. Johnson & Son, Inc. v. Carter-Wallace, Inc., 781 F.2d 198, 201 (Fed. Cir. 1986).
In the instant action, Romag alleges two subclasses of wrongful conduct that support an exceptional case finding: (1) inequitable conduct before the PTO and (2) litigation misconduct. The Court will address these allegations in turn.
B. Inequitable Conduct Before the PTO
1. Jurisdiction to Assess Inequitable Conduct
Before evaluating the merits of Romag's inequitable conduct allegations, the Court first addresses a threshold jurisdictional question: Did Romag divest the Court of jurisdiction to adjudicate its inequitable conduct claim at the fee stage by withdrawing its counterclaim-which was based, in part, on inequitable conduct*fn4 -after the entry of judgment as a matter of law? After issuing its Rule 50 decision on the record, the Court inquired as to Romag's intentions regarding the lone remaining claim-its counterclaim for declaratory relief. Romag's counsel, Norman Zivin, responded:
Your Honor, I think that we have one counterclaim for declaratory judgment. In view of your Honor's ruling on [the] Rule 50(a) motion, we would withdraw that counterclaim. We believe that terminates any further need for a jury in this case.
We do believe, however, your Honor, that we are entitled to attorney's fees for the defense of this case. We would like to make a showing. I think we could use a little bit of additional evidence to show inequitable conduct by Mr. Bauer in front of the patent office. This is not testimony that the jury needs to hear because it is a decision that is made by your Honor as to whether the conduct is inequitable and whether attorney's fees can be granted. We believe that the jury can be dismissed and we would be prepared this afternoon to put on some brief expert testimony for your Honor's use in considering that application. (Trial Tr. 371:18-372:8.) AMC argues, in effect, that having dropped its inequitable conduct counterclaim, Romag is not entitled to a second bite of the apple at the fee stage.
AMC relies on language in Sony Electronics, Inc. v. Soundview Technologies, Inc., where the court found it inappropriate to use "Section 285 as an independent source of jurisdiction for the otherwise moot inequitable conduct issue." 375 F. Supp. 2d 99, 102 (D. Conn. 2005) (emphasis added). This reliance is misplaced. In an earlier opinion, the Sony court determined that the plaintiff's declaratory judgment claim of inequitable conduct had been mooted because the patent, which was found to be not infringed at the appellate level, had expired in the interim. See Sony Electronics, Inc. v. Soundview Techs., Inc., 359 F. Supp. 2d 173, 176 (D. Conn. 2005). Here, by contrast, AMC maintains its right to appeal the Court's final decision in this matter and there is no evidence before the Court that the '773 Patent has expired. Thus, despite the Court's Rule 50(a) determination that AMC failed to substantiate its infringement claim as a matter of law, Romag maintains an ongoing interest in its inequitable conduct claim given its exposure either on appeal or to future infringement claims if it continues to develop and market similar magnetic snap products. Cf. Cardinal Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 96 (1993) ("Merely the desire to avoid the threat of a 'scarecrow' patent, in Learned Hand's phrase, may therefore be sufficient to establish jurisdiction under the Declaratory Judgment Act.").
In addition, under recent Federal Circuit precedent, a district court retains independent jurisdiction over a prevailing party's § 285 request for attorney fees. See Monsanto Co. v. Bayer Bioscience N.V., 514 F.3d 1229, 1242 (Fed. Cir. 2008) (Monsanto II); Highway Equip. Co. v. FECO, Ltd., 469 F.3d 1027, 1033 n.1 (Fed. Cir. 2006). This jurisdiction to award fees encompasses the jurisdiction to make findings of inequitable conduct, even where the parties no longer maintain a justiciable claim under the federal patent laws. See Monsanto II, 514 F.3d at 1242 (citing Brasseler, U.S.A. I, 267 F.3d at 1380). Thus, while the entry of a covenant not to sue for infringement divests a trial court of jurisdiction over a declaratory judgment action, see, e.g., Amana Refrigeration, Inc. v. Quadlux, Inc., 172 F.3d 852, 855 (Fed. Cir. 1999), district courts retain jurisdiction to assess attorney fees predicated on the allegations of inequitable conduct identical to those contained in the non-justiciable counterclaim, Highway Equipment, 469 F.3d at 1033 n.1 ("While the covenant [not to sue for infringement] may have eliminated the case or controversy pled in the patent-related counterclaims and deprived the district court of Article III jurisdiction with respect to those counterclaims, the covenant does not deprive the district court of jurisdiction to determine the disposition of . . . the request for attorney fees under 35 U.S.C. § 285." (internal citation omitted)).
As a practical matter, it makes no difference whether the Court assesses inequitable conduct at the fee, rather than the trial, stage. If a court concludes at any stage of the proceedings that a party obtained a patent by way of inequitable conduct, then the patent is automatically deemed unenforceable. See Monsanto II, 514 F.3d at 1243 (citing Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 877 (Fed. Cir. 1988) (en banc in pertinent part)). In addition, as Romag's counsel suggested when withdrawing the counterclaim, "[i]nequitable conduct is an equitable issue committed to the discretion of the trial court." Flex-Rest, LLC v. Steelcase, Inc., 455 F.3d 1351, 1357 (Fed. Cir. 2006). There was no need to raise facts bearing on that claim before the jury. In that sense, Romag mischaracterized its action as a "withdrawal" of the counterclaim; rather, it merely adjusted its presentation of evidence as to inequitable conduct when the phase of litigation shifted from jury trial to equitable assessment. Finally, it would undermine the Court's oft-stated responsibility to evaluate the "totality of the circumstances" in determining whether fees are warranted, Yamanouchi, 231 F.3d at 1347, if the Court could not consider Romag's inequitable conduct allegations.
Therefore, the Court is assured of its jurisdiction and proceeds to assess the merits of Romag's claim for attorney fees under 35 U.S.C. § 285.
"Inequitable conduct is a . . . defense to patent infringement and, either alone or in conjunction with trial conduct, may constitute the basis for an award of attorney fees under 35 U.S.C. § 285." Pharmacia & Upjohn Co. v. Mylan Pharms., Inc., 182 F.3d 1356, 1359 (Fed. Cir. 1999) (quoting A.B. Chance Co. v. RTE Corp., 854 F.2d 1307, 1312 (Fed. Cir. 1988)). "To hold a patent unenforceable for inequitable conduct, a district court must find by clear and convincing evidence that a patent applicant breached its duty of candor and good faith to the United States Patent and Trademark Office . . . by failing to disclose material information, or submitting false material information, with an intent to deceive the PTO." Monsanto II, 514 F.3d at 1233-34 (citing Bruno Indep. Living Aids, Inc. v. Acorn Mobility Servs. Ltd., 394 F.3d 1348, 1351 (Fed. Cir. 2005) and Kingsdown, 863 F.2d at 872); see also Monsanto Co. v. Bayer Bioscience N.V., 363 F.3d 1235, 1239 (Fed. Cir. 2004) (Monsanto I) ("explaining that inequitable conduct can be found when the 'applicant omitted or misrepresented material facts with the intention of misleading or deceiving the patent examiner'"). "Once the requisite levels of materiality and intent have been proven, a district court 'must balance the equities to determine whether the patentee has committed inequitable conduct that warrants holding the patent unenforceable.'" Monsanto II, 514 F.3d at 1234 (quoting Monsanto I, 363 F.3d at 1239).
Information is material and must be disclosed if a reasonable patent examiner would find such information important in deciding whether the proposed claims are patentable. Digital Control, Inc. v. Charles Mach. Works, 437 F.3d 1309, 1314-16 (Fed. Cir. 2006). In examining materiality, the Federal Circuit relies on the definition provided in 37 C.F.R. § 1.56, which states that information is material to patentability when:
[I]t is not cumulative to information already of record or being made of record in the application, and
(1) It establishes, by itself or in combination with other information, a prima facie case of unpatentability of a claim; or
(2) It refutes, or is inconsistent with, a position the applicant takes in:
(i) Opposing an argument of unpatentability relied on by the Office, or
(ii) Asserting an argument of patentability.
37 C.F.R. § 1.56(b); see Bruno, 394 F.3d at 1352.
"Intent need not, and rarely can, be proven by direct evidence." Merck & Co., Inc. v. Danbury Pharmacal, Inc., 873 F.2d 1418, 1422 (Fed. Cir. 1989). "Rather, in the absence of a credible explanation, intent to deceive is generally inferred from the facts and circumstances surrounding a knowing failure to disclose material information." Bruno, 394 F.3d at 1354 (citing Paragon Podiatry Lab., Inc. v. KLM Labs., Inc., 984 F.2d 1182, 1193 (Fed. Cir. 1993)). The court must assess evidence of the patentee's overall conduct, including its good faith, or lack thereof. Ulead Sys., Inc. v. Lex Computer & Mgmt. Corp., 351 F.3d 1139, 1146 (Fed. Cir. 2003).
"As a general principle, materiality and intent are balanced-a lesser quantum of evidence of intent is necessary when the omission or misrepresentation is highly material, and vice versa." Amgen Inc. v. Hoechst Marion Roussel, Inc., 314 F.3d 1313, 1358 (Fed. Cir. 2003); see Digital Control, 437 F.3d at 1315-16. "At the same time, however, there must be some threshold showing of intent to be balanced; [courts] will not find inequitable conduct on an evidentiary record that is completely devoid of evidence of the patentee's intent to deceive the PTO." Amgen, 314 F.3d at 1358.
3. Romag's Allegations of Inequitable Conduct
Romag alleges that those charged under the patent laws with the duty of candor before the PTO in connection with the '773 application failed to disclose: (1) a dispute concerning the inventorship of the '773 snap; and (2) an on-point, prior Board of Appeals decision that controverted the claimed novelty of the '773 snap. Romag contends that the applicants-including Irving Bauer-were well aware of this information and intentionally ...