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HR US LLC v. Mizco International

September 28, 2010

HR US LLC, PLAINTIFF,
v.
MIZCO INTERNATIONAL, INC.; AND ALBERT MIZRAHI, DEFENDANTS.



The opinion of the court was delivered by: David G. Trager United States District Judge

MEMORANDUM AND ORDER

Trager, J

HR US LLC ("plaintiff") is the owner of U.S. Patent No. Des. 431,250 ("the '250 patent"), a design for a Palm Pilot mount for use in automobiles. Palm Pilot Holder, U.S. Patent No. 431,250 (issued Sept. 26, 2000). Plaintiff brought suit against Mizco International Inc. ("Mizco") and Albert Mizrahi ("Mizrahi") (collectively "defendants") alleging defendants sold and distributed products that infringed the '250 patent. Defendants' motion for summary judgment was denied on the issue of invalidity and granted on the issue of non-infringement. HR US LLC v. Mizco Int'l, No. cv-07-2394, 2009 WL 890550 (E.D.N.Y. Mar. 31, 2009). Seeking attorney's fees, defendants now move for a declaration that this case is "exceptional" within the meaning of 35 U.S.C. § 285, which provides that "[t]he court in exceptional cases may award reasonable attorney's fees to the prevailing party." For the reasons set forth below, defendants' motion is denied.

Background

Plaintiff first became aware of defendants' allegedly infringing products in the early half of 2006. Compl. at 3. In the summer of 2006, plaintiff's counsel sent a letter notifying defendants of their alleged infringement of the '250 patent. Id. On February 6, 2007, plaintiff, a Delaware corporation with its principle place of business in New Jersey, filed a patent infringement suit against defendants in the Eastern District of Virginia ("EDVA"). Id. at 6. Defendant Mizco is a New York corporation with its principle place of business in Brooklyn, New York. Id. Defendant Mizrahi is a resident of Brooklyn. Id.

On February 7, 2007, defendants received a letter from plaintiff's attorney giving notice of the impending suit and extending an offer to discuss a settlement. Pl.'s Mem. of Law in Opp'n to Defs.' Mot. for Ext. of Time, Ex. 1. Defendants were served with the complaint on March 13, 2007.

Defendants served plaintiff's attorney with an answer on April 9, 2007, five days after it was due. Decl. of John H. Thomas in Supp. of Pl.'s Req. for Entry of Default at 1. Contrary to EDVA local civil rule 83.1(D), the answer was not signed by a member of the bar of the EDVA. Id. While waiting for a properly signed answer from defendants, plaintiff's attorney sent two letters indicating plaintiff would consent to an extension and not seek a default judgment if defendants agreed not to dispute jurisdiction or venue. Pl.'s Br. in Opp'n to the Mot. for Ext. of Time, Ex. 3 and 4.

On April 23, 2007, defendants filed a motion for an extension of time to file their answer. That same day, defendants' answer, duly signed by a Virginia attorney, was delivered to the court, but was not filed because the motion for an extension was pending. On April 24, 2007, plaintiff sought an entry of default, which was entered by the clerk on May 3, 2007.

Shortly thereafter, defendants moved under 28 U.S.C. § 1404(a) to transfer the case to the Eastern District of New York ("EDNY"). Defendants maintained that defendants' contact with the EDVA was minimal and that the location of plaintiff's counsel was the only connection plaintiff had to the EDVA. Defendants also argued that policy factors weighed in favor of transferring the case and that there were at least two venues where the case could have been brought that were more convenient to both parties and closer to the center of the accused activity, witnesses and evidence.

Plaintiff argued that defendants' motion to transfer was moot in light of defendants' default. Furthermore, plaintiff contended that even if defendants' motion was not moot, the sale of defendants' allegedly infringing products at retail locations in the EDVA was sufficient to support proper venue in the district. While defendants' motions to transfer venue and to extend the time to answer were pending, plaintiff filed a motion for default judgment.

At a hearing on May 22, 2007, Judge Hudson denied plaintiff's motion for default judgment. Defendants' motion to transfer venue and motion for an extension of time were both granted.*fn1 Judge Hudson found that venue was proper in the EDVA, but concluded that a transfer to the EDNY was appropriate given the lack of connection to Virginia, including the absence of any witnesses or evidence in Virginia, and the inconvenience to both parties of litigating in the EDVA. Hr'g Tr. 22, 26, 30, May 22, 2007; Order, May 22, 2007.

In the EDNY, the case proceeded into discovery. At the initial conference, defense counsel sought to stay discovery pending an anticipated summary judgment motion on invalidity based on inconsistencies in the patent drawings. Hr'g Tr. at 7-8, 15, July 20, 2007. Defense counsel also informed Judge Orenstein that defendants planned to make an additional summary judgment motion concerning non-infringement. Id. at 7. However, defense counsel was not planning on filing the non-infringement motion until after the proposed invalidity motion was decided (and, if that motion was denied, until after discovery was completed). Id. at 15. Although defense counsel asserted that defendants had "strong arguments of non-infringement," defense counsel also stated that the non-infringement motion was "less of a clear motion than [the invalidity] motion" and that the non-infringement motion was "not as strong [as the invalidity motion] because the court could always say . . . there may be some factual issue." Id. at 7-8. Judge Orenstein ultimately denied defendants' request to stay discovery, but did note that a renewed motion to stay discovery would be considered if and when defendants actually made a motion for summary judgment. Id. at 27.

Sometime in August 2008, defendants attempted to negotiate a settlement. Decl. of Mizrahi in Supp. of Defs.' Mot. to Recover Att'y's Fees ¶ 2 ("Mizrahi Decl."). According to Mizrahi, during these negotiations, plaintiff's part-owner, Steven Dixon, admitted that "this case never should have been brought by HR, and that he had been opposed to the filing of this case against Defendants."*fn2 Id. Dixon also informed Mizrahi that he was no longer partners with Herbert Richter, the inventor of the '250 patent, and Harald Richter, Herbert Richter's son and a former employee and part owner of HR US LLC. Id. Dixon also told Mizrahi that it was not Dixon, but rather Herbert and Harald Richter (collectively "the Richters"), who had made the decision to go forward with the case. Id. According to Mizrahi, Dixon initially offered a settlement where plaintiff would drop its suit and would assign the '250 patent to Mizco. Id. ¶ 3. After defendants objected to this settlement and requested some reimbursement for their attorney's fees, Dixon then offered to also pay $10,000 to defendants. Id. ¶¶ 3-5. Defendants declined to settle because they had already incurred approximately $100,000 in attorney's fees. Id. ¶¶ 5-6.

Around the same time as the settlement negotiations, the parties filed a number of motions. Plaintiff filed a motion for partial summary judgment, contending that: (1) the '250 patent was not invalid for failing to show the claimed holder in the open position; (2) the '250 patent was not unenforceable for any failure to disclose prior art references to the Patent and Trademark Office ("PTO") during the application process; and (3) plaintiff did not waive its patent rights. Defendants also filed a motion for summary judgment, arguing that there was no infringement of the '250 patent and that the '250 patent was invalid for three reasons: (1) defects and inconsistencies in the patent's drawings resulted in an insufficient description for a person skilled in the art to be able to reproduce the design; (2) the patent drawings failed to show the design in the open position; and (3) Herbert Richter engaged in inequitable conduct when he failed to disclose prior art references to the PTO. At the same time, defendants filed a motion seeking to strike an errata sheet from Herbert Richter's deposition and to have the '250 patent invalidated based on additional inequitable conduct by Herbert Richter stemming from an alleged misrepresentation in his patent declaration. Defendants also filed two motions in limine to exclude plaintiff's experts, Dixon and Harald Richter, as unqualified.

On March 31, 2009, an opinion was issued on the various motions. HR US, 2009 WL 890550. Familiarity with the details of that opinion is assumed. Defendants' motion for summary judgment was granted on the issue of non-infringement. A comparison of the '250 patent and the accused design revealed that they were plainly dissimilar. It was therefore unnecessary to perform any analysis of prior art to decide the issue of infringement. Defendants' motion for summary judgment on the issue of invalidity was denied; the patent's failure to show the claimed holder in the open position did not invalidate the patent and the inconsistencies in the patent drawings were inconsequential. Plaintiff's motion for partial summary judgment was granted in part and denied in part as moot. Given the grant of summary judgment on the issue of non-infringement, defendants' inequitable conduct defense based on an alleged failure to disclose prior art was not reached. Similarly, defendants' motion to strike Richter's errata sheet and invalidate the patent, as well as defendants' two motions in limine to exclude plaintiff's experts, were denied as moot.

Although plaintiff filed a notice of appeal to the Federal Circuit, the appeal was dismissed for failure to prosecute after plaintiff failed to file a timely brief.

Discussion

At bar is defendants' motion to recover attorney's fees. Specifically, defendants request a finding that plaintiff's decision to pursue a frivolous suit and misconduct during litigation make this an "exceptional" case within the meaning of 35 U.S.C. § 285 and warrants an award of fees.

The determination of whether to award attorney's fees under § 285 is a two-step process. Cybor Corp. v. FAS Techs., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc). A district court must first make a factual determination that the case is exceptional. Id. Then the district court must exercise its discretion to decide whether an award of fees is appropriate. Id.

Initially, the prevailing party must establish, by clear and convincing evidence, that, under the totality of the circumstances, the case is exceptional. Beckman Instruments, Inc., v. Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir. 1989); Eltech Systems Corp. v. PPG Industries, Inc., 903 F.2d 805, 811 (Fed. Cir. 1990). Factors that may be considered in a determination of exceptionality include "misconduct during litigation, vexatious or unjustified litigation, or a frivolous suit." Standard Oil Co. v. American Cyanamid Co., 774 F.2d 448, 455 (Fed. Cir. 1985) (affirming district court's determination of non-infringement and invalidity and remanding for a determination of exceptionality).

However, a district court may, in its discretion, decline to award attorney's fees even if a case is found to be exceptional. Modine Mfg. Co. v. Allen Group, Inc., 917 F.2d 538, 543 (Fed. Cir. 1990) (affirming district court's denial of § 285 fees to prevailing patentee even though the jury found willful infringement and the case was found to be exceptional); J.P. Stevens Co. v. Lex Tex, Ltd., 822 F.2d 1047, 1050-53 (Fed. Cir. 1987) (affirming district court's denial of § 285 fees to prevailing accused infringer despite finding of exceptionality). In deciding whether or not to exercise discretion and award fees, a district court may consider "the closeness of the question, litigation behavior, and any other factors whereby fee shifting may serve as an instrument of justice." Nat'l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1197 (Fed. Cir. 1996) (affirming district court's discretionary denial of attorney's fees despite jury's finding of willful infringement, which was sufficient to meet the "extraordinary case" criterion of § 285). Although the factors under consideration in the two steps of the § 285 analysis are similar, the steps nevertheless remain separate. See Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1583 (Fed. Cir. 1985) ("The issue of discretion comes into play, not in determining whether the case is exceptional, but in deciding, with respect to an exceptional case, whether the award of attorney fees was appropriate . . . ."), overruled on other grounds by Kingsdown Medical Consultants, Ltd. v. Hollister, Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc).

When the prevailing party is the accused infringer, attorney's fees will be awarded only where it is necessary to prevent a gross injustice to the accused infringer because the patent was procured in bad faith or the patentee litigated the infringement claim in bad faith. Forest Labs., Inc. v. Abbot Labs., 339 F.3d 1324, 1329 (Fed. Cir. 2003) (reversing district court's finding of exceptionality because the district court erred in finding that patentee engaged in bad faith litigation). Vexatious, unjustified or frivolous litigation constitutes bad faith. Id. at 1329-30.

In this case, the relevant question is whether the claim was litigated in bad faith, either because the infringement suit was frivolous or because the plaintiff engaged in litigation misconduct. Before addressing those issues, it must be noted that plaintiff contends, without citation to any authority, that defendants' motion should be denied because defendants have not provided billing records in support of their motion. Although such records would be necessary to establish the ultimate amount of any fee award, those ...


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