Dr. Greens, Inc. v. Stephens et al

Filing 340

ORDER granting 336 Motion for enhanced damages, Attorney Fees, and prejudgment interest. Signed by Judge John A. Houston on 3/22/2019. (jpp)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10
11

SPECTRUM LABORATORIES, LLC,

Case No. 11cv0638-JAH (KSC)

Plaintiff,

12
13

v.

14

ORDER GRANTING MOTION FOR
ENHANCED DAMAGES,
ATTORNEYS’ FEES, AND
PREJUDGMENT INTEREST

DR. GREENS, INC., MATTHEW
GREEN,

15

Defendants.

16
17
18

INTRODUCTION

19

Pending before the Court is Plaintiff Spectrum Laboratories, LLC’s (“Plaintiff”)

20

motion for enhanced damages, attorneys’ fees, and prejudgment interest. Doc. No. 336.

21

Defendants Dr. Greens Inc. and Matthew Green (collectively “Defendants”) filed an

22

opposition to the motion. Doc. No. 337. The motion is fully briefed. After careful review

23

of the pleadings filed by both parties, and for the reasons set forth below, the Court

24

GRANTS Plaintiff’s motion for enhanced damages, attorneys’ fees, and prejudgment

25

interest.

26

//

27

//

28

//
1
11cv0638-JAH (KSC)

1

BACKGROUND

2

On February 23, 2018, a jury verdict was entered in favor of Plaintiff and against

3

Defendants. Doc. No. 326. The jury found Defendants liable for direct infringement,

4

indirect infringement, and contributory infringement for multiple products. Id. The jury

5

also found that Defendants’ infringement was willful. Id. On May 22, 2018, Plaintiff filed

6

a motion for enhanced damages, attorneys’ fees, and prejudgment interest. Doc. No. 336.

7

Defendants filed an opposition to the motion on June 5, 2018. Doc. No. 337.

8

LEGAL STANDARD

9

Pursuant to section 284 of the 1952 Patent Act, “[u]pon finding for the claimant the

10

court shall award the claimant damages adequate to compensate for the infringement, but

11

in no event less than a reasonable royalty for the use made of the invention by the

12

infringer.” 35 U.S.C. § 284. “Damages is the amount of loss to a patentee…A patentee

13

may seek to recover actual damages, usually, the amount of profits actually lost, or if unable

14

to prove actual damages, the patentee is entitled to a reasonable royalty.” SmithKline

15

Diagnostics, Inc. v. Helena Laboratories Corp., 926 F.2d 1161, 1164 (Fed. Cir. 1991)

16

(internal citations omitted). Damages “may be split between lost profits as actual damages

17

to the extent they are proven and a reasonable royalty for the remainder.” State Industries,

18

Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1577 (Fed. Cir. 1989). “[T]he amount of

19

a prevailing party’s damages is a finding of fact on which the plaintiff bears the burden of

20

proof by a preponderance of the evidence.” Id.

21
22

DISCUSSION
A. ENHANCED DAMAGES

23

The decision to award enhanced damages is committed to the sole discretion of the

24

trial judge. Goodwall Const. Co. v. Beers Const. Co., 991 F.2d 751, 758 (Fed. Cir. 1993).

25

Under section 284 of the 1952 Patent Act, upon a finding of willfulness “the Court may

26

increase the damages up to three times the amount found or assessed.” 35 U.S.C. § 284.

27

Plaintiff argues that Defendants failed to investigate the scope of Plaintiff’s ‘776

28

patent. Doc. No. 336-1 at pg. 3. Specifically, Plaintiff contends that despite being twice
2
11cv0638-JAH (KSC)

1

sued by Defendant for infringement, Defendants did not form a good faith non-

2

infringement belief. Id. Plaintiff also argues that Defendants “needlessly increased

3

litigation costs in every phase of [the] trial.”

4

Defendants’ motivation to harm, failure to perform remedial action, and the extended

5

duration and subsequent concealment of misconduct all favor enhanced damages. Id. at

6

pgs. 8-10.

7

Defendants “lost on all of its defenses,” and that Defendants’ financial status and size

8

indicate that Defendants can afford enhanced damages. Id. at pgs. 7-8.

Id. at pg. 4. Plaintiff contends that

Plaintiff also contends that enhanced damages are appropriate because

9

In response, Defendants assert that they did not deliberately copy Plaintiff’s ideas or

10

design. Doc. No. 337 at pgs. 3-4. Defendants contend that they investigated the scope of

11

Plaintiff’s patent, determined Plaintiff’s ‘776 patent was invalid, and proceeded in good

12

faith. Id. at pgs. 4-7. Defendants argue they acted appropriately throughout the course of

13

trial and performed adequate remedial actions by specifically seeking clarification from

14

Plaintiff’s counsel regarding possible infringement. Id. at pgs. 8-14. Defendants argue

15

that their lack of motivation for harm, relative short duration of misconduct, which they

16

did not attempt to conceal, and subsequent close litigation results all favor a finding against

17

enhanced damages. Id. at pgs. 12-15.

18

In patent cases, courts can award enhanced damages when there is willful

19

misconduct. Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923, 1933 (2016).

20

The Supreme Court has set forth the following standard for determining willfulness: “A

21

patent infringer’s subjective willfulness, whether intentional or knowing, may warrant

22

enhanced damages, without regard to whether his infringement was objectively reckless.”

23

Id.

24

infringement behavior.” Id. at 1932. Courts will award enhanced damages in “egregious

25

cases of misconduct beyond typical infringement.” Id. at 1934. “Egregious” culpable

26

behavior, although not required for an enhanced damages award, is another factor the Court

27

will consider. Id. at 1932. Culpability is measured according to “the knowledge of the

28

actor at the time of the challenged conduct.” Id. It is undisputed that Defendants knew

Another purpose for awarding enhanced damages is to discourage “egregious

3
11cv0638-JAH (KSC)

1

about the ‘776 patent.

2

It is also undisputed that Defendants committed willful

infringement.

3

Defendants were Plaintiff’s largest distributor of Plaintiff’s Quick Fix formulation

4

and ‘776 patent products. Defendants knew Plaintiff held the ‘776 patent from the time it

5

issued in March of 2007, and knew that Plaintiff’s Quick Fix was created a few months

6

before the ‘786 patent was filed. Doc. 312 at pg. 31; Doc. No. 318 at pg. 24. Defendants

7

profited handsomely as a result of the business relationship with Plaintiff. Doc. No. 313 at

8

pg. 185.

9

Armed with this knowledge, Defendants developed its infringing product, Agent X.

10

In developing its product, Defendants did not investigate the ‘776 patent to obtain a good

11

faith belief that Agent X was not infringing. Defendants did not obtain a legal opinion to

12

determine whether its product infringed (Doc. No. 320 at pgs. 160-63) and did not perform

13

independent chemical testing of Agent X to determine whether it included one of the

14

infringing biocides. Doc. No. 318 at pgs. 29-32. Defendants never obtained the formula

15

from its supplier, never informed its supplier about the existence of ‘776, and the supplier

16

did not test its own formula to determine whether it included one of the infringing biocides.

17

Doc. No. 318 at pgs. 29-32, 59-60. Notwithstanding, Defendants began selling Agent X,

18

alongside Quick Fix and ‘776 products, directly competing against Plaintiff’s products.

19

Doc. No. 320 at pg. 179.

20

After receiving cease and desist warnings from Plaintiff, Defendants sold its

21

infringing product for four years and, during that time, did not pursue a non-infringing

22

alternative. Defendants proceeded to file the first of two infringement-related lawsuits

23

against Plaintiff. The first case was dismissed without prejudice. Thereafter, Defendants

24

filed its second action on March 29, 2011 asserting non-infringement. Defendants then

25

sold off their existing Agent X product and failed to maintain any samples of the old Agent

26

X. See Doc. No. 318 at pgs. 38-41. Defendants also secretly changed suppliers and

27

formulas in 2011 without advising Plaintiff or the Court, and demonstrated willfulness in

28

infringing by covering up the infringing activity in its effort to deceive Plaintiff as to the
4
11cv0638-JAH (KSC)

1

nature of its infringing product. Defendants committed these acts in lieu of undertaking

2

any remedial action. These actions support motivation to harm, willful misconduct, and

3

evidence of guilt. The jury’s finding of willfulness was supported by the evidence.

4

For these reasons and other reasons stated below, the Court finds that Defendants’

5

willful infringement amounts to “egregious infringement behavior.” Id. at pg. 1932 (“The

6

sort of conduct warranting enhanced damages has been variously described in our cases as

7

willful, wanton, malicious, bad-faith, deliberate….”). Thus, the Court finds enhanced

8

damages appropriate. The Court further finds the willful infringement of Defendants

9

supports a damages award amounting to three times the amount assessed appropriate.

10

B. ATTORNEYS’ FEES

11

Plaintiff also argues that it is entitled to reasonable attorneys’ fees. Doc. No. 336-1

12

at pgs. 10-11. Plaintiff largely makes the same arguments for attorneys’ fees that it makes

13

for enhanced damages, contending that this case is ‘exceptional’ and thus qualifies for

14

attorneys’ fees. Id. (“An exceptional case is ‘simply one that stands out from others with

15

respect to the substantive strength of a party’s litigating position or the unreasonable

16

manner in which the case was litigated.”) (quoting Octane Fitness, LLC v. ICON Health &

17

Fitness, Inc., 134 S.Ct. 1749, 1756 (2014)). Defendants contend that this case is not

18

‘exceptional’ and Plaintiff should not be awarded attorneys’ fees in that Defendants’

19

conduct was not egregious and they litigated in good faith. Doc. No. 337 at pgs. 15-17.

20

Defendants also contend that they did not purposefully cause any of Plaintiff’s enhanced

21

litigation costs and are currently unable to pay legal fees. Id. at pg. 11.

22

Willful infringement by Defendants may support a finding that this case is

23

“exceptional” within the meaning of 35 U.S.C. § 285. See Leviton Mfg. Co., Inc. v.

24

Universal Sec. Instruments, Inc., 606 F.3d 1353, 1357 (Fed. Cir. 2010) (“The prevailing

25

party may prove the existence of an exceptional case by demonstrating litigation

26

misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or

27

willful infringement.”) (citing Epcon Gas Sys., Inc. v. Bauer Compressors, Inc., 279 F.3d

28

1022, 1034 (Fed. Cir. 2002)). Once a Court finds a case exceptional, it has discretion to
5
11cv0638-JAH (KSC)

1

award attorney’s fees. See Aspex Eyewear Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305,

2

1314 (Fed. Cir. 2010); 35 U.S.C. § 285.

3

In this case, the record is replete with many pretrial disputes between the parties

4

involving Defendants’ discovery avoidance tactics and charging decisions, increasing

5

litigation costs. Defendants postponed the litigation by refusing to identify its supplier, a

6

tactic permitting the supplier to sell off its remaining supply of Agent X. Defendants’

7

behind the scene sell-off was not known to Plaintiff or the Court. Plaintiff did not learn

8

that the supply was sold off until after the Court granted Plaintiff’s motion to compel.

9

Thereafter, issues relating to Defendants’ noticing of experts increased litigation and

10

were concerning to the Court. Defendants noticed an expert, knowing that expert was

11

previously contacted and engaged by Plaintiff, and later failed to timely notice another

12

expert. Defendants explained away the lack of timely designation of its expert with

13

inconsistent excuses, ranging from staff issues and inconsistent pre-trial orders to

14

ultimately designating the particular expert as a rebuttal expert. See, e.g. Doc. No. 166 at

15

pgs. 2-6. There were also conflicting assertions related to timing of service of contentions

16

which Plaintiff asserted were not received, thereby causing Plaintiff and the Court to

17

expend significant resources to obtain a handle on these moving goal posts. See Doc. No.

18

336-1. Plaintiff moved for sanctions against Defendants in November 2011. Doc. No. 23.

19

However, the Court denied Plaintiff’s motion for sanctions (Doc. No. 51) essentially

20

relying on the representations of Plaintiff. At one point, the magistrate judge ordered

21

Defendants’ counsel to show cause why sanctions should not be imposed for violating

22

Chambers Rules. Doc. No. 99.

23

While the Court initially ruled in Defendants’ favor on some of these matters,

24

Defendants’ discovery abuses and pre-trial strategy ultimately caused this Court to re-focus

25

on the underpinnings of the disputes. Defendants’ litany of excuses for non-production of

26

documents and its pretrial strategies resulted in this Court’s findings resolving on-going

27

discovery disputes in favor of Plaintiff , (See Doc. No. 110, at 7- 19 and Doc. No. 189,

28

which are by this reference adopted and incorporated herein). Thus, it became clear later
6
11cv0638-JAH (KSC)

1

in the litigation that Defendants’ tactics represented a pattern of gamesmanship to obtain

2

an unfair advantage in the litigation.

3

Another example of pretrial misconduct occurred prior to a scheduled settlement

4

conference. Plaintiff requested Defendants to stipulate to a telephonic settlement

5

conference because its principals were out of district and the parties settlement discussions

6

were acres apart. Defendants refused, representing to the magistrate judge that the parties

7

were close to arriving at a settlement. On the day of the settlement conference with

8

Plaintiff’s principals present, Defendant Matthew Greens did not appear, preluding any

9

meaningful settlement discussions. This tactic created enhanced legal and travel costs to

10

Plaintiff.

11

Defendants filed five motions for summary judgment. The Court denied all but the

12

infringement motion. The motions denied were brought without any reasonable merit. The

13

Court agrees with Plaintiff that these motions stretched Plaintiff’s legal resources and

14

increased its cost of litigation. In addition, the Court denied Defendants’ motions for

15

sanctions, one of which concerned the alleged spoliation of an Agent X sample by

16

Plaintiff’s expert witness, even though Defendants sold off its own product and disregarded

17

their responsibility to test and maintain samples to prove its case.

18

At trial, Defendants made a number of attempts to introduce evidence excluded in

19

pre-trial proceedings and other inadmissible evidence, creating extended side bars,

20

extending the number of trial days set aside for the trial, and impeding upon the time frame

21

in which Plaintiff had to complete its case in chief, all to the detriment of Plaintiff. In

22

addition, the evidence at trial demonstrated Defendants were and continued to be

23

financially rewarded by its infringing conduct. Up to the day of trial, Defendants continued

24

to sell Agent X and Plaintiff’s product, producing substantial revenue. The evidence

25

established that Defendants’ earned millions of dollars earned in revenue per year. Their

26

profit from the sale of Agent X represented 71% of total profit, and Defendants’ profit from

27

the sale of Plaintiff’s product represented only 18% of total profit (Doc. No. 320 at pgs.

28
7
11cv0638-JAH (KSC)

1

145, 182-83), further demonstrating the detrimental impact of Defendants’ infringement

2

on Plaintiff’s bottom line.

3

The Court agrees with Plaintiff that this case is exceptional. In addition, the

4

overwhelming strength of Spectrum’s evidence presented at trial illuminated the

5

underlying hidden purpose of Defendants’ pretrial reasons for their litigation tactics that

6

unreasonably and unfairly extended Plaintiff’s litigation resources.

7
8
9

For these reasons, the Court finds attorneys’ fees under 35 U.S.C. § 285 are
warranted.
C. Prejudgment Interest

10

Plaintiff argues that, as the victorious patentee, it is entitled to a prejudgment interest

11

award of $326,728. Doc. No. 336-1 at pgs. 11-12. Plaintiff asserts that $326,728, the

12

prejudgment interest amount from 2007 through May 22, 2018, is based on prime interest

13

rates reported by JPMorgan Chase. Id. at pg. 12.

14

In response, Defendants argue that Plaintiff contributed to the delay in litigation by

15

not responding to Defendants’ counterclaim and other letters. Doc. No. 337 at pg. 18.

16

Defendants contend that Plaintiff’s failure to respond caused a two year delay in the

17

litigation. Id.

18

The Court may award prejudgment interest when it “is necessary to ensure that the

19

patent owner is placed in as good a position as it would have been had the infringer entered

20

into a reasonable royalty agreement.” General Motors Corp. v. Devex Corp., 461 U.S. 648,

21

655 (1983). Moreover, the Court will award prejudgment interest to the patentee unless

22

there is independent justification that justifies withholding the award. Id. at 657 (“For

23

example, it may be appropriate to limit prejudgment interest, or perhaps even deny it

24

altogether, where the patent owner has been responsible for undue delay in prosecuting the

25

lawsuit.”). Here, the Court does not find any independent justification for withholding

26

prejudgment interest. The Court finds that given the duration of litigation and the nature

27

of Defendants’ litigation tactic as described herein, prejudgment interest is necessary to put

28
8
11cv0638-JAH (KSC)

1

Plaintiff in as good a position as it would have been had Defendant agreed to a reasonable

2

royalty arrangement. See General Motors Corp., 461 U.S. at 655.

3
4
5
6
7
8
9
10
11
12
13
14
15
16

CONCLUSION
Based on the foregoing reasons, Plaintiff’s motion for enhanced damages, attorneys’
fees, and prejudgment interest is GRANTED. IT IS HEREBY ORDERED THAT:
(1) Plaintiff’s request for enhanced damages in the amount of $2,595,519 is
GRANTED;
(2) Plaintiff’s request for attorneys’ fees under 35 U.S.C. § 285 is GRANTED;
and
(3) Plaintiff’s request for prejudgment interest in the amount of $326,728 is
GRANTED.
IT IS SO ORDERED.
DATED: March 22, 2019
_________________________________
JOHN A. HOUSTON
United States District Judge

17
18
19
20
21
22
23
24
25
26
27
28
9
11cv0638-JAH (KSC)