Sinox Company Ltd. v. WordLock, Inc.

Filing 56

ORDER DENYING Defendant's Motion to Declare Case Exceptional and for an Award of Attorneys' Fees and Costs 44 . SO ORDERED BY Judge Christine M. Arguello on 03/31/2016. (cmalc1)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 1:14-cv-02797-CMA-KLM
SINOX COMPANY LTD., a Taiwan corporation,
Plaintiff,
v.
WORDLOCK, INC., a California corporation,
Defendant.
ORDER DENYING DEFENDANT’S MOTION TO DECLARE CASE EXCEPTIONAL
AND FOR AN AWARD OF ATTORNEYS’ FEES AND COSTS (DOC. # 44)
This matter is before the Court on Defendant WordLock, Inc.’s (“WordLock”)
Motion to Declare Case Exceptional and for an Award of Attorneys’ Fees and Costs and
Statement of Compliance with Civil Rule 7.1. (Doc. # 44.) Plaintiff Sinox Company Ltd.
(“Sinox”) filed a response opposing the motion (Doc. # 50), and WordLock filed a reply
(Doc. # 54). For the reasons set forth below, the Court denies WordLock’s motion.
I. BACKGROUND
On October 10, 2014, Sinox filed this case alleging patent infringement by
WordLock. (Doc. # 1.) Sinox is a Taiwanese corporation with its principal place of
business in Taiwan, and it is engaged in the design and manufacture of locks, including
travel and luggage locks. (Doc. # 1 at ¶ 2.) WordLock is a California corporation also
engaged in the key lock market. (Doc. # 44 at 3.) The patent originally at dispute in this
action was U.S. Patent 7,174,756 (“the ‘756 patent”), owned by Sinox. (Doc. # 1 at ¶ 8.)
The ‘756 Patent concerns a class of luggage locks that have two separate opening

mechanisms, a combination lock that can be used by the owner and a key lock that can
be used by the Transportation Security Administration to open checked luggage for
screening. (Doc. # 1 at ¶¶ 8-10.)
On January 20, 2015, shortly after this action was brought, the parties filed a
Notice of Resolution indicating that a resolution of Sinox’s claims had been reached and
that a stipulation of dismissal would soon be filed. (Doc. # 23.) However, no settlement
was reached, and Sinox filed a motion requesting that the Court dismiss its claims
against WordLock with prejudice and also dismiss WordLock’s counterclaims. (Doc. #
27.) WordLock opposed the motion in part and requested that the Court declare the
case exceptional pursuant to 35 U.S.C. § 285 and award it attorney fees and costs.
(Doc. # 33.) On April 29, 2015, the Court issued an order granting Sinox’s motion to
dismiss and denying WordLock’s request to declare the case exceptional on the basis
that such request was not made by motion. (Doc. # 41.)
Subsequently, after the matter was dismissed, WordLock filed the present motion
requesting that the Court declare the case exceptional and award it attorney fees and
costs. (Doc. # 44.) WordLock argues that Sinox knew or should have known that its
claims were frivolous and that it was grossly negligent in bringing the action against
WordLock. (Doc. # 44 at 11-13.) WordLock premises this argument on a Supplemental
Information Disclosure Statement (“IDS”) filed by Sinox with the United States Patent
Office on May 1, 2008. (Doc. # 44 at 11-13); see also Supplemental Information
Disclosure Statement (Doc. # 33-2). WordLock contends that, in the course of
preparing to defend this litigation against Sinox, it became aware that Sinox had filed
the IDS in conjunction with applications for two continuation patents within the ‘756

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Patent family directed to the same invention as the ‘756 Patent. 1 (Doc. # 44 at 5.) This
IDS, which was submitted after the ‘756 Patent had been granted, discloses as prior art
a Chinese patent application with an accompanying translation prepared by Sinox.
(Doc. # 33-2.) The IDS submitted to the Patent Office notes that the prior art is
“material to patentability of [Sinox’s] invention.” (Doc. # 33-2 at 2.) Subsequently, the
Patent Office rejected all claims in the continuation applications as anticipated by the
Chinese prior art, except for one claim in the ‘404 Application. (Doc. # 33-8.) The ‘756
Patent, however, has not been invalidated.
WordLock contends that, despite being aware that Sinox’s ‘756 Patent was likely
anticipated by prior art, Sinox nonetheless brought this action against WordLock and
only sought to dismiss its own claims after WordLock’s counsel learned of the IDS.
(Doc. # 44 at 7-8.) WordLock argues that, because the continuation applications were
directed to the same invention as the ‘756 Patent and were both rejected on the basis of
the Chinese prior art, that Sinox was undoubtedly aware that it could not enforce its
patent against WordLock. (Doc. # 44 at 7-8.)
Sinox concedes that its counsel “knew about a Chinese published patent
application in February 2010” but claims that, when its counsel conducted a pre-filing
investigation in October 2014 prior to filing this suit, neither he nor Sinox
“remember[ed]” the Chinese prior art. (Doc. # 50 at 1-2.) Sinox states that once its

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“A continuation is a second application for the same invention claimed in a prior
nonprovisional application and filed before the original prior application becomes
abandoned or patented. . . . The disclosure presented in the continuation must be the
same as that of the original application.” Manual of Patent Examining Procedure
201.07. The continuation applications at issue here specifically involved child
application U.S.S.N. 11/671,404 (“404 Application”) and grandchild application U.S.S.N.
11/688,190 (“190 Application). (Doc. # 33-13.)
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counsel were made aware of the Chinese prior art by WordLock’s counsel, Sinox
moved to voluntarily dismiss the case, indicating that it acted in good faith at all times
during the course of the litigation. (Doc. # 50 at 1-2.) Sinox notes that because the IDS
is not part of the ‘756 Patent file history, its counsel’s pre-filing investigation did not
reveal the Chinese prior art. (Doc. # 50 at 3-4.) In support, Sinox provides declarations
of its corporate representative and from its counsel stating that they did not remember
the Chinese prior art. See Ling Declaration (Doc. # 35) and Blakely Declaration (Doc. #
36).
II. LEGAL STANDARD
Section 285 of the Patent Act provides that a court “in exceptional cases may
award reasonable attorney fees in patent litigation” to the prevailing party. 35 U.S.C. §
285. The Federal Circuit Court of Appeals and other district courts have found that the
defendant is the prevailing party when the plaintiff voluntarily dismisses its claims.
Highway Equip. Co. Inc. v. FECO, Ltd., 469 F.3d 1027, 1035 (Fed. Cir. 2006); Realtek
Semiconductor Corp. v. Marvell Semiconductor, Inc., 2005 WL 3634617, at *3 (N.D.
Cal. 2005); Samsung Elec. Co. v. Rambus Inc., 440 F. Supp. 495, 511 (E.D. Va. 2006).
In Octane Fitness, LLC v. Icon Health & Fitness, Inc., the United States Supreme
Court recently defined the standards applicable to a motion for attorney fees under §
285. Octane Fitness, LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).
In Octane Fitness, the Court provided a broad definition of an “exceptional” case,
holding that
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.
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Octane Fitness, 134 S. Ct. at 1756. The Court explained further that fee-shifting is
warranted when “a party’s unreasonable conduct—while not necessarily independently
sanctionable—is nonetheless so ‘exceptional’ as to justify an award of fees.” Id. at
1757. Either subjective bad faith or objectively baseless claims alone may warrant feeshifting under § 285. Id. The Court noted a non-exclusive list of factors to consider
including “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.” Id. at 1756 n.6. The Court rejected
the application of a clear-and-convincing standard of proof to establish an exceptional
case. “[N]othing in § 285 justifies such a high standard of proof. Section 285 demands
a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such
a high one. Indeed, patent-infringement litigation has always been governed by a
preponderance of the evidence standard . . . .” Id. at 1758.
Subsequent to Octane Fitness, the Federal Circuit has employed a two-pronged
analysis that considers (1) the substantive strength of a party’s litigation position, and
(2) whether a party litigated a case in an unreasonable manner. For example, in SFA
Systems, LLC v. Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015), the Federal Circuit
noted that “[a] party’s position on issues of law ultimately need not be correct for them to
not ‘stand[ ] out,’ or be found reasonable.”
III. ANALYSIS
WordLock argues that the fact that Sinox knew or should have known about the
Chinese prior art, which was admittedly material to the patentability of Sinox’s invention,
supports the conclusion that Sinox and its counsel were grossly negligent. (Doc. # 44 at

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13.) WordLock also argues that such negligence confirms that this case stands out
from others with respect to the substantive strength of a plaintiff’s litigating position.
The Court finds that this case is not an exceptional case within the purview of
Section 285. Here, as both parties concede, there is potentially case-dispositive prior
art in the prosecution histories of two separate patent applications: the ‘404 Application
and the ‘190 Application. (Doc. # 44 at 5; Doc. # 50 at 4-5.) However, even where
litigation is brought “in spite of case-dispositive specifications or prosecution histories,”
courts have typically only allowed fees where “the plaintiff asserted its claim in bad
faith”; “proposed a frivolous claim construction”; “ignored the entirety of the specification
and prosecution history”; and “derived no support from the intrinsic record.” Vasudevan
Software, Inc. v. Microstrategy, Inc., 11-cv-06637, 2015 WL 4940635, at *4 (N.D. Cal.
Aug. 19, 2015); see also Canvs Corp. v. Nivisys, LLC, 14-cv-00099, 2016 WL 659155,
at *2 (M.D. Fla. Feb. 18, 2016).
Not only is there no argument here showing that Sinox brought this litigation “in
bad faith” or “ignored the entirety of the . . . prosecution history,” but the issue in this
case is fundamentally different from cases where the litigation is brought “in spite of
case-dispositive . . . prosecution histories” because the prior art that purportedly
undermines the merits of Sinox’s substantive position is contained in separate patent
applications. Id. WordLock, however, essentially bases its argument on the fact that
Sinox’s counsel should have known about the prior art and was “grossly negligent” in
filing the action against WordLock. (Doc. # 44 at 13-14.) However, the record before
the Court, at best, supports only the conclusion that mere negligence was involved in
filing the action against WordLock.

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This case is analogous to Computer Software Prot., LLC v. Adobe Sys. Inc., 12cv-00451, 2015 WL 1517402, at *2 (D. Del. Mar. 31, 2015), aff'd, 2016 WL 945248
(Fed. Cir. Mar. 14, 2016), where the defendants argued that the cases were exceptional
because they would have prevailed on their various defenses if the cases had not been
dismissed. The court there noted, however, that none of the defenses posited by the
defendants were so evident from the record that the court could “say with any certainty
that defendants not only would have succeeded on the merits, but that the strength of
their arguments would have been exceptionally dispositive.” Id. at *4-5. Similarly, there
has been no determination here that the Chinese prior art invalidates Sinox’s ‘756
Patent, and the Court is not prepared to find that, based on disclosures filed in separate
patent applications, not only would WordLock have succeeded on the merits but that the
“strength of [its] argument would have been exceptionally dispositive.” Id.
Accordingly, the Court finds that this case is not sufficiently exceptional to
warrant an award of attorney fees under Section 285.
IV. CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that WordLock’s Motion to Declare Case Exceptional and for an
Award of Attorneys’ Fees and Costs and Statement of Compliance with Civil Rule 7.1
(Doc. # 44) is DENIED.

DATED: March 31, 2016

BY THE COURT:

CHRISTINE M. ARGUELLO
United States District Judge
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