Kellogg v. Nike et al

Filing 382

ORDER denying 363 Motion for sanctions; granting 366 Motion for fees and costs; Plaintiff is awarded attorneys fees under 35 U.S.C. § 285 in the amount of $355,354.00; Plaintiff is awarded costs in the amount of $23,932.00; Plainti ff is awarded $32,401.00 in attorneys fees for the preparation of the application for fees; granting 372 Motion to deem certain filings restricted; A judgment for attorneys fees and costs in conformity this memorandum opinion will be issued this date. Ordered by Chief Judge Joseph F. Bataillon. (ADB, ) Modified on 1/21/2010 to add award for preparation of the application for fees (ADB, ).

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEBRASKA GERALD A. KELLOGG, an Individual, Plaintiff, v. NIKE, INC., an Oregon Corporation, and NIKE USA, INC., an Oregon Corporation, Defendants. ) ) ) ) ) ) ) ) ) ) ) )

8:07CV70

MEMORANDUM OPINION AND ORDER

This matter is before the court on the plaintiff Gerald A. Kellogg's motion for sanctions, Filing No. 363, motion for fees and costs, Filing No. 366, and motion to deem certain filings restricted, Filing No. 372. The motion to deem certain filings restricted will be granted.1 In an earlier order, Kellogg was awarded fees and costs in connection with defending against the counterclaim filed by defendants Nike, Inc. and Nike USA, Inc. (collectively, "Nike"). See Filing No. 360, Memorandum and Order ("Mem. & O.") at 23. The court found that Nike's litigation conduct warranted a finding that the case was exceptional under 35 U.S.C. § 285 and also ruled that Kellogg was a prevailing party with respect to the invalidity counterclaim. Id. at 22-23. Kellogg seeks recovery of $993,966.16 in fees and $71,796.43 in costs incurred in connection with, and reasonably related to, defending Nike's counterclaim of invalidity. Filing No. 369, Index of Evidence (Evid.),

At counsel's request, the Clerk of Court provisionally restricted access to the docum e n t s . See Filing N o . 370, docket entry by clerk. 1

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Exhibit (Ex.) 1, Declaration of Mark J. Peterson ("Petersen Decl.") at 8 (369-2);2 Ex. M, Summary of Totals (369-6); Filing No. 370, Index Of Evid. (continued), Ex. 2, Decl. of G. Thomas Williams ("Williams Decl.") at 8 (370-2); Filing No. 375, Ex. A, Kellogg Reply Brief at 1,13 (revised calculation) (375-2).3 Kellogg also seeks $32,401.00 for attorneys' fees in connection with preparation of the application for fees. Filing No. 369, Index of Evid., Ex. 1, Petersen Decl. at 10 (369-2), Ex. N, Time and Fee Summary (369-6); Filing No. 370, Index of Evid., Ex. 3, Supplemental Declaration of G. Thomas Williams (370-4) at 1. Kellogg seeks to recoup the fees he contends are directly related to defending against the invalidity counterclaim, as well as some fees that it incurred in the prosecution of its infringement claim that he contends are inextricably intertwined with and reasonably related to the invalidity issue. Filing No. 369, Index of Evid., Ex. 1, Petersen Decl. (369-2) at 6-8; Filing No. 370, Index of Evid. (Cont.), Ex. 2, Williams Decl. (370-2) at 5-6. Kellogg has identified those fees that are directly related, reasonably related, and unrelated to the defense of the counterclaim. See Filing No. 369, Ex. 1, Petersen Decl., Exs. A-E, G-M (369-3 - 369-6); Filing No. 370, Index of Evid. (Cont.), Ex. 2, Williams Decl. at 6, Exs. A & B (370-2).

The references in parentheses are citations to the court's Case Managem e n t/ Electronic Filing ( " C M /E C F " ) system and refer to the filing num b e r and docum e n t and part num b e r which appear in the c o m p u t e r - g e n e r a t e d header at the top of the docum e n t . Originally, Kellogg sought $1,000,227.58 in fees and $73,345.96 in costs based on a calculation of t h e total cost of the litigation of $1,463,355.03. See, e.g., Filing No. 369, Index of Evid., Petersen Decl., Ex. M (369-6). Since he filed his original application, Kellogg has conceded that certain sum s are not recoverable a n d corrected errors in his request. Filing No. 375, Ex. A, Kellogg Reply Brief at 1, 13 (375-2). The original r e q u e s te d award is roughly apportioned as $554,336.80 in fees and expenses for the law firm s of Koley J e s s e n and Stinson Morrison Hecker of Om a h a , Nebraska, and approxim a te ly $510,721.24 in fees and e x p e n s e s for the law firm of McGarry Bair, PC of Grand Rapids, Michigan. Filing No. 369, Index of Evid, Ex. 1 , Petersen Decl. at 8 (369-2); Filing No. 370, Index of Evid. (Cont.), Ex. 2, W illia m s Decl. at 6 (370- 2).
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Kellogg has submitted detailed time sheets showing the respective hours expended and hourly rates charged by his attorneys, ranging from $175 per hour to $335 per hour for attorneys and $100 to $140 per hour for paralegals. See Filing No. 369, Index of Evid., Ex. 1, Peterson Decl., Exs. A & C (369-2), & E (369-3); Filing No. 370, Index of Evid. (Cont.), Ex. 2, Williams Decl., Ex. A (370-2). Kellogg has also produced evidence of expenses and evidence of the skills and experience of each attorney. See Filing No. 369, Ex. 1, Peterson Decl., Ex. J (369-5 & 369-6); Filing No. 370, Williams Decl., Exs. B & C (370-2 & 370-3). In addition, Kellogg has presented affidavits showing that the hourly rates and hours expended on the litigation are reasonable in the Omaha, Nebraska, and Grand Rapids, Michigan, areas given the complexity of the litigation, the importance of the issues, the skill of the attorneys, and the quality of work. See Filing No. 370, Index of Evid. (Cont.), Ex. 4, Declaration of John Passarelli (370-5); Ex. 5, Declaration of Richard Gaffin (CM/ECF Doc. # 370-6). Kellogg further submits American Intellectual Property Law Association (AILPA) 2009 billing surveys on typical patent-attorney rates to support the reasonableness of the requested hourly rates. Filing No. 370, Index of Evid. (Cont.), Ex. 2, Williams Decl., Ex. D (370-3). Finally, Kellogg has shown that the total sum sought for fees would be regarded as a reasonable amount to spend on the defense of an invalidity counterclaim in the Grand Rapids, Michigan, and Omaha, Nebraska, areas. Filing No. 370, Index of Evid. (Cont.), Ex. 2, Williams Decl. at 8 (370-2). Nike does not challenge the reasonableness of the billing rates of Kellogg's counsel, the overall time expended in this case, or Kellogg's calculation of the total fees and costs expended in the litigation. See Filing No. 374, Nike's Brief at 14. Nike argues, however, that Kellogg's requested award of over 75% of the total fees incurred throughout the entire
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litigation is excessive in view of Kellogg's limited success. Id. at 19. It contends that a reasonable fee award to Kellogg would not exceed $149,000.00, plus fees reasonably incurred in connection with the fee application. Id. at 1. Nike's proposed fee award is predicated on three potential methods of calculation: first, Nike proposes that the

application of a lodestar methodology that adjusts for the degree of plaintiff's success would result in an award of $148,110.19; second, using a bottom-up methodology that captures only the fees that are directly related to the invalidity issue would result in an award of $153,045.27;4 and third, Nike proposes that an award of between $146,335 and $149,000 would be an appropriate calculation of fees and costs reasonably related to the invalidity counterclaim based on the opinion of Jeffrey D. Harty, an experienced patent litigator. Filing No. 374, Evid. Index (374-2), Exs. B-K, Charts of Related and Unrelated fees (374-15 - 374-24); Ex. L, Declaration of Jeffrey D. Harty ("Harty Decl.") at 8-10 (374-25). Harty states that he would normally expect to budget approximately 10% to 30% of the total fees and costs to defend a validity challenge.5 Id., Ex. L, Harty Decl. at 8 (374-25). Nike also argues that the costs directly related to the invalidity defense amount to only $6,616.58 and that a reasonable amount of fees incurred in connection with the fee application would be $34,498.00.6 See Filing No. 374, Brief at 27-30, 23 n.14 (374); Ex. K,

Recovery under this m e th o d is lim ite d to tim e entries that specifically refer to invalidity, any entries th a t relate to Nike's invalidity expert, Mr. Boquist, and to the Daubert m o t io n directed to Mr. Boquist. Mr. Harty advocates the low end of this range because Kellogg did not retain an expert on invalidity a n d Nike withdrew its counterclaim prior to trial. Filing No. 374, Evid. Index, Ex. L, Harty Decl. at 8 (374-25).
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N ik e argues that only the following expenses are reasonably related to invalidity: $440.01 for airfare to the Boquist deposition in Spokane, W a s h in g to n ; $234.16 for Churchill's Steakhouse in Spokane; $70.87 f o r [illegible] Bistro on 7/14/08; $8.95 for W i Fi access in Spokane; $675.34 for the hotel in Spokane; $53 for a m e e tin g room for the Boquist deposition; $280.25 for a rental car in Spokane; $13.52 for binders; $168.94 K in k o 's charge for "Boquist Report"; $3,042.79 for court reporter charges for the Boquist deposition; and 4

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Chart - Fees Unrelated to Preparation and Filing of Application for Costs and Fees (37424). In his motion for sanctions, Kellogg argues that Nike's egregious litigation misconduct warrants the sanction of a monetary award to Kellogg that would be the financial equivalent of a default judgment against Nike. He seeks an award of up to $8,300,000.00 as a sanction under the authority of Fed. R. Civ. P. 16 and 37, 28 U.S.C. § 1927, and the court's inherent power. Filing No. 364, Kellogg's Brief. Nike argues that sanctions in addition to those awarded under 35 U.S.C. § 285 are neither authorized nor appropriate. I. Discussion A. Law The methodology of assessing a reasonable award under 35 U.S.C. § 285 is vested in the discretion of the district court. Takeda Chem. Indus., Ltd. v. Mylan Laboratories, Inc., 549 F.3d 1381, 1390 (Fed. Cir. 2008) (affirming an award of $16,000,000 in fees in a misconduct case). The determination will be affirmed unless "the district court's decision is `clearly unreasonable, arbitrary or fanciful, or based on an erroneous conclusion of law or fact.'" Id. (quoting Yamanouchi Pharmaceutical Co., Ltd. v. Danbury Pharmacal, Inc., 231 F.3d 1339, 1346 (Fed. Cir. 2000)). Courts recognize "many varieties of misconduct that make a case exceptional for a fee award," including willful infringement, inequitable conduct before the Patent and Trademark Office, offensive litigation tactics, vexatious or unjustified litigation, or frivolous filings. Yamanouchi, 231 F.3d at 1346-47. The district

$1,628.75 for the videographer. Filing No. 374, Ex. K, Chart - Fees Unrelated to Preparation and Filing of A p p lic a t io n for Costs and Fees (374-24). 5

court is "in the best position to know how severely [a party's] misconduct has affected the litigation." Takeda, 549 F.3d at 1390-91 (quoting Beckman Instruments, Inc., v. LKB Produkter AB, 892 F.2d 1547, 1553 (Fed. Cir. 1989)); Mathis v. Spears, 857 F.2d 749, 754 (Fed. Cir. 1988) (stating that "[t]he district court's inherent equitable power and informed discretion remain available in determining the level of exceptionality rising out of the offender's particular conduct, and in then determining, in light of that conduct, the compensatory quantum of the award, including the amount of attorney fees, what if any expenses shall be included, and the rate of prejudgment interest, if any, on the award"). The awarding of attorney fees pursuant to 35 U.S.C. § 285 is an issue unique to patent law and is therefore determined under the law of the Federal Circuit. See Special Devices, Inc. v. OEA, Inc., 269 F.3d 1340, 1343 (Fed. Cir. 2001).
T h e calculation of a reasonable attorney fee may begin with the lodestar figure and re lie s upon the district court's exercise of discretion to increase or decrease that figure in lig h t of other factors. See View Eng'g, Inc. v. Robotic Vision Sys., Inc., 208 F.3d 981, 988 (F e d. Cir. 2000) (upholding district court's reduction of lodestar after consideration of relevant fa c to rs to reach final sanction award). The "lodestar" is determined by multiplying the n u m b e r of hours reasonably expended by reasonable hourly rates. Hensley v. Eckerhart, 4 6 1 U.S. 424, 433 (1983); Water Technologies Corp. v. Calco, Ltd., 850 F.2d 660, 674 (Fed. C ir. 1988) (involving a patent case). The purpose of 35 U.S.C. § 285 is to compensate the prevailing party for its monetary o u tla ys in the prosecution or defense of the suit and those fees include the "sums that the p re v a ilin g party incurs in the preparation for and performance of legal services related to the s u it." Junker v. Eddings, 396 F.2d at 1365 (quoting Central Soya Co. v. George A. Hormel
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& Co., 723 F.2d 1573, 1578 (Fed. Cir. 1983)). Although the amount the client paid the a tto rn e y is one factor for the court to consider in determining a reasonable fee, it does not e s ta b lis h an absolute ceiling--the determination of a reasonable attorney fee requires the c o u rt to consider all the relevant circumstances in a particular case. Id. The evidence u s u a lly analyzed in determining a reasonable attorney fee includes hourly time records, full e x p e n s e statements, documentation of attorney hourly billing rates in the community for the p a rtic u la r type of work involved, the attorney's particular skills and experience, and detailed b illin g records or client's actual bills showing tasks performed in connection with the litigation. Id . at 1366. The court should also take into account the amount of the recovery and the results o b ta in e d by the lawsuit. See Slimfold Mfg., Inc. v. Kinkead Indus., Inc., 932 F.2d 1453, 14596 0 (Fed. Cir. 1991). Consideration may also be given to the experience, reputation and a b ility of the attorneys as well as to the difficulty of the issues presented and the amount at s ta k e in the litigation. Hensley v. Eckerhart, 461 U.S. 424, 429-30 n. 3 (1983) (referring to th e twelve factors listed in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5 th Cir.1974)).7 T o aid a court's calculation of the lodestar, the prevailing party must provide c o n te m p o ra n e o u s time records, affidavits, and other materials to support its application for th e amount of reasonable hours expended. PPG Indus., Inc. v. Celanese Polymer

S p e c ia ltie s Co., 840 F.2d 1565, 1570 (Fed. Cir. 1988) ("insufficient documentation may

The Johnson factors are: (1) the tim e and labor required; (2) the novelty and difficulty of the q u e s tio n s ; (3) the skill requisite to perform the legal service properly; (4) the preclusion of em p lo ym e n t by the a tto r n e y due to acceptance of the case; (5) the custom a r y fee; (6) whether the fee is fixed or contingent; (7) tim e lim ita tio n s im p o s e d by the client or the circum s ta n c e s ; (8) the am o u n t involved and the results obtained; ( 9 ) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature a n d length of the professional relationship with the client; and (12) awards in sim ila r cases. Johnson, 488 F.2d a t 717-19. 7

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w a rr a n t a reduction in the fees"). A reasonable hourly rate for attorney fees is a rate that is "in line with those [rates] prevailing in the community for similar services by lawyers of r e a s o n a b ly comparable skill, experience and reputation." Blum v. Stenson, 465 U.S. 886, 8 9 6 & n. 11 (1984). The community that a district court should consider to determine the lo d e s t a r figure is normally the district in which the court sits." See id. In determining a re a so n a b le rate, a court may refer to American Intellectual Property Law Association (" A IP L A ") surveys. See Mathis v. Spears, 857 F.2d at 755 (Fed. Cir. 1988). W ith respect to the award of costs, the law of the regional circuit applies. Manildra M illin g Corp. v. Ogilvie Mills, Inc., 76 F.3d 1178, 1184 (Fed. Cir. 1996) ("The decision of w h e th e r to award costs to a prevailing party implicates considerations not unique to the p a te n t law, such as the litigants' behavior at trial. "). Taxation of costs in favor of a prevailing p a rty is authorized by 28 U.S.C. § 1920 and governed by Federal Rule of Civil Procedure 5 4 (d ). Craftsmen Limousine, Inc. v. Ford Motor Co., 579 F.3d 894, 896 (8th Cir. 2009). A p re v a ilin g party is presumptively entitled to recover all of its costs. Id. at 897. Section 1920 of Title 28 enumerates the expenses that a federal court may award as c o s ts under its Rule 54(d)(1) discretionary authority. 28 U.S.C. § 1920; Crawford Fitting Co. v . J.T. Gibbons, Inc., 482 U.S. 437, 441-42 (1987). Section 1920(2) authorizes the award o f costs for fees for transcripts "necessarily obtained for use in the case." 28 U.S.C. § 1 9 2 0 (2 ). Courts possess inherent powers to sanction litigation misconduct. Chambers v. N A S C O , Inc., 501 U.S. 32, 43-45 (1991). A court may use its inherent power to "assess a tto r n e y's fees when a party has `acted in bad faith, vexatiously, wantonly, or for oppressive r e a s o n s .'" Id. at 45 (quoting Alaska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240,

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2 5 8 -2 5 9 (1975)).

However, "inherent powers must be exercised with restraint and

d is c r e tio n ." Id. at 44. Not every case qualifying as exceptional under 35 U.S.C. § 285 will qualify for s a n c tio n s under the court's inherent power. Amsted Indus. Inc. v. Buckeye Steel Castings C o ., 23 F.3d 374, 378 (Fed. Cir. 1994). To the contrary, a district court may resort to its in h e re n t power to impose sanctions only in those highly unusual cases in which the pertinent s ta tu to ry remedies are plainly inadequate to address the misconduct at issue. Id. at 379 (s ta tin g that courts "should only resort to further sanctions when misconduct remains u n re m e d ie d by those initial tools."). Routine use of inherent authority to impose sanctions in addition to those authorized by applicable statutes risks contravening Congress's ju d g m e n t as to what sanctions are appropriate for particular misconduct. Id. B. Analysis T h e court finds that an award of attorneys' fees in the amount of $355,354.00 is re a so n a b le in this case. Nike's continued assertion of its counterclaim undoubtedly required K e llo g g to undergo considerable discovery and expense. Until the morning the trial began, th e parties had operated under the assumption that the test for infringement included the "p o in t of novelty" test. See Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 670 (Fed. C ir. 2008) (en banc) (noting that a line of cases beginning with Litton Sys., Inc. v. Whirlpool C o rp ., 728 F.2d 1423 (Fed. Cir.1984), required a design patent holder to show not only proof o f similarity, but that the accused device "appropriate[s] the novelty in the patented device th a t distinguishes it from prior art."). In Egyptian Goddess, the Federal Circuit abrogated the p o in t-o f -n o v e lty test in favor of the "ordinary observer test with reference to prior art designs" te s t, in which the ordinary observer compares the claimed and accused designs in light of th e prior art. Id. at 678-79 (noting that "the ordinary observer test does not present the risk

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o f assigning exaggerated importance to small differences between the claimed and accused d e sig n s relating to an insignificant feature simply because that feature can be characterized a s a point of novelty"). Before the point-of-novelty test was abandoned, issues of

in frin g e m e n t were more closely intertwined with issues of invalidity of a design as obvious o r anticipated by the prior art. The court finds it is difficult to quantify the extent of the interrelationship with precision, b u t finds that Nike's continued assertion of its invalidity counterclaim increased Kellogg's c o s ts by a substantial amount. Nevertheless, in view of Kellogg's limited success in the o v e ra ll litigation, the court finds the fee award must be adjusted downward to some extent. T h e court has found litigation misconduct by Nike, but also found that the misconduct did not s ig n ific a n tly affect Kellogg's prospects of success in the litigation. Kellogg would have had to undertake much of the same discovery to prove its infringement case. Based on its familiarity with the litigation, the court finds that an award to Kellogg in th e amount of one third of its overall fees is appropriate in this case. Kellogg has submitted a f fid a v its showing that counsels' hours and rates are reasonable in this community and Nike d o e s not dispute that fact. Notably, Nike's fee expert opines that he would normally expect to budget 10 to 30% of total fees and costs to defend a validity challenge. Accordingly, the c o u r t will award attorneys' fees to Kellogg in the amount of $355,354.00. T h e court further finds that Kellogg, as a prevailing party, is entitled to recover the c o s ts attributable to defending against the counterclaim under 28 U.S.C. § 1920. Again, a lth o u g h difficult to quantify with precision, the court finds approximately one-third of the o v e ra ll costs are attributable to the invalidity counterclaim. Accordingly, costs in the amount o f $23,932.00 will be awarded to Kellogg. The court has already held that Kellogg is entitled to the fees and costs it incurred in preparing the fee application. Filing No. 360, Mem. & O.
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a t 23. Kellogg seeks a total award of $32,401.00 in fees for preparing the application

($23,903.50 for Stinson Morrison Hecker and $8,497.50 for McGarry Bair). The fees
s o u g h t represent 116.2 hours of work by attorneys and paralegals at rates ranging from $140 p e r hour to $340 per hour. The court finds the hours expended and rates charged are re a so n a b le for an application of this magnitude and complexity. Nike concedes that a fee a w a rd of $34,498.00 is reasonable for the preparation of the fee application.8 The court has re v ie w e d Kellogg's submissions in connection with the fee application and finds the fees s o u g h t are adequately supported and Kellogg's fee request should be granted.

The court finds that Kellogg's motion for additional sanctions should be denied. The award of attorneys' fees under 35 U.S.C. § 285 is the appropriate remedy for the litigation abuses present in this case. See, e.g., i4i Ltd. P'ship, v. Microsoft Corp., -- F.3d --, --, 2009 WL 4911950, *24 n. 5 (Fed. Cir. Dec. 22, 2009) (enhanced damages can be appropriate in a willful infringement case, but other tools, including Section 285, are more appropriate in mine-run cases). Accordingly, IT IS ORDERED: 1. 2. 3. The plaintiff's motion for sanctions (Filing No. 363) is denied. The plaintiff's motion for fees and costs (Filing No. 366) is granted. Plaintiff is awarded attorneys fees under 35 U.S.C. § 285 in the amount of $355,354.00. 4. Plaintiff is awarded costs in the amount of $23,932.00.

Nike erroneously contends that Kellogg seeks fees in the am o u n t of $55,027.50, and then subtracts $ 2 0 ,5 2 9 .5 0 from that sum as related only to the m o tio n for sanctions to arrive at the am o u n t of $34,498.00. F ilin g No. 374, Nike Brief at 23 n.14. 11

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5.

Plaintiff is awarded $32,401.00 in attorneys fees for the preparation of the application for fees.

6.

The plaintiff's motion to deem certain filings restricted (Filing No. 372) is granted.

7.

A judgment for attorneys fees and costs in conformity this memorandum opinion will be issued this date.

DATED this 20th day of January, 2010. BY THE COURT:

s/ Joseph F. Bataillon Chief District Judge

*This opinion m a y contain hyperlinks to other docum e n ts or W e b sites. The U.S. District Court for th e District of Nebraska does not endorse, recom m e n d , approve, or guarantee any third parties or the s e r v ic e s or products they provide on their W e b sites. Likewise, the court has no agreem e n ts with any of t h e s e third parties or their W e b sites. The court accepts no responsibility for the availability or functionality o f any hyperlink. Thus, the fact that a hyperlink ceases to work or directs the user to som e other site does n o t affect the opinion of the court. 12