Prism Technologies v. Adobe Systems Incorporated et al

Filing 1168

MEMORANDUM OPINION - Because the Court finds that this is not an "exceptional case," the Court will not award defendants attorney fees under 35 U.S.C. § 285. A separate order will be entered in accordance with this memorandum opinion. Ordered by Senior Judge Lyle E. Strom. (AOA)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
PRISM TECHNOLOGIES, LLC,

)
)
Plaintiff,
)
)
v.
)
)
McAFEE, INC.; SYMANTEC
)
CORPORATION; and TREND MICRO )
INCORPORATED,
)
)
Defendants.
)
______________________________)

8:10CV220

MEMORANDUM OPINION

In this case, plaintiff Prism Technologies, LLC
(“Prism”) alleged infringement of its patent, U.S. Patent No.
7,290,288 (“‘288 patent”), by defendants McAfee, Inc. (“McAfee”),
Symantec Corporation (“Symantec”), and Trend Micro Incorporated
(“Trend Micro”).

On December 10, 2012, the Court entered summary

judgment of noninfringement in favor of defendants, awarding them
taxable costs (Filing No. 1135).

Defendants then moved for

attorney fees and nontaxable costs under 35 U.S.C. § 285 (Filing
No. 1137).

Subsequently, Prism filed a notice of appeal of the

summary judgment to the United States Court of Appeals for the
Federal Circuit (Filing No. 1143).
This matter is now before the Court on two motions by
Prism:

a motion to stay consideration of defendants’ motion for

attorney fees (Filing No. 1146), and a motion to stay defendants’
applications for taxable costs (Filing No. 1158).

Defendants

filed a brief in opposition to Prism’s motions to stay (Filing

No. 1165).

After consideration of the motions, the briefs, and

the relevant law, the Court finds that Prism’s motions to stay
should be denied.
Also before the Court is defendants’ motion for
attorney fees and nontaxable costs under 35 U.S.C. § 285 (Filing
No. 1137, with brief and indices of evidence, Filing Nos. 1141,
1138, and 1140).

Prism filed a brief in opposition to the motion

(Filing No. 1148, with indices of evidence, Filing Nos. 1149 and
1150), to which defendants replied (Filing No. 1162, with indices
of evidence, Filing Nos. 1160 and 1161).

After consideration of

the motion, the briefs, and the relevant law, the Court finds
that defendants’ motion for attorney fees and nontaxable expenses
should be denied.
I.

Prism’s Motions to Stay.
Prism makes substantially the same arguments in its

motion to stay consideration of defendants’ motion for attorney
fees and in its motion to stay defendants’ applications for
taxable costs.

First, Prism argues that the Court and the

parties “will needlessly expend time and resources” on
defendants’ motion and applications for taxable costs “if Prism’s
appeal is granted by the Federal Circuit” (Filing No. 1146, at
2).

Second, Prism argues that even if its appeal is denied, “the

Federal Circuit may make commentary rulings on issues relating to
the Court’s order on summary judgment” which could be relevant to

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the Court’s ruling on defendants’ submissions for attorney fees
and costs (Id.).
Prism’s third argument, however, underscores the
inherent problem with granting a stay.

Prism states that “if

Prism’s appeal is denied, the Court would be in the same position
at that future time as it is now to determine” defendants’ motion
and applications for taxable costs (Id.).
disagree.

The Court must

As written in the Advisory Committee Notes to the 1993

Amendments to Federal Rule of Civil Procedure 54,
In many nonjury cases the court
will want to consider attorneys’
fee issues immediately after
rendering its judgment on the
merits of the case. . . . Prompt
filing [of a claim for attorney
fees] affords an opportunity for
the court to resolve fee disputes
shortly after trial [in this case,
summary judgment], while the
services performed are freshly in
mind. It also enables the court in
appropriate circumstances to make
its ruling on a fee request in time
for any appellate review of a
dispute over fees to proceed at the
same time as review on the merits
of the case.
Prism has not provided any reason particular to this case as to
why the Court should not follow this sage advice, other than the
general argument cited above.

But as defendants point out,

“[T]hat argument exists in every case where an appeal is taken[,]
and the standard practice in such cases is to decide fee and cost
issues without delay” (Filing No. 1165, at 3).
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This Court agrees with the District Court of the
Northern District of Iowa, as it analyzed a motion to stay
assessment of taxable costs:
No clear standard has developed to
guide district courts in the
exercise of their discretion in
deciding whether or not to stay the
taxation of costs pending appeal,
but the consensus seems to be that
the court must have some valid
reason for not awarding costs at
the customary stage of the
proceedings.
Maytag Corp. v. Electrolux Home Prods., 2006 U.S. Dist. LEXIS
89383, at *5 (N.D. Iowa Dec. 11, 2006).

“The possibility that

the underlying judgment might be reversed, with the result that
the award of costs must also be reversed, is simply too
speculative to outweigh the benefit of the trial court conducting
a review of the bill of costs while the case is still fresh.”
Id. at *7.

For the foregoing reasons, the Court will deny

Prism’s motions to stay.
II.

Defendants’ Motion for Attorney Fees and Nontaxable Costs.
A.

Relevant Law.

“The court in exceptional cases may

award reasonable attorney fees to the prevailing party.”
35 U.S.C. § 285.

“[Federal Circuit] precedent governs the

substantive interpretation of 35 U.S.C. § 285, which is unique to
patent law.”

Pharmacia & Upjohn Co. v. Mylan Pharm., Inc.,

182 F.3d 1356, 1359 (Fed. Cir. 1999).

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“When deciding whether to award attorney fees under
§ 285, a district court engages in a two-step inquiry.

First,

the court must determine whether the prevailing party has proved
by clear and convincing evidence that the case is exceptional.”
MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907, 915 (Fed. Cir.
2012).

“A case may be deemed exceptional when there has been

some material inappropriate conduct related to the matter in
litigation, such as willful infringement, fraud or inequitable
conduct in procuring the patent, misconduct during litigation,
vexatious or unjustified litigation, conduct that violates Fed.
R. Civ. P. 11, or like infractions.”

Brooks Furniture Mfg., Inc.

v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).
Alternatively, the court may deem a case exceptional
and “sanctions [assessment of attorney fees] may be imposed
against the patentee only if both (1) the litigation is brought
in subjective bad faith, and (2) the litigation is objectively
baseless.”

Brooks Furniture, 393 F.3d at 1381.

“Under this

exacting standard, the plaintiff’s case must have no objective
foundation, and the plaintiff must actually know this.”

iLOR,

LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011).

“In

assessing whether a case qualifies as exceptional, the district
court must look at the totality of the circumstances.”
Yamanouchi Pharm. Co. v. Danbury Pharmacal, Inc., 231 F.3d 1339,
1347 (Fed. Cir. 2000).

“As this court has consistently found,
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however, only a limited universe of circumstances warrant a
finding of exceptionality in a patent case . . . .”

Wedgetail

Ltd. v. Huddleston Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir.
2009).
The second step in the attorney fee inquiry requires
that “[i]f the district court finds that the case is exceptional,
it must then determine whether an award of attorney fees is
justified.”

MarcTec, 664 F.3d at 916.

“Even for an exceptional

case, the decision to award attorney fees and the amount thereof
are within the district court’s sound discretion.”

Brooks

Furniture, 393 F.3d at 1382.
B.

Discussion.

Prism brought this case asserting

infringement of the ‘288 patent by defendants.

Many of the facts

and substantive issues relevant to the present motion are
delineated in detail in the Court’s recent memorandum opinion
granting defendants’ motion for summary judgment of
noninfringement, which is incorporated by reference.

See Summary

Judgment Memorandum Opinion, Filing No. 1134.
Prism does not dispute that defendants are prevailing
parties in the context of 35 U.S.C. § 285.

Thus the Court need

only determine whether this is an “exceptional case” thereunder.
1.

Litigation Misconduct.

The Court will first

determine whether defendants have produced clear and convincing
evidence that Prism engaged in litigation misconduct.
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“Although

the entirety of a patentee’s conduct may be considered,
enforcement of patent rights that are reasonably believed to be
infringed does not entail special penalty when the patentee is
unsuccessful.”
a.

Brooks Furniture, 393 F.3d at 1384.
Prism’s Production of Documents.

Defendants’ first

allegation of litigation misconduct involves Prism’s delay in
production of documents that Prism asserted were privileged, as
well as Prism’s opposition to defendants’ motion to compel
production of still more documents to which Prism also asserted a
privilege.

See Order, Filing No. 955.

Defendants ascribe bad

intent to Prism for these actions, stating,
It is clear from their contents why
Prism would have wanted to hide
these documents from the Defendants
and the Court – they directly
contradict Prism’s position that a
generic, mass-produced software
installation CD containing
identical data to every other such
installation CD can somehow be the
claimed “hardware key” from which a
“predetermined digital
identification” can be read.
(Filing No. 1141, at 33).
As to the delay in production, Prism states that it
voluntarily produced, albeit belatedly, documents that it had
previously claimed to be privileged “in an attempt to resolve the
parties’ discovery dispute regarding Prism’s privilege log
without Court intervention” (Filing No. 1148, at 46).
points out, with regard to defendants’ motion to compel
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As Prism

production, while defendants had challenged sixty-four privileged
documents, the Court found that only three of these were not
privileged (along with the corresponding redaction of a
deposition transcript).

It is true that this Court found that

defendants were prejudiced by such redaction and delay in
production of documents (Order, Filing No. 955, at 2).
Consequently, this Court granted defendants relief by postponing
the trial date at defendants’ request and reopening limited
discovery (Id., at 2, 4).

Yet the Court made no finding in its

order as to Prism’s intent or lack of good faith in asserting a
privilege.

The Court now finds that Prism’s production delay

does not rise to the level of litigation misconduct that would
warrant the award of attorney fees under 35 U.S.C. § 285.1
b. Prism’s Representation of the Court’s Claim
Construction.

Defendants claim that Prism’s expert witness,

David Klausner, mischaracterized the Court’s claim construction
of the ‘288 patent term “hardware key” in his expert reports on
infringement.

For example, defendants aver that Mr. Klausner

“gave only superficial recognition to this Court’s construction
of ‘hardware key’ as requiring that the predetermined digital
identification be read off of the key” (Filing No. 1141, at 35).

1

The Court must note that defendants, too, delayed in their
production of documents and witnesses during the course of
discovery. See orders granting Prism’s motions to compel
discovery (Filing Nos. 411 (all defendants), 679 (Trend Micro),
816 (McAfee), 818 (Symantec), and 830 (Trend Micro)).
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“Instead, Mr. Klausner continued to press in his direct
infringement theory the construction of ‘hardware key’ rejected
by this Court in its June 1, 2011[,] order, namely that a digital
identification need only be ‘generated, derived, or read’ from a
hardware key” (Id.).

Prism disagrees, stating that “Mr. Klausner

never took the position that the digital identification need not
be ‘read’ from the hardware key.

To the contrary, Mr. Klausner

opined that the digital identification in Defendants’ accused
system is ‘read’ as well as ‘generated’ and ‘derived’ from the
accused CD hardware keys” (Filing No. 1148, at 51).

As the

parties point out, the Court did not rule on defendants’ motion
to strike Mr. Klausner’s expert reports, based on these and other
arguments, since the Court granted defendants’ motion for summary
judgment as to noninfringement.

Nevertheless, the Court now

finds that the submission of the Klausner reports did not amount
to litigation misconduct.

Rather, the Court finds that the

parties’ disagreement as to the content of the reports largely
goes to the heart of the substantive matters at issue in this
case.
c.

Frivolous Arguments Intended to Extend Litigation.

Defendants maintain that Prism “not only initiated a frivolous
lawsuit but persisted in advancing unfounded arguments that
unnecessarily extended the litigation and caused the Defendants
to incur needless litigation expenses” (Filing No. 1141, at 37).

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Defendants’ first assertion in this regard is essentially the
same as its assertion that Prism brought and continued this
action in bad faith, which the Court discusses and rejects below.
In addition, defendants argue that Prism’s amendment of
its complaint to include an allegation of willful infringement by
Symantec was “frivolous and designed to harass” (Filing No. 1141,
at 38).

In granting Prism’s motion to amend, this Court stated,

“Although the request for amending the complaint comes almost
twenty-three months after the original complaint was filed, and
five months before trial, the Court finds that Prism has shown
good cause in filing its motion to amend” (Filing No. 759, at 5).
While the Court denied Prism’s motion to compel additional
discovery related to this issue later in the proceedings because
the discovery would have amounted to a “futile exercise” (Filing
No. 1064, at 10),2 this has no bearing on the propriety of the
amendment to include the willfulness claim, which the Court found
was at least strong enough to be added to the complaint.

The

Court will not now transform what was once a motion showing “good
cause” into litigation misconduct.
In summary, “the Court concludes that both parties
aggressively litigated this patent dispute” and must also
conclude that defendants have “not demonstrated by clear and

2

For similar reasons, the Court also denied a motion to
compel discovery filed by defendants during the course of the
litigation. See Memorandum and Order, Filing No. 769.
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convincing evidence that [patentee] engaged in abusive litigation
tactics.”

Brilliant Instruments, Inc. v. Guidetech, Inc.,

C 09-5517 CW, 2012 WL 4497781 (N.D. Cal. Sept. 28, 2012).
2.

Objective Baselessness and Subjective Bad Faith.

The Court also has the discretion to award defendants attorney
fees under 35 U.S.C. § 285 “if both (1) the litigation is brought
in subjective bad faith, and (2) the litigation is objectively
baseless.”

Brooks Furniture, 393 F.3d at 1381.

“Both the

objective and subjective prongs of Brooks Furniture ‘must be
established by clear and convincing evidence.’”• iLOR, 631 F.3d
at 1377 (quoting Wedgetail, 576 F.3d at 1304).

In addition,

“[t]here is a presumption that the assertion of infringement of a
duly granted patent is made in good faith.”
393 F.3d at 1382.

Brooks Furniture,

“Bringing an infringement action does not

become unreasonable in terms of [35 U.S.C. § 285] if the
infringement can reasonably be disputed.

Infringement is often

difficult to determine, and a patentee’s ultimately incorrect
view of how a court will find does not of itself establish bad
faith.”

Id.
In this case, defendants state, “Prism’s subjective bad

faith can be inferred based on the manifest unreasonableness of
Prism and its attorneys either (1) failing to conduct a
reasonable investigation in the first place, or (2) conducting
such an investigation and still asserting infringement against
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the Defendants” (Filing No. 1141, at 23).

In support of this

inference, defendants cite the Federal Circuit:

“Where, as here,

the patentee is manifestly unreasonable in assessing
infringement, while continuing to assert infringement in court,
an inference is proper of bad faith, whether grounded in or
denominated wrongful intent, recklessness, or gross negligence.”
Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805, 811 (Fed.
Cir. 1990).

The Court notes that in Eltech, the Federal Circuit

denounced the patentee in the strongest terms.

For example,

patentee’s conduct was “nothing short of shoddy,” patentee
“submitted no evidence probative of infringement,” and patentee’s
“pretense that the district court found this case exceptional . .
. merely because [patentee] prosecuted a ‘lawsuit’, is unworthy
of response.”

Eltech, 903 F.2d at 809, 811.

Indeed, in that

case, the Federal Circuit cited at length the patentee’s
transgressions.

Id. at 810.

In this case, while the Court disagrees with Prism’s
substantive conclusion as to defendants’ infringement of the ‘288
patent, it is not clear to the Court that Prism’s arguments in
favor of infringement were manifestly unreasonable.

As discussed

in the Summary Judgment Memorandum Opinion, at the urging of at
least the defendants, the Court held two Markman hearings in this
case and issued two claim construction orders.
1134, at 2-3.

See Filing No.

The first claim construction order construed only
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the term “hardware key / access key,” as follows:

“An external

hardware device or object from which the predetermined digital
identification can be read” (Filing No. 188, at 2).

The included

term “digital identification” was not construed at that time.
The second claim construction order construed the other disputed
terms in this case, including “digital identification” (Filing
No. 469).

The parties disagree as to the extent that Prism

supported this two-part Markman plan, and, unfortunately, no
transcript of the November 30, 2010, conference where the plan
was discussed and ultimately adopted exists.

At least as of

October 28, 2010, the date of the parties’ Rule 26(f) report,
however, Prism was opposed to the plan (Filing No. 155, at 9-11).
In any event, Prism is correct in asserting that its
stance was consistent with Federal Circuit principles as to the
usual course of conduct of a patent case, such that Prism would
reasonably argue for construction of the claim term “digital
identification” rather than concede noninfringement after the
first Markman hearing and claim construction order on “hardware
key / access key.”

Ultimately, Prism prevailed in its proposed

construction of “digital identification,” which was an integral
part of the previous construction of “hardware key / access key.”
It is reasonable to assume that the construction Prism proposed,
and which the Court adopted, is one that Prism thought would
support its infringement contentions against defendants,

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especially as to its assertion that either the defendants’ SKU
Data or Machine ID could act as the required “digital
identification” (See Summary Judgment Memorandum Opinion, Filing
No. 1134, at 10-20).

It is not surprising, then, that upon

succeeding in the claim construction of “digital identification,”
Prism would continue on with the litigation.
The Court also notes that in the second claim
construction order, of the eight disputed terms (including
“digital identification”), the Court adopted Prism’s proposed
construction verbatim for five terms and aspects of Prism’s
proposed construction for the other three terms (Filing No. 469).
The fact that defendants’ products do not practice the hardware
key / access key limitation of the ‘288 patent, even when Prism’s
construction of “digital identification” is adopted, is not
necessarily clear and convincing evidence of Prism’s subjective
bad faith.

The Federal Circuit has warned against an automatic

conflation of subjective bad faith with a loss on the substantive
merits, despite Eltech, as noted in the Brooks Furniture
citations above.
In view of the totality of the circumstances, the Court
finds that defendants have neither overcome the presumption of
Prism’s good faith nor demonstrated by clear and convincing
evidence that Prism brought this litigation in subjective bad
faith.

“Since we conclude that the first requirement (subjective

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bad faith) is not satisfied here, we need not decide whether the
second (objectively baseless) standard was met.”

Brooks

Furniture, 393 F.3d at 1381.
C.

Conclusion.

Because the Court finds that this is

not an “exceptional case,” the Court will not award defendants
attorney fees under 35 U.S.C. § 285.

A separate order will be

entered in accordance with this memorandum opinion.
DATED this 13th day of February, 2013.
BY THE COURT:
/s/ Lyle E. Strom
____________________________
LYLE E. STROM, Senior Judge
United States District Court

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