EDTX & NDTX Monthly Wrap-Up — September 2019

This post summarizes some of the significant developments in the Eastern District of Texas and the Northern District of Texas for the month of September 2019.

Elbit Systems Land and C4I Ltd. et al v. Hughes Network Systems LLC et al: To what conduct does an award of attorneys' fees under § 285 extend?

In Elbit Systems Land and C4I Ltd. et al v. Hughes Network Systems LLC et al, 2:15-cv-00037 (E.D. Tex.), Judge Schroeder addressed a joint motion by parties requesting an order quantifying attorneys' fees. Elbit had sued Hughes for patent infringement, and after a jury trial, obtained a verdict that Hughes infringed one of Elbit's valid patents, that Hughes's infringement was not willful, and that Elbit should be awarded over $21 million in damages. After trial, Elbit requested its attorneys' fees under § 285, and the Court granted Elbit's request. The Court did not find that Hughes's litigation position lacked substantive strength, but it did find "the record [wa]s littered with examples of Hughes's litigation misconduct." It then summarized examples of Hughes's egregious conduct, "namely four specific instances of misconduct: (1) arguing claim construction at trial, (2) listing a PES-related video on its exhibit list, (3) ignoring the Court's discovery orders and (4) violating local rules regarding invalidity contentions." The parties were then ordered to file notices detailing the agreed amount of fees or any disputes, but before the Court could resolve the amount of fees to be awarded, Hughes appealed to the Federal Circuit. The Federal Circuit dismissed this portion of Hughes's appeal, holding the court had no jurisdiction to address exceptionality without a quantification of the relevant fees.

The parties then submitted their requests for the proper amount of fees to Judge Schroeder: Elbit asked for over $13.7 million, and Hughes countered with slightly less than $300,000. The Court found both figures to be incorrect. It disagreed with Hughes because it tried to limit the fees to acts directly related to the four specific acts of misconduct identified by the Court in its § 285 order. Although the Court noted four different examples of misconduct, those were only examples, and Elbit was "entitled to fees that bear some relation to the extent of [Hughes's] misconduct.'" Hughes's calculation was thus underinclusive.

The Court found Elbit's calculation, on the other hand, to be overinclusive. Elbit essentially requested all of its attorneys' fees up until the Court's § 285 order, with few exceptions. The Court referred to this as a "full-fee award," which may be appropriate where a party commits "'extensive misconduct' constituting an 'abusive pattern or vexatious strategy' that 'infect[s] the entire litigation,'" or where a party's litigation positions lack substantive strength. Neither was the case here. The Court therefore explained that Elbit needed to establish a causal link between the fees incurred and Hughes's misconduct—€”it could not submit a temporally-limited request. He reasoned that "[t]he present lawsuit was instigated by [Elbit] prior to any misconduct by [Hughes], and [Elbit] would have incurred substantial legal expenses regardless of [Hughes]'s misconduct." It therefore found that Elbit was not entitled to a full-fee award. Both parties were ordered to meet and confer and file a new joint notice consistent with the Court's order.

Sgromo v. Imperial Toy LLC: What must a patent assignor do pre-suit to have standing to sue an assignee for infringement?

In Sgromo v. Imperial Toy LLC, No. 2:19-cv-00068 (E.D. Tex.), Magistrate Judge Payne addressed defendant Imperial Toy's motion to dismiss plaintiff Sgromo's patent infringement claims because Sgromo, an individual, lacked standing. Sgromo, as the principal of Wide Eyes Marketing Ltd., had previously entered into a license agreement with Imperial Toy in which Wide Eyes Marketing Ltd. assigned exclusive rights in the asserted patents to Imperial Toy. After a dispute arose between Sgromo and Imperial Toy, Sgromo filed this lawsuit and alleged that Imperial Toy infringed the patents to which Wide Eyes Marketing Ltd. had granted Imperial Toy exclusive license rights.

The Court noted that Sgromo did not have the same rights as Wide Eyes Marketing Ltd., but even if he did, he still lacked standing. Relying on the Federal Circuit's 1997 decision in Jim Arnold Corp. v. Hydrotech Sys., Inc., the Court stated that "an assignor suing for infringement must affirmatively seek equitable relief from a court to rescind or cancel the assignment. Until ownership is restored in the assignor, there can be no act of infringement by the assignee." Here, Sgromo was not the assignor (his company was), and he had not affirmatively sought equitable relief to rescind or cancel the assignment to Imperial Toy. Accordingly, the Court found Sgromo lacked standing to sue and dismissed Sgromo's claims with prejudice.

BookIT Oy v. Bank of America Corporation et al: Are court-appointed master fees properly taxable as costs under §§ 1821 or 1920?

In BookIT Oy v. Bank of America Corporation et al, No. 3:17-cv-02577 (N.D. Tex.), Judge Kinkeade addressed defendant Bank of America's motion for entry of bill of costs and to tax special master fees. After a stipulated dismissal by plaintiff BookIt, Bank of America, as the prevailing party, sought costs for deposition transcripts, the translation of foreign documents, and special master fees. The parties agreed that the deposition costs were properly taxable. With respect to the translation costs, the Supreme Court of the United States has held that § 1920(6) does not include translation costs. The Court, relying on Fifth Circuit precedent, found the translation costs were taxable, however, under § 1920(4). It therefore awarded Bank of America the entirety of its translation costs.

The Court then turned to Bank of America's request to tax costs for a court-appointed special master. The parties had stipulated that these costs were taxable, but the Court disagreed. Bank of America relied on a Fifth Circuit decision that "held costs for a court-appointed special master are 'recoverable costs' for the prevailing party," but the Court noted that nine years after that decision, "the Supreme Court held that taxable costs are limited to those delineated in §§ 1821 and 1920. Neither § 1821 nor § 1920 authorize[s] taxation of a court-appointed special [m]aster fees as costs." The Court therefore found those costs were not taxable, despite the parties' stipulation, and declined to award them to Bank of America.

Author: Ricardo Bonilla