Attorney Fees on Undecided Inequitable Conduct Issues

by Dennis Crouch

United Cannabis Corp (UCANN) vs. Pure Hemp Collective, — F.4th — (Fed. Cir. 2023)

The UCANN vs. Pure Hemp patent case has come to a close with the Federal Circuit affirming the district court’s decision to deny attorney fees to Pure Hemp. The original infringement lawsuit was filed in 2018, with UCANN suing Pure Hemp for infringing US Patent No. 9,730,911, covering various high concentration cannabis and CBD extract formulations. During the litigation, UCANN filed for bankruptcy, causing the case to be stayed, and eventually, the parties stipulated to a dismissal of the infringement claims with prejudice. However, the stipulated dismissal did not include any discussion of attorney fees — leading to the current appeal.

Following the dismissal, Pure Hemp moved for attorney fees and sanctions, arguing that UCANN’s counsel committed inequitable conduct during patent prosecution and that UCANN’s litigation counsel had a conflict of interest. The district court sided with UCANN and denied attorney fees, stating (1) that Pure Hemp was not the prevailing party and (2) that Pure Hemp did not prove that the case was exceptional. The Federal Circuit has now affirmed the decision, finding that the district court did not abuse its discretion in finding the case unexceptional. Although district court the district court erred in not finding Pure Hemp to be the prevailing party, the error was harmless.

The usual rule in American litigation is that each party pays their own attorney fees – win or lose.  But, the law generally allows for fee shifting in egregious cases.  The patent act provides a statute on point that allows an award of reasonable attorney fees in exceptional cases. “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”  35 U.S.C. 285.  The statute here has two prerequisites, a permissive, and a limit on the results.

• Exceptional cases: In Octane Fitness, the Supreme Court defined an exceptional case as one that “stands out from others with respect to the substantive strength of a party’s position or the unreasonable manner in which the case was litigated. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014).
• Prevailing party: The award can only go to the “prevailing party” in the litigation.  This issue is often tricky because typically neither party wins on all grounds raised or receives all of the results requested.
• The court … may award: This gives the district court permissive authority to award or deny fees, even in exceptional cases.  In addition, in Highmark, the Supreme Court held that the determination of whether a case is “exceptional” is also given to the sound discretion of the district court. Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 572 U.S. 559 (2014).  In fact, in Highmark, the court eventually concluded that “an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s §285 determination.” Id.
• Reasonable attorney fees: There is no single formula for calculating “reasonable attorney fees.” Generally, the district court will consider a number of factors in determining what constitutes a reasonable fee, such as the amount of time spent on the case, the complexity of the case, the rates charged by comparable attorneys in the area, and the results achieved. Ultimately, the district court has broad discretion in determining what constitutes a reasonable attorney fee under this statute. Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., 790 F.3d 1369 (Fed. Cir. 2015) and SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344 (Fed. Cir. 2015).

Prevailing party: The district court held that Pure Hemp was not the prevailing party. On appeal, the Federal Circuit found that to be clear error. Pure Hemp achieved the successful result of having the infringement case dismissed with prejudice – and thus prevailed.  It does not matter that the method was through an agreed-upon dismissal rather than court action.

Exceptional Case – Inequitable Conduct: Pure Hemp raised the issues of inequitable conduct before the district court, but the court did not conduct an evidentiary hearing and eventually decided that the evidence presented was lacking.  Pure Hemp appealed and argued “the district court abuse its discretion by failing to conduct an adequate [factual] inquiry.”  Judge Stark rebuked the attorney here — stating that Pure Hemp should have requested an evidentiary hearing rather than simply appealing. Instead, Pure Hemp had told the district court that it did not need such a hearing.

It is self-evident that a district court does not abuse its discretion by not conducting a post-dismissal inequitable conduct proceeding, in aid of resolution of a § 285 motion, when the moving party explicitly disclaims any desire for such a proceeding.

Slip Op. Here, the alleged inequitable conduct involves the following:

The attorney who prosecuted the patent-in-suit admitted to copying and pasting text from the prior art into the patent specification and not disclosing that prior art to the USPTO.

Pure Hemp Brief. The briefing argued that “Cooley attorneys also have a policy of withholding references until after the first office action, in direct contravention of patent office guidance.”  Still, in this case, the references were never submitted prior to issuance.  The brief goes-on to remark that “in academic circles, it is referred to as plagiarism.”

In conclusion, the Federal Circuit affirmed the district court’s decision to deny attorney fees to Pure Hemp in the UCANN vs. Pure Hemp Collective patent case.  The appellate court’s decision though did not reach the substance of whether the patentee’s actions constituted inequitable conduct or litigation misconduct. We’ll have to reserve those for another day.

Is the Federal Circuit facing a Chronic Problem of Inequitable Conduct?