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Magnetar Technologies Corp. v. Six Flags Theme Parks Inc.

United States District Court, D. Delaware

July 21, 2015

MAGNETAR TECHNOLOGIES CORP. and G&T CONVEYOR CO., Plaintiffs,
v.
SIX FLAGS THEME PARKS INC., TIERCO MARYLAND, INC., GREAT AMERICA LLC, KKI, LLC, MAGIC MOUNTAIN LLC, PARK MANAGEMENT CORP., RIVERSIDE PARK ENTERPRISES, INC., SIX FLAGS OVER GEORGIA II, L.P., SIX FLAGS ST. LOUIS, LLC, TEXAS FLAGS, LTD, ASTROWORLD, L.P., DARIEN LAKE THEME PARK AND CAMPING RESORT, INC., ELITCH GARDENS, L.P., BUSCH ENTERTAINMENT CORP., CEDAR FAIR LP, PARAMOUNT PARKS INC., KNOTT'S BERRY FARM, KINGS ISLAND COMPANY, and CEDAR FAIR, Defendants.

REPORT AND RECOMMENDATION

MARY PAT THYNGE, Magistrate Judge.

I. INTRODUCTION

Defendants, Six Flags Theme Parks Inc., et al. (collectively, "defendants"), seek an award of reasonable attorneys' fees under 35 U.S.C. § 285 against plaintiffs, Magnetar Technologies Corp. ("Magnetar") and G&T Conveyor Co. ("G&T, " collectively "plaintiffs"), and under 28 U.S.C. § 1927 against plaintiffs' counsel, Niro, Haller, & Niro (the "Niro Firm").[1] Defendants submit they incurred $1, 768, 920.88 in fees and costs in the underlying patent infringement suit, resulting in invalidation of plaintiffs' U.S. Patent No. 5, 277, 125 (the "'125 patent") and a finding of non-infringement of plaintiffs' U.S. Patent No. 6, 659, 237 (the "'237 patent").[2]

Defendants' motion for attorneys' fees is timely under FED. R. CIV. P. 54(d)(2)(B)(I). This Report and Recommendation is issued pursuant to 28 U.S.C. § 636(b)(1)(B), FED. R. CIV. P. 72(a)(1), and D. DEL. LR. 72.1.[3] For the reasons set forth below, it is recommended that defendants' motion for attorneys' fees under 35 U.S.C. § 285 be granted in part with leave to modify their fee request and their motion for attorneys' fees under 28 U.S.C. § 1927 be denied.

II. FACTUAL AND PROCEDURAL BACKGROUND

The record details the extensive factual and procedural background in this case. For the purposes of this motion, only a brief recitation of pertinent facts is necessary.

Plaintiffs are assignees and/or exclusive licensees of the '125 and '237 patents.[4] Plaintiffs acquired the '125 patent from BAE Automated Systems, Inc. ("BAE"). The '125 patent claims a car and track assembly with wheels rolling on a two-rail track and a metal fin extending down from the car and passing between linear motors.[5] Joel L. Staehs ("Staehs") and Gene DiFonso ("DiFonso") are the named inventors. The '237 patent claims an eddy current brake. Edward M. Pribonic ("Pribonic") is the sole named inventor.[6] Defendants are amusement park operators.[7]

In 2006, plaintiffs licensed the '125 and '237 patents to Acacia Research Group LLC ("Acacia").[8] Acacia and its subsidiaries acquire and then assert patents through litigation.[9] Plaintiffs assigned control over the enforcement, litigation, settlement and licensing of the '125 and '237 patents to Acacia. Subsequently, Acacia formed Safety Braking Corporation ("SBC") as a special purpose entity to hold and enforce the patents in suit.[10]

On March 1, 2007, SBC and plaintiffs instituted the present matter, alleging braking systems and assemblies in defendants' amusement park rides infringe claim 3 of the '125 patent and/or claims 1 and 10 of the '237 patent.[11] SBC retained Connolly Bove Lodge & Hutz ("Connolly Bove") to represent both SBC and plaintiffs.

In September 2007, Jeffrey Zelley ("Zelley"), an associate at Connolly Bove, reviewed BAE's archival records in G&T's possession to identify privileged documents not subject to production.[12] Thereafter, Zelley submitted a memorandum (the "Memorandum") to Connolly Bove and Acacia. The Memorandum flagged several dates, including (1) October 28, 1991, the critical date of the '125 patent; (2) August 7, 1991, the date when BAE prepared a "detailed engineering proposal" for United Airways, explaining the construction of a telecar system for the Denver International Airport (the "Denver Prototype"); and (3) November 12, 1991, when DiFonso advised Bechtel Corporation that commercial negotiations to install the Denver Prototype had begun.[13] The Memorandum also noted a prototype covered by the '125 patent constructed for American Airlines may have been publicly available before the critical date.

The Memorandum was intended for internal circulation. Zelley and Connolly Bove did not disclose its contents in their responses to defendants' interrogatories. They also failed to share the Memorandum with the Niro Firm when it assumed representation of plaintiffs. On February 29, 2012, however, defendants obtained a copy of the Memorandum in response to production in related litigation in another jurisdiction.[14]

Before BAE went out of business in 2001, it established a record retention schedule for disposal of its archival records.[15] That schedule continued after the filing of this matter. Subsequently, this court found plaintiffs liable for negligent spoliation of archival records relating to the prosecution of the '125 patent and sanctioned them by finding factual parts of the Memorandum and certain other documents discoverable.[16] Subsequently, the Honorable Leonard P. Stark adopted those findings.[17]

In February 2008, Acacia and SBC withdrew from this matter and advised plaintiffs that the potential public use of the Denver Prototype threatened their patent portfolio and chances to prevail in this action.[18] Connolly Bove withdrew as plaintiffs' counsel in July 2008.[19] Plaintiffs continued this action with the representation of the Niro Firm.[20]

In March 2011, this court denied[21] defendants' motion for leave to file a supplemental Markman brief to add a new term, "between, " of the '125 patent to be construed.[22] In February and March 2012, defendants forwarded two letters to the Niro Firm, enumerating the weaknesses of plaintiffs' claims and threatening to raise inequitable conduct and move for attorneys' fees under § 285 unless dismissal with prejudice followed.[23] The Niro Firm disputed defendants' position and explained an alternative interpretation of the record existed.[24]

In February 2014, this court struck the testimony of Mark T. Hanlon ("Hanlon"), plaintiffs' expert witness, [25] but allowed the testimony of Pribonic, a lay witness.[26] This court also recommended that defendants' motion for summary judgment of invalidity of the '125 patent be granted; plaintiffs' motion for summary judgment of infringement of claim 3 be denied; defendants' motion for summary judgment of non-infringement of the '125 patent be granted as to certain accused amusement park rides; defendants' motion for summary judgment of invalidity and non-infringement of the '237 patent be denied as to invalidity and granted as to non-infringement; and plaintiffs' motion for summary judgment of infringement of the '237 patent be denied.[27]

Judge Stark adopted the recommendations in October 2014 and invalidated the '125 patent due to indefiniteness, incorrect inventorship, on-sale bar, and obviousness, determined most of the accused amusement park rides did not infringe the '125 patent and found the '237 patent valid and not infringed.[28]

Following the entry of the final judgment, defendants moved for attorneys' fees under 35 U.S.C. § 285 and 28 U.S.C. § 1927. On August 27, 2014, plaintiffs appealed the final judgment to the United States Court of Appeals for the Federal Circuit, [29] and on April 17, 2015, it affirmed the findings of this court.[30]

III. LEGAL STANDARDS

A. 35 U.S.C. §285

Under the principle known as the American Rule, each litigant is responsible for its attorneys' fees and costs. This principle applies equally to prevailing and losing parties unless a specific statute authorizes the shifting of attorneys' fees.[31]

In patent litigation, 35 U.S.C. § 285 authorizes an award of reasonable attorneys' fees to prevailing parties "in exceptional cases."[32] "When deciding whether to award attorney[s'] fees under § 285, [the] court engages in a two-step inquiry."[33] In step one, the court "determines whether the case is exceptional."[34] If the case is exceptional, step two requires an evaluation of "whether an award of attorneys' fees to the prevailing party is justified."[35]

The United States Supreme Court recently clarified "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."[36] "District courts may determine whether a case is exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances."[37] Courts may use such non-exclusive factors as frivolousness, motivation, and objective unreasonableness in analyzing the factual or legal components, and the need in particular circumstances to advance considerations of compensation and deterrence.[38]

In step two, courts in the Third Circuit use the "lodestar" approach to calculate attorneys' fees, i.e., they "multiply[] the amount of time reasonably expended by reasonable hourly rates."[39] A court may reduce hourly rates and/or exclude "unnecessary hours" from the lodestar calculation.[40]

A party must obtain at least some relief on the merits to qualify as "prevailing."[41] This qualification, however, does not entitle prevailing parties to automatically recover attorneys' fees.[42] A court's inquiry into shifting attorneys' fees is not warranted unless relief on the merits has altered the legal relationship of the parties.[43]

The party seeking attorneys' fees must prove its contentions by a preponderance of evidence, [44] but it is not required to show subjective bad faith.[45] It also bears the burden of establishing the reasonableness of its fees.[46]

B. 28 U.S.C. § 1927

A party may move under 28 U.S.C. § 1927 for assessment of "the excess costs, expenses, and attorneys' fees" directly against the opposing counsel.[47] Fees may be assessed against counsel as a sanction for "(1) multipl[ying] proceedings; (2) in an unreasonable and vexatious manner; (3) thereby increasing the cost of the proceedings; and (4) doing so in bad faith or by intentional misconduct."[48] The moving party must specifically demonstrate particular examples of counsel's bad faith or intentional misconduct that increased its costs and expenses.[49]

The Third Circuit has warned that "counsel's conduct result[ing] from... misunderstanding, bad judgment, or well-intentioned zeal" does not warrant imposition of sanctions under § 1927.[50] It also instructed courts to "resist the understandable temptation to engage in post hoc reasoning by concluding that, because a plaintiff did not prevail, [the] action must have been unreasonable or without foundation."[51]

Deterrence is the main goal of sanctions under § 1927; thus they are reserved for counsel's own acts of bad faith or intentional misconduct.[52] A mere change in representation does not warrant imputing prior ...


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