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

United States District Court, D. Delaware

March 13, 2017

MAGNETAR TECHNOLOGIES CORP. and G&T CONVEYOR CO., Plaintiffs,
v.
SIX FLAGS THEME PARKS, INC., et al., Defendants.

          REPORT AND RECOMMENDATION

          Mary Pat Thynge, Chief U.S. Magistrate Judge

         I. INTRODUCTION

         On March 1, 2007, plaintiffs Magnetar Technologies Corp. (“Magnetar”) and G&T Conveyor Co. (“G&T”) (collectively, “plaintiffs”) sued multiple theme park operators (“defendants”), alleging infringement of U.S. Patent Nos. 5, 277, 125 (“the ‘125 patent”) and 6, 659, 237 (“the ‘237 patent”).[1] On February 7, 2014, this court issued Reports and Recommendations (the “February 7, 2014 R&Rs”) finding the ‘125 patent and the ‘237 patent invalid and/or not infringed on multiple grounds.[2] On July 29, 2014, the court adopted those Reports and Recommendations and entered judgment for defendants and against plaintiffs.[3] On April 17, 2015, the United States Court of Appeals for the Federal Circuit affirmed the court's rulings[4] and the Federal Circuit's mandate issued on May 26, 2015.[5] Currently before the court is defendants' Renewed Motion for Attorneys' Fees pursuant to 35 U.S.C. § 285.[6]

         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.[7]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.[8] 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.[9] Defendants are amusement park operators.[10]

         In 2006, plaintiffs licensed the '125 and '237 patents to Acacia Research Group LLC (“Acacia”).[11] Acacia and its subsidiaries acquire and then assert patents through litigation.[12] 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.[13]

         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.[14] 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.[15] 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.[16] 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 Niro, Haller, & Niro (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.[17]

         Before BAE went out of business in 2001, it established a record retention schedule for disposal of its archival records.[18] 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.[19]Subsequently, the Honorable Leonard P. Stark adopted those findings.[20]

         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.[21] Connolly Bove withdrew as plaintiffs' counsel in July 2008.[22] Plaintiffs continued this action with the representation of the Niro Firm.[23]

         In March 2011, this court denied[24] defendants' motion for leave to file a supplemental Markman brief to add a new term, “between, ” of the '125 patent to be construed.[25] 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.[26] The Niro Firm disputed defendants' position and explained an alternative interpretation of the record existed.[27]

         In February 2014, this court struck the testimony of Mark T. Hanlon (“Hanlon”), plaintiffs' expert witness, [28] but allowed the testimony of Pribonic, a lay witness.[29] 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.[30]

         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.[31]

         On August 12, 2014, following the court's Memorandum Order adopting the February 7, 2014 R&Rs and entering judgment, defendants moved for an award of attorneys' fees.[32] On July 21, 2015, this court issued a Report and Recommendation (the “Fee Award R&R”) finding that, in view of the totality of the circumstances, the case is exceptional based on plaintiffs' objectively unreasonable position on inventorship of the ‘125 patent and plaintiffs' reliance on Hanlon's expert report with respect to infringement of the ‘125 patent.[33] This court concluded defendants were entitled to attorneys' fees pursuant to 35 U.S.C. § 285 related to the incorrect inventorship issue since July 29, 2011, and related to Hanlon's expert report since it was served.[34]

         On August 7, 2015, plaintiffs filed objections to the Fee Award R&R to the extent it recommended granting defendants' motion for attorneys' fees in any respect (“Objections”).[35] On August 24, 2015, defendants filed a response to plaintiffs' Objections (“Response”).[36] On September 30, 2015, after a review of the Fee Award R&R, Objections, and Response, the court issued an Memorandum Order denying defendants' motion for attorneys' fees without prejudice to renew, and returned the matter to this judge for further proceedings consistent with the instructions provided in that order.[37] On November 13, 2015, defendants filed a Renewed Motion for Attorneys' Fees (“Renewed Motion”).[38]

         III. LEGAL STANDARDS

         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.[39]

         In patent litigation, 35 U.S.C. § 285 authorizes an award of reasonable attorneys' fees to prevailing parties “in exceptional cases.”[40] “When deciding whether to award attorney[s'] fees under § 285, [the] court engages in a two-step inquiry.”[41] In step one, the court “determines whether the case is exceptional.”[42] If the case is exceptional, step two requires an evaluation of “whether an award of attorneys' fees to the prevailing party is justified.”[43]

         The United States Supreme Court recently clarified “[a]n ‘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.”[44] “District courts may determine whether a case is ‘exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances.”[45] Courts may use such nonexclusive 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.[46]

         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.”[47] A court may reduce hourly rates and/or exclude “unnecessary hours” from the lodestar calculation.[48]

         A party must obtain at least some relief on the merits to qualify as “prevailing.”[49]This qualification, however, does not entitle prevailing parties to automatically recover attorneys' fees.[50] A court's inquiry into shifting attorneys' fees is not warranted unless relief on the merits has altered the legal relationship of the parties.[51]

         The party seeking attorneys' fees must prove its contentions by a preponderance of evidence, [52] but it is not required to show subjective bad faith.[53] It also bears the burden of establishing the reasonableness of its fees.[54]

         IV. DISCUSSION

         On review of the Fee Award R&R, the court returned the matter to this judge for clarification and to address certain additional issues.[55] The court directed that it be made clear whether an order is being entered or is instead proposing findings of fact and/or conclusions of law.[56] An error in the Fee Award R&R is also to be addressed.

         That report states plaintiff obtained an assignment of the rights of the unidentified inventor, [57] where the parties agree it was a former defendant who obtained the assignment of this inventor's rights during the course of the litigation.[58] Finally, a conclusion on three points is required:

First, are attorney fees warranted here because certain of Plaintiffs' litigation conduct is conduct the court should be trying to deter? Second, are attorneys fees warranted here because Defendants are deserving of compensation? Third, and most importantly, in light of the “totality of the circumstances, ” after giving appropriate weight to all of the pertinent factors, is this case as a whole “exceptional” under § 285 in light of the specific instances of behavior deemed to be objectively unreasonable or otherwise improper?[59]

         The court first addresses whether it is issuing an order or, instead, proposing findings of fact and/or conclusions of law. The order returning the matter of attorneys' fees under § 285 for further proceedings instructed the parties to “make clear whether they request that the Magistrate Judge enter an Order . . . or instead they request that she again provide a report and recommendation.”[60] Only plaintiffs addressed the issue, asserting defendants' motion falls under Rule 72(b).[61]

         Federal Rule of Civil Procedure 54(d)(2) applies to a request for attorneys' fees.[62] Pursuant to Fed.R.Civ.P. 54(d)(2)(D), “the court . . . may refer a motion for attorney's fees to a magistrate judge under Rule 72(b) as if it were a dispositive pretrial matter.”[63] The advisory committee's note explains:

The district judge . . . may refer a motion for attorneys' fees to a magistrate judge for proposed findings and recommendations under Rule 72(b). This authorization eliminates any controversy as to . . . whether motions for attorneys' fees can be treated as the equivalent of a dispositive pretrial matter that can be referred to a magistrate judge.[64]

         “[I]t would seem that posttrial awards of attorneys' fees, where authorized by a statute or pursuant to an agreement, represent a claim for relief. Accordingly, . . . they should be considered dispositive, a categorization confirmed by the 1993 adoption of Rule 54(d)(2)(D).”[65]

         The court's determination of defendants' motion, therefore, will be in form of a report and recommendation pursuant to Fed.R.Civ.P. 72(b)(1).[66]

         Defendants' Renewed Motion again requests the court find the case “exceptional” and exercise its discretion to award the defendants their reasonable attorneys' fees pursuant to 35 U.S.C. § 285[67] which provides that “in exceptional cases [the court] may award reasonable attorney fees to the prevailing party.”[68] Therefore, a party requesting fees under § 285 must show (1) that it is a prevailing party, and (2) that the case is “exceptional.”[69]

         Federal Circuit law governs the determination of which party has prevailed.[70] To be a “prevailing party, ” that party must have received at least some relief on the merits and that relief must materially alter the legal relationship between the parties by modifying one party's behavior in a way that “directly benefits” the opposing party.[71]Defendants are the prevailing party in this case. This court entered judgment in defendants' favor on July 29, 2014 and the Federal Circuit affirmed that judgment on April 17, 2015. Therefore, defendants received some relief on the merits that materially altered the legal relationship between the parties that directly benefitted defendants.[72]

         “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.”[73] “District courts may determine whether a case is ‘exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances.”[74]

         Defendants assert this case is exceptional in because plaintiffs were objectively unreasonable: (1) in their position on inventorship; (2) their reliance on Hanlon's expert report; (3) as a result of discovery misconduct and spoliation; (4) their position on the indefiniteness of the ‘125 patent; (5) their position on the obviousness of the ‘125 patent; and (6) their continued litigation after the “kiss of death” email.[75]

         The losing party's litigation position is objectively unreasonable if it proffers arguments so inadequate that success likely will not occur under any circumstance.[76] A party's handling of litigation may be unreasonable if the party “shift[s] its theories of infringement late in the litigation and without following the proper procedures for amendment of contentions”[77] or submits unsolicited court filings.[78] An unsuccessful argument on summary judgment does not necessarily demonstrate objective baselessness.[79] Octane obviated the need to show bad faith, and good faith arguments are not unreasonable.[80]

         A. Step One

         In determining whether a case is “exceptional, ” factors such as frivolousness, motivation, and objective unreasonableness may be considered.[81] The court should also consider the need in particular circumstances to advance considerations of compensation and deterrence.[82] In their current motion, defendants rely solely on plaintiffs' alleged objective unreasonableness.[83]

         1. Objective Unreasonableness

         Defendants' argument that this case is exceptional rests on their contentions that plaintiffs were objectively unreasonable in continued litigation after they should have realized the ‘125 patent did not properly identify an inventor and reliance on Hanlon's expert report.

         Defendants contend plaintiffs were objectively unreasonable because they had no colorable basis for proceeding with the case since the evidence establishes that Kwangho Chung's idea was the improvement over the prior art that was being claimed in the ‘125 patent.[84]

         The Federal Circuit has explained that:

All that is required of a joint inventor is that he or she (1) contribute in some significant manner to the conception or reduction to practice of the invention, (2) make a contribution to the claimed invention that is not insignificant in quality, when that contribution is measured against the dimension of the full invention, and (3) do more than merely explain to the real inventors well known concepts and/or the current state of the art.[85]

         At deposition, Chung testified it was his idea to use the double-sided motor, the primary inventive concept of the claimed invention, and he had to persuade the company to accept the idea:

Q. Whose idea was it to use the double-sided motor in the Denver project?
A. I have. It was carryover from the-the prototypes that we set up for demonstration in-on behalf of American. So American has double-sided, the prototype and stuff. We just-transferring the double-sided after seeing how it works and all that. So we went on ahead with the Denver. But still somebody has to stick neck out that double-sided works. And in my opinion, that's-that's my neck.
* * *
Q. And so where did you get the idea to use the double-sided motor?
A. Well, it's in the books in here and there, I guess. So I cannot pin down exactly who is my-who is my source of information on that, but I assume that all along it's more of a prior art-prior art, nothing more than that. I don't claim I invented it, but what I did was to commit myself to-to go to double sided. . . . So it is-it is my decision to-to go use double-sided. And then also prove that you can live with double-sided as I presented. So you don't have to worry about excess heat. . . .
Q. Did you have to persuade the company to use the double-sided approach?
A. Oh, yeah. That was my-that was-wasn't my opinion. That was a huge decision. Can you imagine that you make about a thousand or so linear motors and then go ahead and get the contract and started, find that everything is getting very hot and burning up and all this stuff. That's going to be a huge mess. And I'm the only guy advocated, and then-not only advocated but proved, showed by testing any other means at the time, this is doable. . . . Somebody says, Well, how do you know it will do the job? I said, You just said to trust me.[86]

         Joel Staehs, the only living named inventor of the ‘125 patent, corroborated Chung's testimony:

Q. Stepping back to the prototype in the warehouse, did that have the same structural set up as the-
A. No, it was completely-
Q. How did that differ from the other systems?
A. Well, the-the chassis-the chassis was a steel-steel frame. And the big-the-well, in order to run that many cars, 60 cars a minute, the motors-the motors would overheat. So we just-we-we talked about it. What are we going to do about this and that? Mr. Chung come [sic] up with the idea. He said, look, if you put two stators in there-he had Dated this once before in the-way back in the ‘60's, as a test. He ran a test for it. You put two stators in facing like this (indicates) with a small gap between them, you don't have to turn the motors off. They won't burn up that way, so therefore, we can eliminate the switches. Oh, that's a great idea. . . .
Q. Do you know where Mr. Chung got that idea originally?
A. No, I have no idea where he got it. I know he used it, though. I know he tried it many years ago, back in the ‘60's, when they were running thrust test. In other words, design a motor, see how much thrust you can get and they think they can get this much. You know, they were just running tests, experimenting, see how much they can get out of a motor. And he ran face-to-face with the vertical slider unit on their test bed.[87]
Chung's “great idea” was then claimed by BAE in the ‘125 patent:
Q. Well, if you look at Claim 1 for example, on-in Column 6, down on line 6 it says “linear induction motors mounted between said rails in an opposed configuration.”
A. Yes.
Q. So that's-that was Mr. Chung's idea?
[objection]
A. Was it? I don't-I-he-he was the one that suggested we do that, yes. Or he said that would be the advantage of doing that.[88]

         In the Fee Award R&R, the court found this testimony was sufficient to establish plaintiffs were objectively unreasonable in continuing to litigate the ‘125 patent due to the inventorship problem.

         Defendants, however, also direct the court to the first document produced in this case by defendant Busch Entertainment (“Busch”) on November 18, 2008, the transcript of a June 7, 2007 interview of Staehs who testified as to Chung's involvement in the invention:

Q. (By Mr. King) Who came up with the idea of going from flat to- A. Well Mr. Chung said that we wouldn't have-we wouldn't burn up the motors if we left them on. That was the big key because you had to get a solid state switch to turn the motors off and turn the motors back on every time a car came by, and as many cars was going by, a regular switch would have worn out in maybe two months.
So it had to be-it had to be a solid state switch, which we did use in San Francisco, solid state switches; and they're expensive, and they didn't even think that even that would save the motors because it would be so hot. So he said, well, now, if we put them face to face, we won't have to do that. We said, Bingo, that's the answer. Let's do that.
Q. Tell me his name again.
A. Kwang[h]o Chung.[89]

         Based on Staehs' testimony, defendants argue plaintiffs had no excuse for ignorance of the inventorship problem as early as 2008, when the transcript was produced, thereby extending the period damages should be awarded to that date rather than the date of the 2011 depositions.[90] The court disagrees and finds that testimony does not provide sufficient evidence regarding Chung's testing, which demonstrated the efficacy of his idea, or that he was the only advocate for the use of double-sided motors, “sticking [his] neck out” in support of the “huge decision” to proceed with that use which, along with Staehs' 2011 corroborating testimony, clearly demonstrates his inventorship.

         The Federal Circuit also commented on Staehs' deposition testimony. During oral argument before that court Federal Circuit Judge Lourie observed, before affirming this court's decision, “Mr. Chung . . . obviously contributed something; the only living inventor testified that Mr. Chung was the inventor of-was a co-inventor, because of the double-side-double sided motor.”[91]

         The court, therefore, reaffirms its conclusion that plaintiffs' position on the issue of inventorship was objectively unreasonable and defendants are entitled to fees incurred following the depositions in late July 2011.[92]

         Defendants contend plaintiffs were objectively unreasonable in relying on the Hanlon's expert report.[93] Plaintiffs contend the court should reconsider its previous conclusion that the excluded Hanlon expert report on infringement provides support for an award of fees because defendants did not raise that issue in either their previous opening or reply briefs in support of their fee request.[94] Plaintiffs argue the flaws in Hanlon's report were already punished by exclusion of Hanlon's infringement opinions.[95]

         Under Octane Fitness, when exercising its discretion in determining whether a case is “exceptional” the court is to consider the “totality of the circumstances” of the case.[96] Following the Federal Circuit's guidance, the court again considers whether continued litigation following service of Hanlon's report in determining whether reliance on that report makes this case “one that stands out from others with respect to the substantive strength of a party's litigation position . . . or the unreasonable manner in which the case was litigated.”[97] The court also finds plaintiffs' argument that they had already been punished unpersuasive as they continued the ‘125 patent litigation after serving Hanlon's completely inadequate report.[98] For the reasons set forth in the Fee Award R&R, [99] the court again finds plaintiffs' reliance on Hanlon's expert report was objectively unreasonable.[100]

         Defendants also contend additional circumstances support a finding of objective unreasonableness: discovery misconduct and spoliation; plaintiffs' position on the indefiniteness of the ‘125 patent; plaintiffs' position on the obviousness of the ‘125 patent; and plaintiffs' continued litigation after the “kiss of death” email.[101] Although defendants acknowledge the Fee Award R&R found these additional circumstances did not support a fee award, they request the court take each of them into account in considering the totality of the circumstances in coming to its decision.[102]

         Defendants argue plaintiffs' purported discovery misconduct and spoliation support a finding of plaintiffs' objective unreasonableness.[103] Defendants contend that even though plaintiffs discovered the activity that would form the basis for the on-sale bar when Zelley visited G&T shortly after the suit was filed, they withheld the factual information he had uncovered, just one week later, in response to an interrogatory specifically asking for information about conception and reduction to practice, confidential and non-confidential disclosures, and public uses, disclosures, and offers for sale.[104] Defendants maintain the failure to disclose such information prevented them from pursuing that issue earlier, and likely contributed to loss of additional evidence due to the destruction of documents by G&T.[105]

         In the Fee Award R&R, the court concluded “[t]he primary evidence resulting in the finding of on-sale bar was a video tape dated before the ‘125 patent's critical date” and that “[t]he record is devoid of any evidence that plaintiffs knew of this tape before Pockrus's deposition.”[106] Defendants argue, however, that the issue is not whether they knew of the tape, but instead, whether plaintiffs conducted a proper pre-filing investigation and whether they made appropriate efforts to prevent the loss of documents relevant to the claims they were bringing.[107]

         The court previously found a basic pre-trial investigation would not have confirmed the invalidity of the ‘125 patent:

Here, despite the subsequent invalidation of the ‘125 patent, plaintiffs' claims were not frivolous. Plaintiffs had reason to rely on the prima facie evidence of the patent's validity arising from the grant by the U.S. Patent and Trademark Office (“PTO”). A basic pre-trial investigation would not have confirmed that claim 3 was indefinite or the subject matter of the ‘125 patent obvious. Those findings of invalidity by the court occurred after seven years of the litigation, following extensive discovery, depositions, claim construction, and expert testimony. That defendants were successful in their arguments does not constitute frivolousness.[108]
The court also previously addressed production of the video tape:
The record is devoid of any evidence plaintiffs knew of this tape before Pockrus's deposition. Contrary to defendants' argument, the requisite knowledge cannot be inferred from G&T's failure to halt the routine disposal of BAE's archives. BAE deposited its archives with a disposal facility and designated disposal dates before it went out of business. G&T's e-mails to the disposal facility show it never attempted to accelerate the destruction of records potentially relevant to this action. When defendants deposed Pockrus, who supervised the disposal of BAE's archives, he denied G&T intentionally “went through the archive and . . . thinned it out.”[109]

         Nevertheless, this court previously 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 Zelley Memorandum and certain other documents discoverable.[110] The court, therefore, finds defendants' contentions regarding a pre-filing investigation and plaintiffs' efforts to prevent the loss of documents relevant to the claims they were bringing do not support an award of fees.

         The evidence also does not support defendants' assertion that a litigation hold was not put in place.[111]

         In a March 5, 2007 email from Frank DiGiovanni, an attorney at Connolly Bove-plaintiffs' ...


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