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Roche Diagnostics Operations Inc. v. Lifescan Inc.

United States District Court, D. Delaware

March 31, 2018

ROCHE DIAGNOSTICS OPERATIONS INC., et al., Plaintiffs,
v.
LIFESCAN INCORPORATED, et al., Defendants.

          MEMORANDUM

         The parties, Plaintiff Roche and Defendant Nova, each filed motions for attorney's fees. (D.I. 1049, 1050). The Magistrate Judge filed a Report and Recommendation recommending that each motion be denied. (D.I. 1091). The parties each filed objections to the denial of their motions, and each has filed responses. (D.I. 1092, 1093, 1097, 1098). As the parties both agree, I review their objections de novo.

         The Magistrate Judge's Report is lengthy, and I will adopt the factual findings and legal conclusions in the Report. I do not separately recite any of them except as I think necessary to explain my decision.

         Nova's motion (D.I. 1049) is based on 35 U.S.C. § 285 and Roche's complete failure on its patent infringement case. Roche does not contest that Nova is the prevailing party. (D.I. 1104 at 6). The Magistrate Judge recommended that the Court find that the case is not exceptional. (D.I. 1091 at 24). "[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." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1756 (2014). Nova objects to the "non-exceptional" rinding.

         Nova's objection centers on what it considers an "improper motion for reconsideration, " and a "claim construction position [that] was unreasonable." The centerpiece of this argument is that Nova's product used electrodes with a width of 762 urn but the patent claims (as construed) required a width of less than 100 urn, which required Roche to make baseless arguments that the patent claims only required a width of less than 1000 um. Interwoven with this is an argument about what the dividing line between a micro-electrode and a macro-electrode was. It is of course true that Roche lost on these arguments, and that its arguments morphed from the initial Markman before Judge Farnan. Neither of these two points makes Roche's conduct exceptional. One side always loses, and, in my experience, it is routine (though frustrating) that arguments generally, and claim construction arguments in particular, shift and are recycled in different guises during litigation. See Sarif Biomed. LLC v. Brainlab, Inc., 2016 WL 5422479, at *2 (D.Del. Sept. 27, 2016) (Judge Stark expressing similar experience). Roche notes that none of the judges who partook of this case contemporaneously expressed perceived baselessness of Roche's positions. (D.I. 1098 at 4 (Judge Farnan) & at 9 (Federal Circuit)).[1] I do not think this matters. Nor do I think it matters that another prevailing party has not filed a motion for attorney's fees. (See D.I. 1098 at 1).

         In the end, I think the reasonableness of Roche's claim construction positions are supported by the Federal Circuit's opinion on the first appeal. See Roche Diagnostics Operations, Inc. v. LifeScan Inc., 452 Fed.Appx. 989 (Fed. Cir. 2012). I remember that I read that opinion as strongly implying that the panel thought Judge Farnan had gotten the claim construction wrong.[2] At a minimum, it raised a lot of questions about the claim construction of "electrode." Ultimately, I thought Judge Farnan had gotten it right, and I thought the panel opinion did not expressly say that his claim construction was wrong. Thus, I thought I was free to reach the same conclusion in the second Markman opinion as Judge Farnan had in the first. (See D.I. 563 & 564; D.I. 1025 at 15).

         The docket reflects that it took me more than two years to issue the second Markman opinion. That is not a coincidence. I thought the Markman aspect of the opinion would be the subject of a vigorous appeal. That is why I also spent considerable time and effort thinking about whether the reconsideration motion was "procedurally improper, " and used my conclusion as an alternative basis for decision. As for Nova's argument now that the reconsideration motions were improper, I would simply note that I was the only judge to state that I thought they were procedurally improper.[3] More importantly, Nova did not raise the "procedurally improper" argument in the first appeal (D.I. 1025 at 9), and I do think I can treat that as contemporaneous evidence that it was less than clear that Roche's reconsideration motions were procedurally improper. Said another way, Nova's appellate approach is inconsistent with its present argument that Roche was filing motions that were clearly procedurally improper.

         This was a hard-fought patent infringement case, in which Nova was the winner, but I do not think it is an exceptional case. Thus, Nova's objections (D.I. 1092) are overruled, and I will deny Nova's motion for attorney's fees (D.I. 1049).

         Roche's motion (D.I. 1050) seeks attorney's fees based on Swiss law analogous to the "English Rule, " that is, the loser pays the winner's attorney's fees.[4] The issue arises because Nova asserted four counterclaims (to wit, breach of contract, misappropriation of trade secrets, unfair competition, and conversion), which it lost. It was clear early on in the litigation that Swiss law controlled on the breach of contract claim (D.I. 211, p.3; D.I. 216, p.l), although the applicability of Swiss law to the other three claims was not determined until trial. The reason Swiss law applied to the counterclaims was that the claims arose out of an alleged breach of a two-page non-disclosure agreement, which had a provision stating, in total, "This Agreement shall be governed in all respects by the laws of Switzerland." (D.I. 1054-1 at 129 [Exh. C at 2]). See Roche v. LifeScan, 452 Fed.Appx. at 997.

         Roche argues that it is entitled to a "basic fee" of $45, 350, 000. (D.I. 1052, pp. 16-17). Its Swiss law expert explains that it would usually get a surcharge of 30% (or $13, 605, 000), for a total of $58, 955, 000. (D.I. 1054, ¶¶ 21, 26). Or, maybe not, as it is "likely" that Swiss law might limit the surcharge in this case because of "constitutional limitations on excessive compensation that might appear arbitrary."[5] (Id., ¶ 26).

         Roche's objections to the Report and Recommendation are two-fold. The first is that the Magistrate Judge conducted the wrong analysis, and the second is that the analysis she did conduct was in significant part wrong. In order to resolve those objections, I think it is necessary to decide exactly what the analytical framework is that I should be using.

         I start with the jurisdictional basis for the counterclaims. Nova alleged that to be diversity of citizenship and supplemental jurisdiction. (D.I. 47, p.8, ¶ 5). Roche initially denied them. (D.I. 63, p.2). Roche later agreed, at a minimum, that the court had jurisdiction on the basis of supplemental jurisdiction.[6] (D.I. 767, p.2). The point here is that the counterclaims were the equivalent of state law claims. Thus, "state law" (by which I mean either Swiss law or Delaware law) applies to the issue of attorney's fees on the counterclaims. See Alaska Rent-a-Car, Inc. v. Avis Budget Group, Inc., 738 F.3d 960, 973 (9th Cir. 2013). How to decide which "state's" law applies? "The rule is that the federal court in which the case is litigated should apply the forum state's choice of law rules." Id. Thus, I apply Delaware's choice of law rules.

         Delaware courts look to the Restatement (Second) of Conflict of Laws to determine choice-of-law issues. See Gavin v. Club Holdings, LLC, 2016 WL 1298964, *3 (D.Del. Mar. 31, 2016).

         The Magistrate Judge's analysis followed the approach taken by Delaware courts to analogous situations. The analysis primarily tracked that of Relax Ltd. v. ANIP Acquisition Co., 2011 WL 2162915 (Del. Sup. Ct. May 26, 2011). See Microsoft Corp. v. Patent Revenue Partners, LLC, 2015 WL 6122331, *4 (Del. Ct. Ch. Oct. 15, 2015) (following Relax).

         In Relax, the Superior Court had a breach of contract case in which the contract provided that it '"shall be governed by English law, '" exactly parallel to the non-disclosure agreement's provision that it "shall be governed in all respects by the laws of Switzerland." The parties disputed whether the "English rule" or the "American rule" should apply to the request for attorney's fees. The Court held that it must "address two issues: (1) is the right to counsel fees procedural or substantive; and (2) if substantive, is [the winner] entitled to counsel fees under the English rule." To determine whether the issue was procedural or substantive, the Court conducted an analysis pursuant to Restatement ยง 122, which states, "A court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case." The Restatement's commentary noted that there were issues that would "fall into a gray area between issues relating primarily to judicial administration and those concerned primarily with the rights and liabilities of ...


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