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     Earlier this year, O2 Micro International (“02”) appealed the Northern District of California’s decision granting a hefty attorneys’ fees award to Monolithic Power Systems, Inc. (“MPS” (Nasdaq: MPWR)). That award totaled $8,419,429 to be exact. That’s quite a healthy amount and, as can be imagined, 02 fought tooth-and-nail to overturn it. However, not only did the Federal Circuit affirm (see the decision here), but the Court also failed to reduce the attorneys’ fees award by a single cent.

     A case with such a hefty fees award is certain to be an interesting one- you know that there’s going to be some juicy dirt and courtroom shenanigans going on. This one is no exception.  Not only does the case provide some juicy gossip, but it also does a good job of clarifying a couple of issues that, while narrow, are often litigated in patent cases.

     MPS is a fabless manufacturer of high performance analog and mixed-signal semiconductors. 02 is a competitor and, for ten long years, had been involved off-and-on in litigation with MPS.  As the Court noted in its decision, the district court found that 02 had a strategy of suing MPS’ customers, apparently to force MPS to file declaratory actions. This went on for nearly a decade and revolved around multiple patents owned respectively by the parties.  02’s ‘382 Patent (U.S. Patent No. 7,417,382), that was at issue here, is related to another family of 02 patents that share the same priority date. Some of those other patents had been invalidated in another case, and 02 was scrambling to try to swear behind some prior art common to both cases and the conception date of MPS’s MP1010 circuit designed in 1998.

    02 proffered a schematic with a quirky “February 18, 1998” date stamp (there was an extra comma between “February” and “18”).  02’s Dr. Yung-Lin Lin and 02’s management swore up and down that the date stamp had been computer auto-generated and that 02 was entitled to the earlier conception date. MPS’s litigation team was on the ball, though, and was suspicious of the funky date stamp.  They had a schematic expert, Dr. Marc Herniter (who, by the way, wrote a book on MatLab), evaluate the schematics and its date. Dr. Herniter’s opinion was that the date stamp had been manually entered.  This caused 02 to engage in a flurry of motion practice (including a motion for summary judgment) in an attempt to keep Dr. Herniter’s report from being entered at trial. In February 2010, the Court denied 02’s motions and held that 02 was entitled to only a July 22, 1999 conception date. Trial was set for July of 2010.

     Before the trial, in May 2010, the district court had its own technical expert (under Federal Rule of Evidence 706) assist the court with its infringement and invalidity determinations regarding the ‘382 patent. The expert’s June 15, 2010 opinion concluded that all of 02’s asserted claims were invalid and either infringed or likely not infringed.

     Later, 02 moved to dismiss the suit, but not before MPS had been forced to file its pretrial submissions.  The district court dismissed all of 02’s claims with prejudice on June 23, 2010.  On July 1, MPS moved for its attorneys’ fees and for sanctions under multiple statutes, including 35 U.S.C. 285 and Federal Rule of Civil Procedure 37(c)(2), which the district court granted.  The court found the case ‘exceptional’ based in part on 02’s strategy of suing MPS’ customers and forcing it to expend substantial resources on litigation before it dropped the cases and avoided a determination of its patents’ validity.

    On appeal, the Federal Circuit addressed two interesting questions that arose in this case. First, 02 argued that MPS was not entitled to the full attorneys’ fee award because  some of the resulting work and discovery had been used in a parallel ITC proceeding. Second, citing Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 02 argued that the case was not exceptonal and sanctions not warranted because 02’s complaint had not been objectively baseless.

     In response, the Federal Circuit first noted patent litigants can do all sorts of nasty things that might warrant finding a case exceptional. Inequitable conduct before the USPTO, willful infringement, litigation misconduct and bad faith are just a few. Importantly, the Court also noted that its only absent litigation misconduct or misconduct in securing the patent that finding bad faith coupled with objectively baseless claims must be found to support finding the case exceptional. In short, litigation misconduct alone can suffice to support such a finding.

    As to the issue of parallel proceedings, the Court agreed with 02 that discovery was common to both the ITC proceeding and to the district court proceeding. The Court, however, reminded 02 that it had signed on to the parties’ agreement to use the same discovery in both proceedings. In addition, the Court pointed out that the fee award did not include fees related to work solely used in the ITC proceeding.

  Well, ten years is a long time, especially in “litigation years”, but MPS was finally made whole- well, sort of. Its difficult to even ballpark how much MPS may have spent in litigation costs over ten years of litigation with 02. While MPS, at least at this point, isn’t a particularly small company, its still difficult to see 02’s style of “scorched earth” litigation. Unfortunately, the strategy has been alive and well, particularly against small start-ups that may not yet have the cache and capital to withstand having themselves and their customers sued over alleged patent or trade secret infringement- however weak those allegations may be.  Let’s hope the Court’s decision is a deterrent to at least some of the vast number of parties that use litigation as a strong arm tactic notwithstanding a potentially weak or poorly vetted case.