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$4.3 Million Attorney Fees Sanction Reversed

By Elenore Cotter Klingler, Litigation News Associate Editor – June 8, 2010

Overcoming the high degree of deference usually given trial judges in issuing sanctions, the Court of Appeals for the Federal Circuit has overturned a $4.3 million attorney fee and cost award [PDF] issued by a trial court after a jury found in that party’s favor.

In the Trial Court
The underlying case involved a patent infringement suit brought by Medtronic Navigation Inc. against BrainLAB Medizinische Computersystems GmbH, in the U.S. District Court for the District of Colorado. Medtronic was represented by attorneys from McDermott, Will & Emery.

After surviving summary judgment motions, the jury awarded Medtronic $50 million for infringement of two patents, and an additional $1 million for infringement of another patent.

U.S. District Judge Richard Matsch then granted BrainLAB’s motion for judgment as a matter of law under Federal Rule 50(b), and entered judgment of non-infringement as to all four patents. On appeal, the district court’s order granting judgment for BrainLAB as a matter of law was affirmed.

After the appeal, BrainLAB filed a petition in the district court seeking attorney fees and expenses under 35 U.S.C. § 285 and 28 U.S.C. § 1927. BrainLAB argued that the case was exceptional and that Medtronic and its counsel had prolonged a frivolous lawsuit, obtaining a jury verdict through tactics of abusive advocacy and litigation misconduct. The district court agreed and ruled that an award of attorney fees was justified.

In so doing, the district court ruled [PDF] that counsel’s “misleading trial tactics” had influenced the jury verdict, and their tactics were an “abuse of advocacy.”

“Patent law is complex and not intuitive to the average juror. Parties and counsel have an obligation to refrain from seeking to take advantage of those complexities by employing misleading strategies,” the district court said.

The court also found that Medtronic should have “accept[ed] that the claims construction rulings stripped the merits from this case.” Instead, the court found counsel “chose to pursue a strategy of distorting those rulings.”

The district court entered an order awarding attorney fees, costs, expenses, and interest in an amount of $4,382,031.36. As part of its order, the district court invoked 28 U.S.C. § 1927 and held McDermott jointly responsible for the fee award on grounds that the McDermott attorneys “had proceeded ‘cavalierly’ and ‘with full awareness that their case was without merit.’”

The Federal Circuit Disagrees
The U.S. Court of Appeals for the Federal Circuit reversed the district court order [PDF], finding that Medtronic’s attorneys did not act so inappropriately as to create the “exceptional case” required to impose attorney fees.

“Despite our reluctance to second-guess the judgment of trial judges who typically have intimate knowledge of the case, we have the responsibility, in light of the substantial economic and reputational impact of such sanctions, to examine the record with care to determine whether the trial court has committed clear error in holding the case exceptional or has abused its discretion with respect to the fee award,” the appellate court noted.

“Based on a close study of the record in this case, we conclude that the district court committed clear error in finding this case to be exceptional, and we therefore reverse,” it held.

The fact the trial had let Medtronic continue its case through closing argument was particularly important to the appellate panel, which noted [PDF], “Absent misrepresentation to the court, a party is entitled to rely on a court’s denial of summary judgment and [judgment as a matter of law], as well as the jury’s favorable verdict, as an indication that the party’s claims were objectively reasonable and suitable for resolution at trial.”

Did the Appellate Court Get It Right?
“The case appears to reaffirm the view that I think most trial lawyers hold that it is perfectly fine to raise legitimate, nonfrivolous issues in a case without being sanctioned,” says Lawrence D. Rosenberg, Washington, D.C., cochair of the ABA Section of Litigation’s Trial Practice Committee.

Fred Holleman, Detroit, cochair of the the Section’s Appellate Practice Committee, agrees. “It is pretty well known across the circuits that when the trial court denies the motion for summary judgment, that is an indication of there being some merit in the claim,” he says.

The complexity of the underlying case was important to the court of appeals’ decision, notes Dori Ann Hanswirth, New York, cochair of the Section’s Trial Practice Committee.

“This was a complex case with difficult issues, and even the judge himself didn’t have the full grasp of the case or the law during the proceedings,” she observes.

“It would be very unfair to characterize that case as an ‘exceptional case’ within the meaning of the law that would allow fee shifting,” she says.

A Sigh of Relief
Attorneys trying complicated cases will be relieved by the court of appeals’ decision, says Rosenberg. “The view that an experienced trial lawyer believes an argument is reasonable, credible, and compelling, and a trial judge would second-guess that decision after the fact, that is a troubling notion,” Rosenberg says.

Nevertheless, practitioners should keep in mind that sanctions remain a possibility, especially in hard-fought and complicated cases, advises Hanswirth.

“Both sides have an incentive to set the other side up to do something objectively unreasonable and to make the case ‘exceptional,’” Hanswirth notes.

“You need to be watching out for that at all times,” Holleman advises.

“If a party is contemplating bringing a sanctions motion, you should lay the basis in the record for the motion, and make sure you have made the arguments below if you want the appellate court to rely on it in review,” Holleman suggests.

Though sanctions may now be more on the minds of both counsel and judges, the federal circuit court decision has generally brought the law back to status quo.

Rosenberg notes that most experienced trial attorneys were already arguing appropriately and will continue to do so.

“This case reaffirms the notion that unless your argument is totally frivolous, you should be entitled to raise your argument to the jury,” Rosenberg says.

Keywords: Litigation, attorney fees, court of appeals, sanctions, reversal

Related Resources

  • » Attorney Fees, 35 U.S.C. § 285.
  • » Counsel’s Liability for Excessive Costs, 28 U.S.C. § 1927.
  • » Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersystems GmbH, 417 F. Supp. 2d 1188 (D. Colo. 2006).
  • » Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersysteme GmbH, 222 F. App’x 952 (Fed. Cir. 2007).
  • » Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersystems GmbH, No. 98-cv-1072 (D. Colo. Feb. 12, 2008).


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