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Court uses “inherent power” to sanction patent litigation conduct
The U.S. Court of Appeals for the Federal Circuit recently fired a warning shot to parties tempted to file patent infringement lawsuits in bad faith. Its ruling should put them on alert that their claims could lead to costly sanctions — even if they voluntarily withdraw a lawsuit before the litigation gets rolling.
Frivolous claims furiously challenged
PS Products Inc. (PSP) sued Panther Trading Co., alleging patent infringement. Panther responded by threatening to seek Rule 11 sanctions. Rule 11 generally requires attorneys to certify that their court filings have a valid basis in law and fact. Panther asserted that the allegations were frivolous because the patented design and accused product were clearly dissimilar, and that PSP filed its action in the wrong venue.
PSP subsequently dismissed its case voluntarily. Panther then demanded reimbursement for attorneys’ fees and expenses incurred defending the suit, warning that refusal would prompt Panther to seek sanctions to deter further frivolous filings.
The trial court deemed the case “exceptional” under Section 285 of the Patent Act, and therefore granted Panther’s motion for fees and costs against PSP and its attorney. The court also ordered them to pay $25,000 in deterrence sanctions, based on the court’s “inherent power” to award sanctions.
Sanctions upheld
On appeal, the Federal Circuit found that, under the applicable law, a court may use its inherent power to sanction parties’ bad faith conduct during litigation. PSP contended that it was nonetheless improper for the trial court to impose deterrence sanctions under its inherent power when it already had awarded attorneys’ fees and costs under Sec. 285. The appellate court, however, found that the provision doesn’t preclude a court from separately imposing sanctions under another authority.
The appellate court found plenty of bad faith conduct to justify the sanctions, too. It pointed, for example, to the lack of a plausible infringement claim and PSP’s citing of the wrong venue statute to file in a venue where Panther neither resides nor has a place of business. The court also emphasized PSP’s history of filing many meritless lawsuits in that venue.
Dismissal is no shield from sanctions
It’s worth noting that PSP didn’t dispute that the sanctions would have been warranted under Rule 11. Such sanctions weren’t available, though, because PSP dismissed the case before Panther could file a Rule 11 motion with the court. Without the rule to rely on, the Federal Circuit concluded, the trial court could rightfully turn to its inherent power to sanction bad faith conduct.
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