Thursday, May 11, 2023

Federal Circuit Affirms Denial of Attorneys' Fees, Declines to Award Sanctions for Allegedly Frivolous Appeal

The case is United Cannabis Corp. v. Pure Hemp Collective Inc., precedential opinion by Judge Stark joined by Judges Louries and Cunningham.  Plaintiff United Cannabis (UCANN) filed suit against the defendant Pure Hemp for infringement of a patent relating to cannabis extracts.  While the litigation was pending, UCANN filed for bankruptcy, and the parties thereafter stipulated to dismissal.  The trial court dismissed UCANN’s infringement claims with prejudice, and Pure Hemp’s counterclaims for invalidity and inequitable conduct without prejudice.  Pure Hemp then moved for an award of attorneys’ fees pursuant to 35 U.S.C. § 285, 28 U.S.C. § 1927 (which authorizes sanctions for unreasonable and vexatious conduct), and the court’s inherent authority.  Pure Hemp informed the court that it wasn’t seeking an evidentiary hearing on these motions, however, and the district court subsequently denied the motion based on the record before it.   On appeal, “Pure Hemp identifies three supposed errors committed by the district court: (1) failing to find Pure Hemp to be the prevailing party in the litigation; (2) not concluding that the undisputed facts establish inequitable conduct; and (3) not recognizing that UCANN’s attorneys had a conflict of interest for which they should be sanctioned” (pp. 6-7).  

As for the first issue, although the Federal Circuit agrees that the district court erred in stating that Pure Hemp was not the “prevailing party” for purposes of § 285, the court agrees with UCANN that the error was harmless because “the district court went on to consider the question of whether this case is exceptional,” and did not abuse its discretion in concluding that “Pure Hemp failed to meet its burden on this additional, necessary element of its motion” (p.7).  In regard to the first ground, inequitable conduct, the court states


. . . we have no findings to review. The district court made no findings, and was not required to do so, because Pure Hemp voluntarily dismissed its counterclaim for inequitable conduct before any such findings had been made and, thereafter, in connection with its post-dismissal motion for attorney fees, Pure Hemp told the district court it did not seek any further evidentiary proceedings. . . . It is self-evident that a district court does not abuse its discretion by not conducting a post-dismissal inequitable conduct proceeding, in aid of resolution of a § 285 motion, when the moving party explicitly disclaims any desire for such a proceeding (p.8).

The court similarly finds unpersuasive the argument that it should find inequitable conduct on the basis of supposedly undisputed facts in the record, or on the basis of its own (appellate-level) factfinding (pp. 8-11).  On the conflict of interest issue—involving an allegation that Pure Hemp’s counsel “simultaneously took conflicting positions for two of its clients, by prosecuting identical patents for both UCANN and Gw Pharma” (p.12)—the court concludes, first, that Pure Hemp waived the argument by failing to “cite Rule 1.7 of the Model Rules of Professional Conduct, which is the basis for its conflict contention before us, to the district court”; and second that, in any event, the “allegations . . .  lack merit” because Pure Hemp “presented no evidence that the patents Cooley prosecuted and obtained are identical” (pp. 12-13).

The court concludes by denying UCANN’s motion for sanctions for filing a frivolous appeal, stating that although the matter presents “a close call,” the appeal was not frivolous:


While Pure Hemp’s position is extremely weak, it is neither “frivolous as filed” nor “frivolous as argued.” Pure Hemp has prevailed on its appeal from the district court’s erroneous conclusion that Pure Hemp was not the prevailing party. While UCANN never contested this point, Pure Hemp’s victory on it persuades us that its appeal was not entirely frivolous when filed. As for how it has argued its appeal, there is much on which to fault Pure Hemp, including its contentions that the fact-laden issue of an attorney’s specific intent can be resolved on our record as undisputed and that, alternatively, we should sit as factfinders. Then there are Pure Hemp’s unsupported attacks on the integrity of UCANN’s prosecution counsel (as discussed above in connection with inequitable conduct) and on UCANN’s litigating counsel (whom Pure Hemp, unconvincingly, accuses of misconduct on appeal). . . . We take this opportunity to remind counsel of their obligation not to lightly launch attacks on one another’s integrity and most certainly not to do so without a sound basis and solid evidence. Although we are not pleased with how Pure Hemp has argued this appeal, we cannot say this appeal, as a whole, was “frivolous as argued” (pp. 14-15).


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