Federal Circuit Affirms Denial of Attorneys’ Fees Following Dismissal Without Prejudice

The case is Giesecke & Devrient GmbH v. United States, nonprecedential opinion authored by Judge Stoll, joined by Judges Prost and Hughes.  The case is an appeal from the United States Court of Federal Claims, which hears claims against the federal government.  Patentee G&D filed suit against the U.S. claiming infringement of a patent directed to a “contactless data carrier,” which according to the patent includes “readable identification documents, such as passports and identity cards” (p.2).  HID, which provides the U.S. with permanent resident cards and global entry cards, joined the case and moved to dismiss with prejudice.  G&D then “sought leave to amend its complaint to drop the claims against HID’s card-based products.”  The court granted leave to amend and denied the motion to dismiss as moot, after which it “voluntarily dismissed the withdrawn claims without prejudice” (p.3).  HID moved for attorney fees, which the court initially granted pursuant to 35 U.S.C. § 285 on the grounds that HID was the prevailing party and the case exceptional.  The case was then transferred to a new judge, Judge (and former law professor) Ryan Holte, who after additional briefing concluded that the court lacked jurisdiction to consider the motion for fees under § 285.

The Federal Circuit affirms, reasoning that “the touchstone of the prevailing party inquiry must be the material alteration of the legal relationship of the parties” (p.4, quotation omitted), and that under Federal Circuit precedent defendants are not prevailing parties if the plaintiff voluntarily dismisses the case without prejudice (but would be if the dismissal were with prejudice) (p.5).  From the opinion:

We hold that, under our precedent, HID cannot be a “prevailing party” because the Court of Federal Claims permitted G&D to withdraw the claims then dismissed them without prejudice and, thus, G&D may refile or reassert the withdrawn claims against HID. See O.F. Mossberg & Sons, 955 F.3d at 991, 993. Like O.F. Mossberg & Sons and RFR, this case “involve[s] voluntary rather than involuntary dismissal[s] without prejudice.” Oscar, 541 F.3d at 981. But regardless of whether the dismissal is voluntary or involuntary, “the risk of re-filing underlying their reasoning applies in both procedural postures.” Id. Indeed, the Court of Federal Claims’ decision to dismiss without prejudice lacks “an adjudication on the merits,” Raniere, 887 F.3d at 1308, and therefore is not the “judicially sanctioned change in the legal relationship of the parties” that “effects or rebuffs a plaintiff’s attempt to effect a ‘material alteration in the legal relationship between the parties.’” Id. at 1306 (quoting CRST, 578 U.S. at 432) (p.6).

I’m not sure if the above language, suggesting that a dismissal “on the merits” is a prerequisite, is necessarily accurate in view of other Federal Circuit precedent, but this case is consistent with precedent indicating that, for the Federal Circuit, the key distinction appears to be whether the dismissal is with or without prejudice.  For previous discussion on this blog, see here and here. 

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In other news, Florian Mueller's new blog notes two potentially very far-reaching developments, one in Germany relating to extraterritorial damages stemming from domestic infringement, and one from China regarding the jurisdiction of Chinese courts to set FRAND royalties for patent pools.  I will have more to say about the first and possibly the second next week. 

Kaushal on Bank Guaranties in Indian FRAND Litigation

Tejaswini Kaushal has published a post on SpicyIP titled Secrets and Standards:  Analysing Pro-tem Securities in InterDigital v. Oppo [Part II].  As the title suggests, this is the second installment of a two-part post relating to the InterDigital v. Oppo FRAND litigation in India, the first addressing confidentiality and disclosure of license agreements.   The second post addresses the use of bank guarantees to secure interim relief to the SEP owner pending trial, which the Delhi High Court recently approved.

The basic idea, as I describe it in a project I am currently working on, is that in some jurisdictions court sometimes permit defendants to post a guaranty, or to actually deposit interim royalties, to avoid being preliminarily enjoined.  In recent years, Indian courts have employed this procedure in FRAND cases, as the post above discusses.  Both IPRED and the UPC also authorize this practice.  See IRPED art. 9(1)(a) (stating that member states shall ensure that courts may condition the continuation of an infringement "subject to the lodging of guarantees intended to ensure the compensation of the rightholder"); UPCA art. 62(1) (authorizing the court “to prohibit, on a provisional basis and subject, where appropriate, to a recurring penalty payment, the continuation of the alleged infringement or to make such continuation subject to the lodging of guarantees intended to ensure the compensation of the right holder”); and it is mentioned as a possibility in the European Commission’s draft regulation on SEPs, in recital 35 and in articles 1(4) and 35(4).  (Huawei v. ZTE also mentions, in its elaboration on the “FRAND dance,” that “where the alleged infringer is using the teachings of the SEP before a licensing agreement has been concluded, it is for that alleged infringer, from the point at which its counter-offer is rejected, to provide appropriate security, in accordance with recognised commercial practices in the field, for example by providing a bank guarantee or by placing the amounts necessary on deposit” (para. 67). This is not necessarily a court-ordered procedure, but rather part of the implementer's responsibility to show that it is a willing licensee, though I suppose it also would have the effect, discussed below, of reducing or eliminating the interim harm facing the SEP owner and thus should be relevant to whether the owner is entitled to a preliminary injunction.)  On the other hand, article 12 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Laws in Adjudication of Action Preservation Cases Involving IP Disputes (Jan. 1, 2019) (China), states that preliminary injunctions granted by Chinese courts “are generally not cancelled because the respondent provides a guarantee, except with the applicant's consent”); and, as I noted in a post ten years ago titled Setting the Amount of an Injunction Bond (and a Brief Digression about the Wright Brothers), this does not appear to be an authorized practice under U.S. law, although there are some old cases (including one, you guessed it, involving the Wright Brothers of airplane fame) in which federal district courts employed it.  (I should mention as well that Hui Zhang’s very informative 2019 Kluwer Patent Blog post on the Chinese Provisions noted above states that the practice is authorized under German law.  I imagine that must be the case, since IPRED requires it, but if readers can provide me with a citation to any cases in which this procedure has been employed, in Germany or for that matter anywhere else, I would appreciate it.)

If I understand correctly, the effect of the court’s or plaintiff’s acceptance of a bank guaranty or the payment of interim royalties in this context would be to render some of the patent owner’s allegedly irreparable harm—such as the risk of the defendant’s insolvency, or of a final damages judgment failing to properly account for the time value of money or other advantages accruing to the defendant from delay—reparable, and thus would provide a doctrinal basis for denying the preliminary injunction.  (In this regard, I would also note that the InterDigital decision discussed in the SpicyIP post states (at para. 99) that normally the court must first determine that the plaintiff has a prima facie case.  The logic, I think, would be that there is no need to calibrate the effect of a guaranty on the balance of hardships if there is no prima facie case.)  Theoretically, I would imagine that the practice also could enable a defendant who believes the court has erroneously balanced the relative hardships in favor of the plaintiff to “repair” some of the plaintiff’s allegedly irreparable harm by compensating the plaintiff for harms that otherwise would be, at least as a practical matter, non-compensable under governing law, such as harm to reputation or moral prejudice—though I would expect such cases to be extremely rare, perhaps nonexistent.  Again, though, if readers have any further insights on these issues, I would be interested in hearing from you. 

On a somewhat related note, Gregory Bacon and Aida Tohala published a post on the Kluwer Patent Blog last week about a decision of the Hague Local Division of the UPC, Abbott Diabetes Care Inc. v. Sibio Technology Limited, granting a preliminary injunction notwithstanding the defendant's undertaking to withdraw its allegedly infringing product from Germany, France, and the Netherlands.  The court was not persuaded that the undertaking would be effective, because Abbott "was able to purchase the contested device and have it delivered in Germany and the Netherlands, even after the undertakings were given," and because of the "lack of commitment as to penalty in the event of breach."   

Are Cross-Undertakings of Damages for the Benefit of Third Parties Consistent with IPRED Article 9(7)?

The short answer to the question posed above is, “I don’t know.”  But the question was briefed, though ultimately not answered, in a recent Irish decision.

To put the matter in context, many common-law counties (but not the U.S.) follow long-standing British practice of requiring an applicant for a preliminary injunction to make an undertaking (sometimes called a cross-undertaking), which I describe in a project I am currently working on as “a legally enforceable promise that it will compensate the defendant for losses suffered as a result of a preliminary injunction that subsequently is  discharged.”  In the U.K., courts sometimes require applicants to make cross-undertakings not only for the benefit of the defendant, but also for third parties (for example, the National Health Service) who may be negatively affected by a preliminary injunction (for example, prohibiting the marketing of a generic drug).  The question of whether this practice is consistent with the EU’s Intellectual Property Enforcement Directive (IPRED), of course, no longer affects the U.K., but it could affect EU countries that follow the British practice. 

Readers also may recall that the CJEU’s case law interpreting the relevant provision of IPRED (article 9(7)) is not altogether clear.  Article 9(7) states that “where “provisional measures are revoked or where they lapse due to any act or omission by the applicant, or where it is subsequently found that there has been no infringement or threat of infringement of an intellectual property right, the judicial authorities shall have the authority to order the applicant, upon request of the defendant, to provide the defendant appropriate compensation for any injury caused by those measures.”  Within the past five years, the CJEU has decided two somewhat difficult-to-reconcile cases interpreting this language.  First, in Bayer Pharma AG v. Richter Gedeon Vegyészeti Gyár Nyrt., Case C-688/17 (2019), the CJEU held that IPRED did not forbid a member state from denying compensation where the defendants launched at risk, even though the patent in suit was subsequently invalidated, where the application for a preliminary injunction appears to have been ex ante (though not ex post) justified.  But earlier this year, in Mylan AB v. Gilead Sciences Finland Oy, Case C-473/22 (2024), the Court upheld Finland’s practice of rendering the movant strictly liable to the defendant for losses caused by the interim enforcement of a patent that is later found to be invalid or not infringed, at least as long as “the court is entitled to adjust the amount of damages by taking into account the circumstances of the case, including whether the defendant played a part in the occurrence of the injury.”  (For previous discussion on this blog, see here and here.)  For now, at least, I interpret Mylan as standing “for the proposition that either a fault-based or strict liability standard is acceptable under EU law, as long as the standard permits the court to consider the totality of the circumstances, including the fault if any of either party, before either on the one hand denying relief, or on the other setting the ‘appropriate compensation.’”  Of course, this leaves open the question of how much leeway EU member states have in determining what the appropriate compensation, if any, should be where the application was made in good faith but the defendant launched at risk.

It also leaves open the question of whether requiring the movant to compensate nonparties is consistent with article 9(7), which is where the post started.  The issue was recently briefed in Bristol Myers Squibb Holdings Ireland Unltd. v. Norton (Waterford) Ltd. t/a Teva Pharms. Ireland, [2024] IECA 49, a case in which the trial court had allowed the undertaking to be expanded to include companies related to the defendant, but only after the injunction had been granted. On appeal, Ms. Justice Costello, writing for the court, engages in a thorough discussion of the Irish and English case law on undertakings, as well as the difficulties that may arise when courts consider extending undertakings to nonparties.  Ultimately, she concludes that the requested extension here was untimely, because the injunction had already been granted.  The court therefore leaves for another day a discussion of the circumstances, if any, under which Irish law would permit the undertaking to include losses suffered by third parties—while also concluding that Teva's evidence in support of the expansion was, in any event, lacking; that Irish law may be less amenable than is English law to including third parties within the scope of an undertaking; and, as above, without resolving whether such extensions would be consistent with the CJEU’s case law interpreting article 9(7).  (The decision references only the Bayer decision, however, presumably because Mylan was decided after briefing and argument—in fact, just a few weeks before the Irish decision came down on March 1.)

If readers are aware of any articles discussing IPRED’s compatibility with cross-undertakings for the benefit of third parties, please let me know.  I am aware of one recent article by Marco Stief and Anja Geller discussing a recent German case that allowed a related company to be compensated, and arguing that unrelated third parties as well should be accorded a right to remuneration.  See Marco Stief & Anja Geller, Ersatzansprüche bei ungerechtfertigten einstweiligen Verfügungen im Pharmabereich:  Ansprüche des Antragsgegners und geschädigter Dritter, 2023 GRUR 931, previously noted on this blog here.

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I will be taking a blogging break for the next two weeks.  I plan to resume the week of June 24.