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Learn more about what you receive with purchase of this case. LLC v. RPost Communications Ltd.

United States District Court, D. Arizona

August 31, 2016 LLC, Plaintiff,
RPost Communications Limited, et al., Defendants.


          James A. Teilborg Senior United States District Judge

         Pending before the Court are Plaintiff LLC (“GoDaddy”)'s Motion for Attorneys' Fees and Related Non-Taxable Expenses, (Doc. 353), Motion to Seal and Notice of Lodging Certain Exhibits to GoDaddy's Motion for Attorneys' Fees and Related Non-Taxable Expenses, (Doc. 354), and Motion for the Court to Review the Clerk's Taxation of Costs, (Doc. 375). Also pending before the Court are Defendants'[1]Motion for Attorneys' Fees and Related Non-Taxable Expenses, (Doc. 356), and two motions to seal, (Docs. 360, 372). The Court now rules on the motions.

         I. Background

         GoDaddy filed this declaratory judgment action against RPost seeking, among other things, damages for fraudulent misrepresentation and judicial declarations of invalidity, non-infringement, and unenforceability for patent misuse of various patents (the “Asserted Patents”)[2] after RPost attempted to enforce those patents against GoDaddy. (Doc. 46 at 38). GoDaddy claimed that RPost engaged in fraudulent misrepresentation because RPost “represented unclouded ownership in and rights to enforce” the Asserted Patents. (Id. at 16-17). RPost counterclaimed, asserting that GoDaddy was liable for direct infringement of the Asserted Patents. (Doc. 108 at 20-27).

         The first round of dispositive motions was a success for RPost as the Court dismissed Count II of GoDaddy's First Amended Complaint (“FAC”) for patent misuse. (Doc. 105). The second round also proved fruitful for RPost, as the Court dismissed GoDaddy's remaining declaratory judgment counts against RMail Ltd. and RPost International Ltd. (Doc. 106). The third round was mildly rewarding for RPost, as the Court dismissed two of GoDaddy's declaratory judgment counts in their entirety. See (Doc. 107) (dismissing Counts XIV and XVI of GoDaddy's FAC).

         At summary judgment, the Court held that the asserted claims of the Asserted Patents were invalid under 35 U.S.C. § 101. (Doc. 344 at 59). The Court also held that RPost was entitled to summary judgment on Count I of GoDaddy's FAC for fraudulent misrepresentation. (Id.) As the remaining counts had been adjudicated or were mooted by the invalidity declarations, judgment was entered accordingly. (Docs. 344 at 60; 345).

         II. Legal Standards

         A. Attorneys' Fees

         Pursuant to the “American Rule, ” a litigant's “attorney's fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor.” Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717 (1967). The reasons for the rule are that,

since litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and that the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents' counsel. Also, the time, expense, and difficulties of proof inherent in litigating the question of what constitutes reasonable attorneys' fees would pose substantial burdens for judicial administration.

Id. at 718. The parties invoke several exceptions to the American Rule.

         1. The Patent Act of 1952

         The statute governing attorneys' fees in patent litigation is straightforward: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. Thus, the statute “imposes one and only one constraint on district courts' discretion to award attorney's fees in patent litigation: The power is reserved for ‘exceptional' cases.” Octane Fitness, LLC v. ICON Health & Fitness, 134 S.Ct. 1749, 1755-56 (2014). An “exceptional” case is “simply one that stands out from others with respect to (1) the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or (2) the unreasonable manner in which the case was litigated.” Id. at 1758.

         “The movant must show exceptionality by preponderant evidence, ” Site Update Sols., LLC v. CBS Corp., 639 F.App'x 634, 636 (Fed. Cir. 2016), and the Court enjoys considerable discretion in determining whether to “award fees in the rare case in which a party's unreasonable conduct-while not necessarily independently sanctionable-is nonetheless so ‘exceptional' as to justify an award of fees, ” Octane Fitness, 134 S.Ct. at 1757; see, e.g., Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S.Ct. 1744, 1748 (2014); Lumen View Tech. LLC v., Inc., 811 F.3d 479, 482 (Fed. Cir. 2016). When reviewing a case for “exceptionality, ” the Court should consider “the totality of the circumstances, ” such as the following non-exclusive list of factors: “‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.'” Octane Fitness, 134 S.Ct. at 1756 n.6 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)). Further, “the conduct of the parties is a relevant factor under Octane's totality-of-the-circumstances inquiry[.]” Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., 790 F.3d 1369, 1373 (Fed. Cir. 2015) (citing Octane Fitness, 134 S.Ct. at 1756); see also Power Mosfet Techs., L.L.C. v. Siemens AG, 378 F.3d 1396, 1415 (Fed. Cir. 2004) (finding that a district court did not abuse its discretion in denying fees under § 285 “because all of the parties had conducted themselves without the decorum required when practicing before a federal court”).

         Notably, “it is the ‘substantive strength of the party's litigating position' that is relevant to an exceptional case determination, not the correctness or eventual success of that position.” SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015) (quoting Octane Fitness, 134 S.Ct. at 1756) (emphasis in original). In other words, “[a] party's position on issues of law ultimately need not be correct for them to not ‘stand out, ' or be found reasonable.'” Id.; see also Raylon, LLC v. Complus Data Innovations, Inc., 700 F.3d 1361, 1368 (Fed. Cir. 2012) (“Reasonable minds can differ as to claim construction positions and losing constructions can nevertheless be nonfrivolous.”).

         2. Arizona Revised Statute § 12-349

         Under Arizona state law,

Except as otherwise provided by and not inconsistent with another statute, in any civil action commenced or appealed in a court of record in this state, the court shall assess reasonable attorney fees, expenses and, at the court's discretion, double damages of not to exceed five thousand dollars against an attorney or party, including this state and political subdivisions of this state, if the attorney or party does any of the following:
1. Brings or defends a claim without substantial justification.
2. Brings or defends a claim solely or primarily for delay or harassment.
3. Unreasonably expands or delays the proceeding.
4. Engages in abuse of discovery.

Ariz. Rev. Stat. § 12-349(A). Furthermore, “[f]or the purposes of this section, ‘without substantial justification' means that the claim or defense is groundless and is not made in good faith.” Id. § 12-349(F).

         3. The Court's Inherent Power

         Finally, “inherent” in the power of the Court is the authority to award attorneys' fees against a party or its counsel in three “narrowly defined circumstances.” Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991). First, under the “common fund exception, ” the Court may award attorneys' fees “to a party whose litigation efforts directly benefit others.” Id. (citing Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 258- 59 (1975)). Second, the Court may impose attorneys' fees as a sanction for “‘willful disobedience of a court order.'” Id. (quoting Alyeska Pipeline Serv., 421 U.S. at 258).

         Third, and of most relevance here, the Court may assess attorneys' fees as a sanction “when the losing party has ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons . . . .'” Octane Fitness, 134 S.Ct. at 1758 (quoting Alyeska Pipeline Serv., 421 U.S. at 258-59). “In this regard, if a court finds that fraud has been practiced upon it, or that the very temple of justice has been defiled, it may assess attorney's fees against the responsible party, as it may when a party shows bad faith by delaying or disrupting the litigation or by hampering enforcement of a court order[.]” Chambers, 501 U.S. at 46 (internal citations and quotations omitted). Moreover, in addition to attorneys' fees, the Court may invoke its inherent power “to impose sanctions in the form of reasonable expert fees in excess of what is provided for by statute” provided that the non-prevailing party acted in bad faith or fraudulently. Takeda Chem. Indus. Ltd. v. Mylan Labs., Inc., 549 F.3d 1381, 1391 (Fed. Cir. 2008); see iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1380 (Fed. Cir. 2011) (noting that although district courts cannot impose expert fees under § 285, “a court can invoke its inherent power to award such fees in exceptional cases based upon a finding of bad faith” (citations omitted)).

         B. Sealing Documents

         It has long been recognized that the public has a general right of access “to inspect and copy . . . judicial records and documents.” Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597 (1978). This right of access extends to all judicial records except those that have “traditionally been kept secret for important policy reasons, ” namely grand jury transcripts and certain warrant materials. Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006). Nevertheless, “the common-law right of inspection has bowed before the power of a court to insure that its records” do not “serve as . . . sources of business information that might harm the litigant's competitive standing.” Nixon, 435 U.S. at 598.

         “Unless a particular court record is one traditionally kept secret, a strong presumption in favor of access is the starting point.” Kamakana, 447 F.3d at 1178 (quotation omitted). A party seeking to seal a judicial record bears the burden of overcoming this presumption by either meeting the “compelling reasons” standard if the record is a dispositive pleading, or the “good cause” standard if the record is a non-dispositive pleading. Id. at 1180.[3] In this case, the attached documents all relate to the parties' motions for attorneys' fees which are non-dispositive.

         The less-stringent “good cause” standard requires a “particularized showing” that “specific prejudice or harm will result” if the information is disclosed. Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003) (quotation omitted); see Fed. R. Civ. P. 26(c). Thus, “[b]road allegations of harm, unsubstantiated by specific examples of articulated reasoning” does not overcome the strong presumption in favor of public access. Beckman Indus., Inc. v. Int'l Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992).

         In the business context, a “trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” In re Elec. Arts, Inc., 298 F.App'x 568, 569-70 (9th Cir. 2008) (quoting Restatement (First) of Torts § 757, cmt. B (1939)). As this Court has observed, “because confidentiality alone does not transform business information into a trade secret, a party alleging trade secret protection as a basis for sealing court records must show that the business information is in fact a trade secret.” PCT Int'l Inc. v. Holland Elecs. LLC, 2014 WL 4722326, at *2 (D. Ariz. Sept. 23, 2014) (quotation omitted). In other words, “[s]imply mentioning a general category of privilege, without any further elaboration or any specific linkage with the documents, does not satisfy the burden.” Kamakana, 447 F.3d at 1184.

         III. GoDaddy's Motion for Attorneys' Fees

         A. Arguments

         Pursuant to 35 U.S.C. § 285, GoDaddy moves for an award of its attorneys' fees in the amount of $1, 038, 590.00. (Doc. 353 at 5). GoDaddy also requests that the Court invoke its inherent authority to award GoDaddy its expert fees in the amount of $144, 480.00 in addition to $9, 835.68 for other non-taxable costs. (Id.)[4] GoDaddy contends that it is “the prevailing party” and that this case is “exceptional” under § 285 for three reasons. First, GoDaddy maintains that RPost “advanced litigation positions and patents in this case that were completely without merit.” (Id. at 7). Second, GoDaddy asserts that RPost and its damages expert, Gregory Smith, “advanced completely unreliable and unreasonable damages positions in both the first and second expert damages reports, despite the Court providing RPost and Smith an opportunity to cure the deficiencies.” (Id. at 7-8). Finally, GoDaddy believes that RPost “enforced its patents here and in serial fashion elsewhere such that its enforcement campaign was advanced in a highly unreasonable manner.” (Id. at 8).

         In response, RPost does not dispute that GoDaddy is “the prevailing party” as required by § 285. See (Doc. 370). However, RPost disagrees that this is an “exceptional” case warranting an award of over $1, 000, 000.00 in attorneys' fees. (Id. at 6-20). RPost insists that its litigation positions and Mr. Smith's expert reports were reasonable and advanced in good faith. (Id.) RPost also rebuffs GoDaddy's contention that it is simply a “patent enforcement entity” because it operates a successful business that does not rely solely on licensing agreements. (Id. at 17-20).

         The Court now reviews the “totality of the circumstances” to decide whether the “substantive strength” of RPost's litigating position or the reasonableness of its litigation conduct “stands out” from other cases, thereby making this case “exceptional.” Octane Fitness, 134 S.Ct. at 1756.

         B. ...

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