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ARMAMENT SYSTEMS & PROCEDURES v. SUNCOAST MERCHANDISE CORP.

June 24, 2004.

ARMAMENT SYSTEMS AND PROCEDURES, INC., Plaintiff,
v.
SUNCOAST MERCHANDISE CORPORATION, Defendant.



The opinion of the court was delivered by: JOHN GRADY, Senior District Judge

MEMORANDUM OPINION

Before the court is Shell Oil Company's motion for attorney's fees and costs. For the reasons explained below, the motion is granted.

BACKGROUND

  This is a patent infringement action brought by Armament Systems and Procedures, Inc. ("Armament"). Armament originally brought this action against a single defendant, Shell Oil Company ("Shell").*fn1 Armament manufactures and sells handheld miniature LED flashlights and owns a "Miniature LED Flashlight" patent, U.S. Patent No. 6,190,018. Armament alleged that Shell "is offering for sale and selling in the United States . . . miniature LED flashlights" that infringe Armament's patent. (Second Amended Complaint, ¶¶ 12, 17.) Armament's claim arises from a merchandise offer included in an attachment to the envelope included with a Shell credit card billing statement.

  On October 30, 2003, we entered summary judgment in favor of Shell and against Armament. Shell now moves for attorney's fees and costs.

  DISCUSSION

  Shell contends that there are four bases for an award of attorney's fees and costs in this case: (1) it is an "exceptional case" under patent law; (2) Armament's conduct was vexatious and unreasonable under 28 U.S.C. § 1927; (3) Armament submitted an inaccurate and misleading declaration in response to Shell's motion for summary judgment, constituting sanctionable conduct under Fed.R.Civ.P. 56(g); and (4) the inherent power of the court permits us to deter abuse of the judicial process.

  A. "Exceptional Case" and 28 U.S.C. § 1927

  35 U.S.C. § 285 provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." The prevailing party must prove the exceptional nature of the case by clear and convincing evidence. See Forest Labs, Inc. v. Abbott Labs., 339 F.3d 1324, 1327 (Fed. Cir. 2003). The Federal Circuit identifies as "exceptional" those cases "involving `inequitable conduct before the [Patent Office]; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement.'" Id. at 1329. Where "the patentee is manifestly unreasonable in assessing infringement, while continuing to assert infringement in court, an inference is proper of bad faith, whether grounded in or denominated wrongful intent, recklessness, or gross negligence.'" Eltech Sys. Corp. v. PPG Indus., 903 F.2d 805, 811 (Fed. Cir. 1990).

  Shell asserts that sanctions pursuant to 28 U.S.C. § 1927 are appropriate as well. 28 U.S.C. § 1927 provides that "[a]ny attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." "If a lawyer pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious." In re TCI Ltd., 769 F.2d 441, 445 (7th Cir. 1985).

  Shell argues that this suit was frivolous as against it, that it was prosecuted in bad faith, and that Armament's counsel engaged in litigation misconduct by failing to investigate the pertinent facts, opposing Shell's motion for summary judgment without basis, and serving poorly drafted subpoenas on Shell.

  We believe that Armament's pursuit of this action as against Shell was frivolous, thus warranting reasonable fees and costs under both 35 U.S.C. § 285 and 28 U.S.C. § 1927. First of all, the merchandise offer on which Armament's claim is based contains the following disclaimer:
Capital City Marketing, Inc. (CCMI) and its providers, as applicable, are responsible for this merchandise offer. Citibank (South Dakota), N.A. and its related companies, and Shell are not affiliated with CCMI and are not responsible for this merchandise offer.
(Shell's Motion for Summary Judgment, Statement of Uncontroverted Facts, Ex. A.) Of course, this disclaimer would not have been the end of the story were Armament to have had evidence to the contrary (that Shell was responsible for the offer of the miniature LED flashlight). But Armament admits that it had no such evidence when it filed suit, and it did not even attempt to discover any such evidence before filing suit. Armament describes its pre-filing inquiry, or lack thereof, as follows:
Philip S. Wolin [a member of the law firm representing Armament] owns a credit card from Shell Oil Company ("Shell"). Along with his April, 2002 statement from Shell, Mr. Wolin received a return envelope addressed to Shell with offers to sell various products printed on it. The offer to sell products included a "Blue Crystal LED Light and Key Organizer. . . .". . .
Mr. Wolin . . . filled out the offer to purchase and ordered the LED light, at all times believing he was ordering a product offered for sale by Shell. . . . He did not notice any language in the offer that it was made by any entity other than Shell. . . .
Prior to the filing of this lawsuit, [Armament's] counsel had the LED light Mr. Wolin ordered from Shell examined by a patent lawyer, who determined that it infringed [the '018 patent]. [Armament's] counsel also determined that it would be very difficult to obtain verifiable information, other than self-serving statements from Shell and the mailing received by Mr. Wolin, about Shell's involvement in the design, manufacture, importation, or sale of the infringing lights, including offers for sale other than the mailing Mr. Wolin received, without the discovery powers that would be available to [Armament] after suit was filed. On July 26, 2002, [Armament] filed the instant Complaint . . . alleging patent infringement "upon information and belief" against Shell.
(Armament's Response at 1-3 (citations omitted).) It appears, then, that Armament failed to do any pre-filing inquiry, especially of Shell, regarding the identity of the offeror of the flashlight. That Mr. Wolin claims to have not noticed the disclaimer, and that Armament's counsel "determined that it would be very difficult to obtain verifiable information," did not render a pre-filing inquiry unnecessary. Armament also states that it "could not easily or objectively determine whether Shell had actionable involvement with the infringing lights without bringing suit and attempting to institute discovery." (Response at 10-11.) This is no justification for a complete lack of a pre-filing inquiry.

  Throughout the course of the litigation, Armament never did obtain any information that tended to show that Shell was the offeror. In December 2002, a conference was held in chambers pursuant to Rule 16 of the Federal Rules of Civil Procedure.*fn2 During the Rule 16 conference, Shell contended that it was not the offeror of the flashlight. The parties agreed that they would take some time to "investigate the various responsibilities involved here and determine whether Shell should be dismissed and perhaps some other defendant added." (Minute Order of December 17, 2002.) The parties were given leave to conduct discovery on the issue, and they did so.

  In March 2003, Shell filed a motion for summary judgment, arguing that it was not the offeror of the flashlight. Armament opposed the motion on two grounds. First, it relied on Mr. Wolin's belief, upon reviewing the merchandise offer, that Shell was the offeror. Second, Armament argued that Shell was the offeror because its subsidiary exercised control over the content of the offer and acted as Shell's alter ego. We ruled that Mr. Wolin's impression of the merchandise offer was "neither here nor there" and that the argument was unsupported by law. We also found that Armament failed to submit any evidence that Shell's subsidiary acted as its alter ego or that the subsidiary was ...


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