CAFC Affirms Fee Award Over Deficient Patent Pre-Suit Investigation

The U.S. Court of Appeals for the Federal Circuit (CAFC) issued a decision today in Viavi Solutions Inc. v. Platinum Optics Technology Inc., affirming a Northern District of California ruling that awarded attorney’s fees to Platinum Optics Technology Inc. (PTOT) after finding Viavi Solutions Inc. litigated its patent infringement claims in a manner that met the standard for an “exceptional” case under 35 U.S.C. Section 285.

Viavi owns four patents, U.S. Patent Nos. 9,354,369, 9,588,269, 10,222,526, and 9,945,995 covering low angle shift (LAS) optical filters used in three-dimensional sensing applications for mobile devices. PTOT, based in Taiwan, manufactures competing filters that also use hydrogenated silicon. The companies previously litigated over LAS filters in Taiwan and China, which was resolved through licensing agreements that released PTOT from liability for infringement before May 1, 2020, but not for later conduct.

In 2019, Viavi began seeking qualification of its filters for a major manufacturer’s new device line, initially supplying nearly all of its LAS filter needs. Without obtaining any devices containing a PTOT filter, Viavi tested three PTOT filters retained from the earlier Asian litigation and determined that one, the 11246 Filter, met the manufacturer’s specifications. After a letter regarding PTOT’s sales activities went unanswered, Viavi filed a lawsuit against PTOT in August 2020, attaching claim charts comparing its patents only to that filter.

PTOT moved for summary judgment the following month, submitting a declaration from an employee stating that PTOT had neither designed the 11246 Filter for the manufacturer’s devices nor sold it after May 2020. Viavi did not dispute the declaration but opposed summary judgment, arguing its theory extended beyond that filter to other, unidentified filters substantially similar to it. The case was later stayed pending PTOT’s unsuccessful inter partes review (IPR) petitions. Viavi obtained a device containing a different, previously unexamined filter and moved to amend its contentions to add it while keeping the 11246 Filter in the case. A magistrate judge denied the motion, and Viavi ultimately moved to voluntarily dismiss with prejudice, which the district court granted in May 2023.

PTOT then moved for attorney’s fees under Section 285 and separately requested sanctions under 28 U.S.C. Section 1927 and the district court’s inherent authority. The district court denied sanctions, finding no subjective bad faith, but granted fees covering the period beginning January 20, 2021, the date PTOT submitted the declaration. It found Viavi’s pre-suit investigation lacking in diligence because Viavi lacked evidence that the 11246 Filter or any PTOT filter was sold in the United States. It also considered Viavi’s continued reliance on the 11246 Filter objectively unreasonable after the declaration released it from liability for pre-May 2020 conduct.

On appeal, Viavi argued that the district court applied an improperly heightened investigation standard. It also argued that the court clearly erred in characterizing the basis for its theory as a rumor and in finding that Viavi had accused a licensed filter. Viavi further argued that the court abused its discretion by holding that it had to drop its claims against the 11246 Filter after receiving the declaration.

The CAFC reviewed the factual findings for clear error and the exceptionality determination for abuse of discretion, citing Octane Fitness, LLC v. ICON Health & Fitness, Inc. Under that standard, an exceptional case is one that “stand[s] out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

Moreover, the court found no improperly heightened standard. Although Viavi cited Q-Pharma, Inc. v. Andrew Jergens Co. for the proposition that a good faith comparison of patent claims to an accused product can satisfy the diligence requirement, the CAFC explained that the district court did not fault Viavi for failing to conduct an infringement analysis. The court distinguished Intamin Limited v. Magnetar Technologies Corporation, since that case applied Ninth Circuit law and involved a product with substantial physical obstacles to inspection, unlike the manufacturer’s readily purchasable devices.

It also pointed to Bayer CropScience AG v. Dow AgroSciences LLC, since Viavi’s later purchase of those devices revealed the non-Viavi filter inside was not the 11246 Filter, which showed a more thorough investigation would have kept Viavi from filing the suit it brought.

The court also declined to find a clear error in calling Viavi’s information a rumor, noting Viavi’s counsel used that term at two hearings. On the licensed filter finding, the CAFC found the district court had rejected Viavi’s disclaimers limiting its allegations to post-May 2020 sales, since the claim charts attached to the complaint compared the patents to a 11246 Filter obtained before that date.

Furthermore, the CAFC held that the district court did not abuse its discretion in finding Viavi should have voluntarily dismissed its claims against the 11246 Filter once its allegations became untenable. The court rejected Viavi’s argument that it needed continued discovery on whether PTOT had renamed the filter, noting “11246” was never a name PTOT assigned to the product but a tracking number applied during the earlier litigation. The court explained that “there is no right to sue a party based on a nonmeritorious claim in hope of finding material that could be the basis of an actual meritorious claim.” It found no clear error in the finding that Viavi had not abandoned its claims against the filter, since it remained the only one identified in Viavi’s contentions even after the motion to amend was denied.

After rejecting each of Viavi’s arguments, the CAFC affirmed the district court’s judgment awarding attorney’s fees to PTOT under Section 285, with costs awarded to PTOT.

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Author: iqoncept