-4-
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, Bx. 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 . .

“My. 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 Shelli. . . . 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,


-~9-

DATE: June 24, 2004

ENTER:

John F. Grady, United States District Judge


-6-
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 the offeror.
Accordingly, we granted Shell’s motion for summary judgment. See

Armament Sys. & Procedures, Inc. v. Shell Oil Co., No. 02 C 5310,

2003 WL 22508148 (N.D. Ill. Nov. 3, 2003).

According to Armament, it did not get all of the discovery it
needed to adequately respond to the summary judgment motion. We
already considered and rejected this argument in our summary

judgment ruling, and Armament provides no reason to revisit the


-~-5-
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.?

During the Rule 16 conference, Shell contended that it was not the

2 Armament claims that, before this conference, Shell's counsel told
Armament’s counsel that Shell was not the offeror of the light and requested that
Armament dismiss Shell from the case. According to Armament, its counsel
represented that it would dismiss Shell if Shell provided sworn statements from
responsible officers that Shell was not involved in the offer, but Shell’s
counsel refused. Shell tells a different story. It claims that it freely
offered to provide such sworn statements to Armament, but that Armament’s counsel
refused to accept these statements and instead desired to conduct discovery.


-8-

Cir. June 14, 2004) (“[T]here is a ‘need to be cautious when

resorting to inherent powers to justify an action, particularly

when the matter is governed by other procedural rules.’”).
CONCLUSION

For the foregoing reasons, Shell Oil Company’s motion for
attorney’s fees and costs is granted. Armament is responsible for
these fees and costs pursuant to 35 U.S.C. § 285. Armament’ s
counsel, Richard S. Kuhlman and Wanda E. Jones, are responsible for
these fees and costs pursuant to 28 U.S.C. § 1927.3 Armament, Mr.
Kuhlman, and Ms. Jones are jointly and severally liable for this
award.

The parties are directed to attempt to agree on an amount of
reasonable attorney’s fees and costs pursuant to Local Rule 54.3.
In the event that the filing of a fee petition is necessary, the
petition should be filed no later than July 26, 2004, and Armament

may respond by August 9, 2004.

3/ Mr. Kuhlman signed the original complaint, a notice to produce, and
Armament’s response to Sheli’s motion for summary judgment. From his affidavit,
it also appears that he was involved with Armament’s (lack of a) pre-filing
inguiry. Ms. Jones signed the second amended complaint, which repeated the
unfounded allegations against Shell, and signed the subpoenas issued to
defendants.


Minate Order Form (06/97)

United States District Court, Northern District of Illinois

Mail AO 450 form.

Name of Assigned Judge Sitting Judge if Other
or Magistrate Judge John F. Grady than Assigned Judge
CASE NUMBER 02 C 5310 DATE 6/24/2004
CASE Armament Systems and Procedures vs. Suncoast Merchandise Corporation
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
qd) Oo Filed motion of [ use listing in “Motion” box above.]
(2) a Brief in support of motion due
(3) oO Answer brief to motion due. . Reply to answer brief due.
(4) a Ruling/Hearing on set for at
(5) a Status hearing[held/continued to] [set for/re-set for) on set for at
6) Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at :
(7) a Trial{set for/re-set for] on at
(8) im (Bench/Jury trial) [Hearing] held/continued to at
(9) im This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) ClLocal Rule 41.1 CUFRCP41(a)\(1) CFRCP41(a)(2).
ao) of [Other docket entry] Shell Oil Company’s motion for attorney’s fees and costs is granted.
Armament, Mr. Kuhlman, and Ms. Jones are jointly and severally liable for this award. The parties are
directed to attempt to agree on an amount of reasonable attorney’s fees and costs pursuant to Local Rule
54.3. In the event that the filing of a fee petition is necessary, the petition should be filed no later than
July 26, 2004, and Armament may respond by August 9, 2004.
dal oo [For further detail see order (on reverse side of/attached to) the original minute order.]
No notices required, advised in open court.
No notices required. suber of notes
o_ | Notices mailed by judge’s staff.

Notified counsel by telephone.

Docketing to mail notices,

Copy to judge/magistrate judge.

KM

JUN 2 5 2004

date docketed

1YN99 Lawisia *s:
Mea asin

courtroom date mailed notice

deputy’s
initials

829 Rd 92 Kn hang
bee Gag

saiting deputy initials



~7-
issue. Armament also maintains that its counsel had the “good
faith belief” that Shell was “controlling sales” through Equilon,
but fails to provide any reasonable basis for this belief.

In sum, this action as against Shell lacked any basis in fact
from the outset, After Shell’s involvement in the merchandise
offer became the central issue, Armament continued to pursue the
action without a reasonable basis. Moreover, Armament’s response
to Shell’s summary judgment motion had no merit. The case is
accordingly an “exceptional case” under 35 U.S.C. § 285. In
addition, attorney’s fees and costs are warranted under 28 U.S.C.
§ 1927.

B. Fed. R. Civ. P. 56(g) and the Court’s Inherent Power

Shell also asserts that we should award fees and costs
pursuant to Fed. R. Civ. P. 56(g) and this court’s inherent power
to sanction for bad faith and vexatious conduct. Rule 56(g) allows
the court to sanction a party for presenting an affidavit in bad
faith or solely for the purpose of delay. Shell argues that Mr.
Wolin’s affidavit, which Armament submitted in response to the
summary judgment motion, is sanctionable. Although the affidavit
was irrelevant to the issues on summary judgment, we are not
convinced that it was submitted in bad faith. Furthermore, because
attorney’s fees and costs are warranted on other grounds, we

decline to invoke our inherent power. See, ¢.g., Methode Elecs.,

Inc. v. Adam Techs., Inc., No. 03-3252, 2004 WL 1301852, at *4 (7th



-3-
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 TCT 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


-2-
Complaint, 47 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]Jhe 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


02-5310.042-3cD June 24, 2004

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION DOeKeren
ARMAMENT SYSTEMS AND PROCEDURES, JUN 2 5 2004
INC.,
Plaintiff,
v. No. 02 C 5310

SUNCOAST MERCHANDISE CORPORATION,

Defendant.

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”) .? 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

VY On May 12, 2003, Armament filed a Second Amended Complaint adding Sun
Coast Merchandise Corporation and Capital Cities Marketing, Inc.

a

5

2