Court Opinion

ID: 4366073
Source: CourtListenerOpinion
Date Created: 2019-02-08 17:00:37.635961+00
Date Added: 2024-06-11T14:48:41.657639
License: Public Domain

NOTE: This disposition is nonprecedential.

  United States Court of Appeals
      for the Federal Circuit
                 ______________________

    DROP STOP LLC, A CALIFORNIA LIMITED
            LIABILITY COMPANY,
               Plaintiff-Appellee

                            v.

   JIAN QING ZHU, "JOHNNY," AN INDIVIDUAL,
    ZAKE INTERNATIONAL, INC., AN INDIANA
         CORPORATION, ZAKE USA, AN
 UNINCORPORATED ENTITY, 3BTECH, INC., AN
 INDIANA CORPORATION, SHENZHEN ZHOUWU
  TECHNOLOGY CO., LTD., A CHINESE LIMITED
  COMPANY, TAIWU KEJI CO., LTD., A CHINESE
             LIMITED COMPANY,
               Defendants-Appellants
              ______________________

                       2018-1533
                 ______________________

   Appeal from the United States District Court for the
Central District of California in No. 2:16-cv-07916-AG-SS,
Judge Andrew J. Guilford.
                  ______________________

               Decided: February 8, 2019
                ______________________

     GUY RUTTENBERG, Ruttenberg IP Law, PC, Los Ange-
les, CA, for plaintiff-appellee. Also represented by DANIEL
2                                      DROP STOP LLC v. ZHU

A. KADIN, BASSIL GEORGE MADANAT.

   LEI MEI, Mei & Mark LLP, Washington, DC, for defend-
ants-appellants. Also represented by RICHARD HADORN,
PHILIP ANDREW RILEY, LAURENCE M. SANDELL.
                ______________________

    Before LOURIE, O’MALLEY, and REYNA, Circuit Judges.
O’MALLEY, Circuit Judge.
    Defendants-Appellants Jian Qing “Johnny” Zhu,
3BTech., Inc., Zake International, Inc., Zake USA, Shen-
zhen Zhouwu Technology Co., Ltd., and Taiwu Keji Co.,
Ltd. (collectively, “Defendants”) appeal from a decision of
the United States District Court for the Central District of
California finding this case exceptional and awarding at-
torney fees pursuant to 35 U.S.C. § 285. Drop Stop LLC v.
Zhu, No. 16-07916, 2018 WL 1407031 (C.D. Cal. Jan. 22,
2018) (“Decision on Appeal”). Because the district court did
not abuse its discretion in finding this case exceptional
within the meaning of 35 U.S.C. § 285, and awarding attor-
ney fees, we affirm.
                      I. BACKGROUND
    Plaintiff-Appellee Drop Stop LLC (“Drop Stop”) is the
assignee of U.S. Patent No. 8,267,291 (“the ’291 patent”),
which is entitled “Apparatus for Closing Gaps.” The ’291
patent is directed “to an apparatus that obstructs the gap
between an automobile’s front seats and the center console,
preventing personal items from becoming lodged in that
gap.” Decision on Appeal, 2018 WL 1407031, at *1. Drop
Stop markets and sells its patented Drop Stop® car seat
gap filler through several distribution channels, including
Amazon. Id.
    Defendant Johnny Zhu runs various corporate entities
that import Chinese-made products into the United States.
Relevant to this appeal, Defendant Zhu and Defendant
DROP STOP LLC v. ZHU                                       3

Taiwu imported and offered for sale in the United States a
product called the “ChiTronic Car Vehicle Seat Hand
Brake Gap Filler Pad” (“the ChiTronic”), the accused prod-
uct in this case. At this stage, Defendants 1 have stipulated
to infringement, and they do not challenge the final judg-
ment that the ChiTronic infringes each asserted claim of
the ’291 patent.
     Beginning in 2015, Defendants imported, offered for
sale, and sold the ChiTronic product on Amazon through a
storefront named “Also Popular.” In March 2015, Drop
Stop sent a cease-and-desist email through the Amazon
website, alleging that the ChiTronic infringed the ’291 pa-
tent and demanding that Also Popular take down the list-
ing. Id. Also Popular initially complied, but four days later
it relisted the accused product and sent Drop Stop a mes-
sage through Amazon representing that it had sent both
the ChiTronic and Drop Stop® products to an attorney—
Richard MacMillan—and enclosing a non-infringement
opinion from him. Id. Counsel for Drop Stop sent a letter
to MacMillan responding to the non-infringement posi-
tions. Id. at *2. MacMillan forwarded that letter to De-
fendants, asking to discuss it, but Defendants did not
respond to either MacMillan’s request or to Drop Stop’s let-
ter. Id.
    During discovery, it was revealed that MacMillan’s
non-infringement analysis expressly warned that his “in-
formal opinion cannot be relied upon definitively,” empha-
sizing that “[a] formal opinion is required, and that
involves extensive study and other efforts to provide a reli-
able outcome.” Id. Defendants omitted this disclaimer
from the email Also Popular sent to Drop Stop with the

    1   During litigation, all six Defendants stipulated to
joint and several liability for any damages assessed and
agreed to be treated as the same entity for purposes of Drop
Stop’s claims.
4                                      DROP STOP LLC v. ZHU

non-infringement positions and did not produce the origi-
nal version of the email until MacMillan’s deposition. At
his deposition, moreover, MacMillan testified that Defend-
ants never sought a formal opinion from him and that “he
could not stand by his informal opinion.” Id.
     After months of investigation in an attempt to identify
the Defendants, Drop Stop was able to obtain names and
email addresses from Amazon. Id. Drop Stop filed suit
against five of the six Defendants in October 2016, alleging
infringement of the ’291 patent. Id. Although the parties
initially discussed waiving service and a plan for limited
damages discovery, counsel for Defendants stopped re-
sponding. Id.
     Drop Stop ultimately served Defendants through their
registered agent at their headquarters. After all five De-
fendants failed to answer the complaint, Drop Stop moved
for default judgment, which the court entered. Id. Defend-
ants later moved to set aside default, alleging that they
were improperly served. The court held a hearing on De-
fendants’ motion and “became further convinced that De-
fendants may be unduly delaying litigation by keeping this
case at its starting gate.” Drop Stop LLC v. Zhu, No. 16-
07916, 2017 WL 3433696, at *2 (C.D. Cal. Jan. 30, 2017).
The court “ordered the parties to meet and confer to see
whether they could reach an agreement regarding service.”
Id. The parties were unable to resolve the issue and the
court ultimately determined that “service has been suc-
cessfully accomplished here and some cost-shifting” to
Drop Stop was appropriate. Id. The court set aside the
default, but ordered Defendants to pay $5,000 to Drop
Stop’s counsel “for costs incurred serving Defendants and
opposing this motion.” Id. Defendants failed to pay the
sanction until the court set a formal deadline for payment.
Decision on Appeal, 2018 WL 1407031, at *2. The five De-
fendants filed their first answer in February 2017.
DROP STOP LLC v. ZHU                                       5

    The parties discussed settlement and attended court-
ordered mediation, but were unable to settle the case. Id.
at *3. 2 Defendants subsequently amended their answer
and added, among other things, a patent misuse defense
based on Drop Stop’s statements during the parties’ settle-
ment discussions and mediation.
     After mediation, Defendants informed Drop Stop of an-
other entity that should have been named as a defendant:
Taiwu. By agreement of the parties, Drop Stop amended
its complaint to add Taiwu and to make clear that infringe-
ment was asserted both literally and under the doctrine of
equivalents. Defendants filed an amended answer and
counterclaims, adding new obviousness and indefiniteness
defenses. The parties then filed cross motions to dismiss.
In an order dated January 20, 2017, the district court de-
nied Defendants’ motion and determined that Defendants’
amended answer to the original complaint was the opera-
tive pleading. Drop Stop LLC v. Zhu, No. 16-07916, 2017
WL 3452990, at *2 (C.D. Cal. June 20, 2017). In that same

    2   One of the Defendants—Shenzhen—did not appear
for mediation. Drop Stop later moved for sanctions against
Shenzhen for failing to appear at the mediation and
against all Defendants for using private settlement discus-
sions to assert counterclaims and defenses. The district
court denied the motion. Drop Stop LLC v. Zhu, No. 16-
07916, 2017 WL 3433695, at *2 (C.D. Cal. June 30, 2017).
The court explained that, although the circumstances sur-
rounding Shenzhen’s appearance at mediation were “con-
cerning,” as there was some debate as to whether Shenzhen
appeared through a representative, it was “unclear
whether this was all due to bad faith or mere sloppiness.”
Id. As to Defendants’ use of settlement discussions, the
court found it “unnecessary to further remediate any harm”
by way of sanctions given the court’s decision to dismiss the
patent misuse affirmative defense. Id.
6                                       DROP STOP LLC v. ZHU

decision, the court granted Drop Stop’s motion to dismiss
Defendants’ antitrust counterclaim and struck the patent
misuse and inequitable conduct affirmative defenses. Id.
at *3–4.
    The parties continued to engage in discovery and De-
fendants submitted a lengthy expert report which focused
in large part on the defenses the court had already
stricken. Decision on Appeal, 2018 WL 1407031, at *8.
Given continuing disputes as to whether Defendants could
raise certain affirmative defenses and counterclaims, the
parties entered into a stipulation providing that Drop Stop
need not respond to Defendants’ invalidity report until
three weeks after the court ruled on the propriety of the
invalidity arguments set forth in Defendants’ expert re-
port.
     The parties filed cross motions for summary judgment
which led to a series of ex parte motions relating to Defend-
ants’ attempts to assert defenses the court had already
stricken. Id. at *3. In denying Defendants’ ex parte appli-
cation, the court noted that it was “concerned about [De-
fendants’] misleading statements” and indicated that it
would consider sanctions against Defendants. Id. In its
later decision granting-in-part Drop Stop’s motion for sum-
mary judgment, the court explained that “Defendants have
failed to preserve invalidity defenses based on obviousness
and indefiniteness” and further “failed to preserve a de-
fense to infringement under the doctrine of equivalents on
the basis of prosecution history estoppel.” Civil Minutes at
16, Drop Stop LLC v. Zhu, No. 16-07916 (C.D. Cal. Aug. 28,
2017), ECF No. 138. Although the district court discussed
sanctions against Defendants arising from issues pre-
sented ex parte, it denied them without prejudice. Id.
    By order of the court, the parties attended a second me-
diation. This time, the parties reached a settlement. As
part of the agreement, Defendants stipulated to infringe-
DROP STOP LLC v. ZHU                                       7

ment of claims 8, 10–14, and 16–18 of the ’291 patent. De-
cision on Appeal, 2018 WL 1407031, at *4. Defendants also
agreed to dismiss their defenses and counterclaims with
prejudice. The parties further stipulated that, after entry
of final judgment, “Drop Stop may file a motion for attor-
neys’ fees and costs” and that the court would “retain juris-
diction to consider such motion, including to make any and
all factual findings” related thereto. Id. The district court
entered final judgment, and Drop Stop subsequently filed
a motion for attorney fees pursuant to 35 U.S.C. § 285.
    On January 22, 2018, the district court entered the or-
der at issue in this appeal, granting Drop Stop’s motion for
attorney fees in part and awarding Drop Stop $600,000 in
attorney fees. Id. at *1. At the outset, the court explained
that “[i]t’s not every day that the Court provides a four-
page resuscitation of the facts as it sees them. That’s cer-
tainly the case here. Taken individually, the pieces of the
story might not make Defendants’ conduct look excep-
tional. The whole tale, however, leads to a different con-
clusion.” Id. at *5.
     With respect to exceptionality, the district court iden-
tified several instances of Defendants’ “problematic con-
duct,” including: (1) their “reliance on MacMillan’s
purported non-infringement opinion” and removal of his
disclaimer that a formal opinion was required; (2) their
conduct in evading service and defaulting; (3) their use of
information obtained during confidential settlement nego-
tiations to add a patent misuse defense; (4) “the late timing
of their discovery;” and (5) their “frivolous ex parte prac-
tice.” Id. at *5–6. “Considering the totality of the circum-
stances,” the district court found that “Defendants
conducted themselves in an unreasonable manner” and
that Drop Stop was entitled to recover fees under § 285. Id.
at *7.
8                                        DROP STOP LLC v. ZHU

     With respect to the calculation of attorney fees, the dis-
trict court found that Drop Stop “provided adequate sup-
porting documents detailing the basis for its requested fee
award.” Id. Given that the parties “engaged in significant
motion practice, attended numerous hearings, and under-
took full fact and expert discovery before settling the case,”
the court found that the fees requested were warranted and
were, in fact, “lower than one might expect.” Id.
    The court used “an aggregate, global methodology to
evaluate the proper amount of fees.” Id. Although the
court considered apportionment, it found that, “[u]nder the
circumstances, it would be inappropriate to apportion fees
issue-by-issue as Defendants suggest.” Id. After reviewing
the documents and considering Defendants’ objections, the
district court concluded that $600,000, of the requested
$606,912, was the “proper amount” of attorney fees. Id.
   Defendants timely appealed. We have jurisdiction pur-
suant to 28 U.S.C. § 1295(a)(1).
                       II. DISCUSSION
    By statute, a “court in exceptional cases may award
reasonable attorney fees to the prevailing party.” 35 U.S.C.
§ 285. The Supreme Court has explained that “an ‘excep-
tional’ case is simply one that stands 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.” Octane Fitness, LLC v. ICON Health & Fit-
ness, Inc., 572 U.S. 545, 554 (2017). District courts have
discretion to determine whether a case is “exceptional” on
a “case-by-case” basis, considering the totality of the cir-
cumstances. Id. We review the district court’s exceptional
case determination for an abuse of discretion. Highmark
Inc. v. Allcare Health Mgmt. Sys., 572 U.S. 559, 561 (2014).
DROP STOP LLC v. ZHU                                       9

     On appeal, Defendants argue that the district court
“made multiple legal errors and clearly erroneous assess-
ments of the evidence” in its exceptionality determination.
Appellants Br. 23. Defendants rely primarily on the same
arguments the district court already considered and re-
jected. Specifically, Defendants argue that the district
court erroneously penalized them for: (1) relying on Mac-
Millan’s opinion; (2) using Drop Stop’s settlement state-
ments to create a new patent misuse defense; (3) failing to
produce discovery; and (4) raising previously-stricken or
waived defenses. Defendants submit that, when the dis-
trict court’s errors are set aside, “the only remaining basis
for the district court’s exceptionality finding is the delay
resulting from Defendants’ default judgment and motion to
set aside default.” Id. at 25. According to Defendants,
there is no evidence that they “litigated in a manner so out-
side the norm as to warrant an exceptionality finding.” Id.
at 25–26. We disagree.
    The Supreme Court has made clear that a district court
may award attorney fees where “a party’s unreasonable
conduct—while not necessarily independently sanctiona-
ble—is nonetheless” exceptional. Octane Fitness, 572 U.S.
at 555. Here, the district court provided a thorough expla-
nation for why it found this case to be exceptional. As the
court explained, while the individual acts of misconduct
“might not make Defendants’ conduct look exceptional,”
Defendants’ conduct over the course of the entire litigation
“support the conclusion that this is an exceptional case.”
Decision on Appeal, 2018 WL 1407031, at *5.
     Because the district court “lives with the case over a
prolonged period of time,” it “is better positioned to decide
whether a case is exceptional.” Highmark, 572 U.S. at 564
(citing Pierce v. Underwood, 487 U.S. 552, 559–60 (1988)).
The district court properly examined the totality of the cir-
cumstances and found this case to be exceptional. Upon
review, we cannot say that the district court abused its dis-
cretion in reaching that conclusion.
10                                       DROP STOP LLC v. ZHU

    Defendants also argue that, even if this case is “excep-
tional, the district court’s fee award of $600,000 was clearly
erroneous.” Appellants Br. 55. It is well established that
district courts have “considerable discretion” to determine
the amount of reasonable attorney fees under § 285. Home-
land Housewares, LLC v. Sorensen Research, 581 F. App’x
877, 881 (Fed. Cir. 2014) (quoting Bywaters v. United
States, 670 F.3d 1221, 1228 (Fed. Cir. 2012)). This defer-
ence stems from “the district court’s superior understand-
ing of the litigation and the desirability of avoiding
frequent appellate review of what essentially are factual
matters.” Bywaters, 670 F.3d at 1228 (quoting Hensley v.
Eckerhart, 461 U.S. 424, 437 (1983)).
    On appeal, Defendants maintain that the district court
erred by: (1) “basing its fee award on Drop Stop’s counsel’s
redacted invoices;” and (2) failing to apportion fees to the
specific acts of misconduct. Appellants Br. 57, 61. Neither
argument has merit.
     As to the first, the district court carefully reviewed the
billing records and other supporting documents and used
“an aggregate, global methodology to evaluate the proper
amount of fees.” Decision on Appeal, 2018 WL 1407031, at
*7–8. The court explained that Drop Stop “provided ade-
quate supporting documents detailing the basis for its re-
quested fee award.” Id. at *7. Notably, Defendants do not
challenge any specific entries on the invoices. Nor do they
allege that the district court inadequately reviewed the
supporting documents. We conclude that the district court
properly reviewed Drop Stop’s invoices and considered the
totality of the circumstances.
    As to apportionment, the district court noted that the
Defendants failed to “explain how fees could be apportioned
in this case.” Id. at *7. The court found, moreover, that
Defendants’ conduct permeated every stage of the litiga-
tion. Specifically, the court indicated that the “fees were
DROP STOP LLC v. ZHU                                      11

incurred largely due to Defendants’ actions—including de-
lay tactics, chilling defenses, and re-raised arguments—
taken during the course of the litigation.” Id. In these cir-
cumstances, the court concluded that “it would be inappro-
priate to apportion fees issue-by-issue.” Id. We find no
error in that conclusion.
    Although Defendants argue that the district court
erred by awarding 99% of the requested amount, the court
explained that Drop Stop’s “counsel reasonably reviewed
his requested fees and [did not] seek fees for some signifi-
cant hours spent on the case.” Id. In any event, the district
court exercised its discretion in excluding certain fees and
costs and awarding less than the full amount Drop Stop
requested. On this record, we conclude that the district
court’s discretionary determination of fees is well-sup-
ported.
                       III. CONCLUSION
    We have considered Defendants’ remaining arguments
and find them unpersuasive. Because the district court did
not abuse its discretion in finding this case exceptional un-
der § 285 and awarding attorney fees, we affirm the district
court’s order in its entirety.
                        AFFIRMED