IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

OLE K. NILSSEN and )

GEO FOUNDATION, LTD., )
)
Plaintiffs, )
)
v. ) Case No. 3:04cv0080
)
UNIVERSAL LIGHTING TECHNOLOGIES, INC., ) Judge Thomas A. Wiseman, Jr.
)
Defendant. )

MEMORANDUM AND ORDER

Before the Court are two motions filed by defendant Universal Lighting Technologies, Inc.

(“ULT”): a Motion for Attorneys’ Fees (Doc. No. 186) and (2) a Supplemental Motion for Attorneys’ Fees

(Doc. No. 191).

I. LEGAL STANDARDS

ULT seeks attorneys’ fees in this action pursuant to 35 U.S.C. § 285, which permits courts to

award fees to the prevailing party in a patent action, but only in “exceptional cases.” The statute states in

full: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” Id.

Plaintiffs oppose the motion, contending both that this case lacks the requisite “exceptionality” and that,

even if it does qualify as an exceptional case, this Court should exercise its discretion to deny the motion.

A trial court is to undertake a two-step inquiry when adjudicating a request for attorney fees under

§ 285. First, the court determines whether there is clear and convincing evidence that the case is

exceptional; if so, the court then considers whether, in the exercise of its discretion, an award of attorney

fees to the prevailing party is warranted. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1460 (Fed. Cir.

1998) (en banc); J.P. Stevens Co. v. Lex Tex Ltd., 822 F.2d 1047, 1050 (Fed. Cir. 1987). The trial court’s

finding that a case is “exceptional” is a factual determination reviewed for clear error. The subsequent

determination of whether attorneys’ fees are warranted lies within the district court’s sound discretion.

See, e.g., Nilssen v. Osram Sylvania, Inc., 528 F.3d 1352, 1357 (Fed. Cir. 2008); nCube Corp. v.

Seachange Int’l, Inc., 436 F.3d 1317, 1319 (Fed. Cir. 2006); Cybor Corp., 138 F.3d at 1460. Factors that

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 1 of 7

 2

may demonstrate that a case is “exceptional” include willful infringement, bad faith, litigation misconduct,

and unprofessional behavior. Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1674 (Fed. Cir. 1996).

In addition, “inequitable conduct may constitute a basis for an award of attorney fees under 35

U.S.C. § 285.” Osram, 528 F.3d at 138 (quoting A.B. Chance Co. v. RTE Corp., 854 F.2d 1307, 1312

(Fed. Cir. 1988)). As the Federal Circuit noted in its recent Osram holding, however, “there is no per se

rule of exceptionality in cases involving inequitable conduct.” Osram, 528 F.3d at 138. The court further

recognized that it had on many occasions affirmed a district court’s denial of attorney fees in cases

involving inequitable conduct, and had likewise affirmed the courts’ decisions to award attorney fees on

the basis of inequitable conduct. Id. (collecting cases and stating, “In short, our case law provides wide

discretion to district courts; courts may award attorney fees in inequitable conduct cases, but are not

required to do so.”).

The Federal Circuit has also made it clear that a prior finding of inequitable conduct by a different

court in an action involving the same plaintiff and the same patents will have a preclusive effect in

subsequent proceedings. In Upjohn Co. v. Mova Pharm. Corp., 31 F. Supp. 2d 211 (D.P.R. 1998), a jury

determined that the defendant had proved by clear and convincing evidence that the subject patent was

invalid as obvious under 35 U.S.C. § 103, and unenforceable due to the plaintiff’s inequitable conduct.

Upjohn subsequently filed a motion for judgment as a matter of law (“JMOL”) or, alternatively, for a new

trial. While that motion was pending, a different district court in a different case involving the same

plaintiff granted summary judgment for the defendant, based in part upon its collateral application of the

Mova judgments of invalidity and unenforceability. The Federal Circuit affirmed. Pharmacia & Upjohn

Co. v. Mylan Pharm., Inc., 170 F.3d 1373 (Fed. Cir. 1999) (“Mylan I”). After the Mova district court denied

the JMOL motion, the Mylan district court denied the defendant’s motion for attorney fees, expressly

finding that the plaintiff’s litigation tactics were in good faith and raised genuine issues of patent

infringement. It therefore found that the case was not an exceptional one meriting a fee award.

Pharmacia & Upjohn Co. v. Mylan Pharm., Inc., No. 1:97-CV-41 (N.D. W. Va. Aug. 17, 1998). The

defendant appealed the district court’s denial of its motion for attorney fees, arguing that the district court

had erred in failing to consider the outcome of Mova.

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 2 of 7

 3

The Federal Circuit agreed, and reversed and remanded for reconsideration of whether the case

was exceptional in light of the Mova court’s finding that the plaintiff had engaged in inequitable conduct.

Pharmacia & Upjohn Co. v. Mylan Pharmaceuticals, Inc., 182 F.3d 1356 (Fed. Cir. 1999) (“Mylan II”). The

court specifically noted that its precedent in patent cases “establishes that inequitable conduct is a

substantive patent issue that must be taken into consideration in determinations under 35 U.S.C. § 285.”

Mylan II, 182 F.3d at 1359. It continued:

Here, a judgment of inequitable conduct has already been made by a court of competent
jurisdiction. As a matter of law, we hold that such a judgment must be considered in
ascertaining whether a case is exceptional under 35 U.S.C. § 285. Accordingly, we
vacate and remand for consideration of whether this is an exceptional case in view of the
judgment in Mova.

Id. at 1360 (footnote omitted). Notably, the appellate court did not hold that the district court must reach

a finding of exceptionality based upon the prior judgment that the plaintiff had engaged in inequitable

conduct; rather, the district court was simply required to take that factor into consideration in determining

whether the case qualified as exceptional.

II. FACTUAL AND PROCEDURAL BACKGROUND

In a prior unrelated opinion issued in a different district in a case brought by the same plaintiff,

Ole K. Nilssen, and based in part upon the same patents at issue here, the court found that Nilssen had

engaged in inequitable conduct and, as a result that the patents in suit were unenforceable. Nilssen v.

Osram Sylvania, Inc., 440 F. Supp. 2d 884 (N.D. Ill. 2006), aff’d, 504 F.3d 1223 (Fed. Cir. 2007) (“Osram

I”). Based on Mylan II, it is clear that the district court’s holding in that case has preclusive effect here,

such that this Court must acknowledge that Nilssen engaged in inequitable conduct in prosecuting the

patents that were also at issue in this case. In a subsequent opinion, the Northern District of Illinois also

granted the defendant’s motion for attorneys’ fees on the grounds that the case before it was exceptional

for purposes of 35 U.S.C. § 285. Nilssen v. Osram Sylvania, Inc., No. 01 C 3585, 2007 WL 257711 (N.D.

Ill. Jan. 23, 2007), aff’d, 528 F.3d 1352 (Fed. Cir. 2008) (“Osram II”). In granting the motion for fees, the

district court noted that Nilssen had been found to have engaged in five types of inequitable conduct,

including “(1) misclaiming small entity status and improperly paying small entity fees; (2) failing to disclose

ongoing, related litigation; (3) misclaiming priority to earlier filing dates; (4) withholding material prior art;

and (5) submitting misleading affidavits to the PTO during patent prosecutions.” Id. at *8. In addition, the

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 3 of 7

 4

court had found ten of the eleven patents in suit to be unenforceable “on multiple grounds of inequitable

conduct, which repeated over a long period of time.” Id. As the Federal Circuit observed after Nilssen

appealed the award of fees, the lower court’s “exceptionality finding” was supported not only by the

finding of inequitable conduct but also by the frivolous nature of the lawsuit and Nilssen’s litigation

misconduct. Osram II, 528 F.3d at 1356. “The court found that the lawsuit was frivolous because Nilssen

‘knew or should have known’ that the suit was baseless. In support of the finding of litigation misconduct,

the court noted appellants’ refusal to allow [a foreign witness’s] deposition in the United States, the late

withdrawal of fifteen of the patents in suit, the belatedly-produced documents, and Nilssen’s last minute

waiver of the attorney-client privilege.” Id. (citation omitted).

In the present case, defendant ULT argues that exceptional circumstances likewise exist given

Nilssen’s inequitable conduct as previously found by the Illinois court. In addition, ULT argues that this

lawsuit was likewise frivolous insofar as Plaintiffs in this case, including Nilssen, knew or should have

known that their claims were meritless, and that Nilssen again engaged in litigation misconduct. More

specifically, ULT contends that Plaintiffs engaged in bad faith litigation tactics designed to increase the

costs of litigation by asserting infringement of Claim 21 of the ‘067 Patent even though that Claim had

been held invalid in the case of Nilssen v. Motorola, Inc., 2002 WL 206007, at *11 (N.D. Ill. 2002), before

the Complaint in this action was filed. ULT also complains that Plaintiffs failed to disclaim the invalid

claim until after expert discovery was conducted, the PTO expressly recognized that Claim 21 of the ‘067

Patent was invalid in light of the Motorola decision, and ULT gave notice of intent to file a Rule 11 motion

if the claim was not withdrawn. ULT also asserts that Plaintiffs engaged in “ambush tactics,” in that they

initially claimed infringement of twenty-nine patents; narrowed that to eleven when they filed claim charts

nearly a year into litigation; and then on July 11, 2005, the day opening expert reports were due, informed

ULT that they were only pursuing infringement of four of the eleven “Asserted Patents.” ULT claims this

belated notice of the reduction in scope of the Plaintiffs’ claims was in bad faith given that Plaintiffs

apparently knew as early as May 2005, two months before the expert report deadline, that it did not

intend to pursue those seven patents. ULT asserts that Plaintiffs’ failure to give earlier notice of the

narrowing in scope resulted in the defendant’s wasting a substantial amount of time and effort in

preparing expert reports addressing the seven other Asserted Patents.

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 4 of 7

 5

In response, Plaintiffs argue that this Court is not bound by the Osram court’s decision to award

fees, that the equities and circumstances in this case are far different from those in Osram that prompted

the court to award fees, that no litigation misconduct occurred in this case; the “volume of inequitable

conduct is smaller”; and Plaintiffs have already been adequately punished for Nilssen’s inequitable

behavior by the fee award in Osram. In support of their assertion that the fundamental circumstances of

this case are quite different from those presented in Osram, Plaintiffs have filed the Declarations of two of

their attorneys, Raymond N. Nimrod and John E. Titus, attesting to the reasonableness of their belief that

ULT had infringed all twenty-nine patents originally asserted in the complaint. Specifically, counsel point

out that they brought suit against ULT on the heels of a February 8, 2002 summary judgment decision

that ULT’s predecessor company, Magnetek, infringed two of the patents named in this case (the ‘409

and ‘795 Patents). The same decision denied Magnetek’s motion for summary judgment of invalidity as

to the ‘690 Patent. That decision, argue Plaintiffs’ attorneys here, confirmed the reasonableness of the

Plaintiffs’ belief in the validity of those patents as well as three others originally asserted here. Nilssen v.

Magnetek was ultimately settled by arbitration over one patent, the ‘409 Patent, and Nilssen was awarded

over $23 million in damages by the arbitrator. The district court confirmed the award, and the parties

ultimately settled for over $18 million. After that case was finally resolved, ULT acquired most of the

assets of Magnetek’s lighting business and continued to sell the same products that had already been

held to infringe the ‘409 Patent. According to the attorneys’ declarations, they, on behalf of the Plaintiffs,

undertook thorough pre-suit investigation of ULT’s potentially infringing products and concluded that at

least one product sold by ULT infringed each of the twenty-nine patents identified in the complaint filed in

this action in February 2003.

Plaintiffs’ attorneys have also attested to the reasons for the subsequent narrowing of the case

and the timing thereof. According to their declarations, the decision to narrow the claims set forth in the

claim chart from twenty-nine to eleven was essentially a business decision, made before ULT had

invested much time or effort into defending against any of the claims but after and as result of a “review of

the schematics, analysis of samples and the sales information provided by Universal in discovery.” (Titus

Decl. (Doc. No. 210) at ¶ 29.) Titus also points out that the parties had spent most of their energy by that

time in disputing whether the case should be litigated in the Middle District of Tennessee or the Northern

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 5 of 7

 6

District of Illinois. (Titus Decl. ¶ 30.) Plaintiffs’ counsel defends the belated narrowing of claims from

eleven to four on the date on which opening expert reports were due to the health issues experienced by

Nilssen’s long-standing technical expert, John MacCrisken, coupled with the inability of the substitute

technical expert to provide infringement opinions on all eleven patents within the allotted time. Counsel

maintains that “[i]t was not clear until the weekend before expert reports were filed that we would not file a

report from an expert on any of the remaining seven patents.” (Nimrod Decl. (Doc. No. 209) at ¶ 13: see

also Titus Decl. ¶¶ 34–47 (providing detailed account of the time line of events leading up to the decision

that MacCrisken would not be able to testify and that Kesan, the other expert, would not have time to get

“up to speed” on the other seven patents).)

Further, according to both Titus and Nimrod, the continued assertion of the validity of Claim 21 of

the ‘067 Patent was due to counsel’s own “honest oversight.” (Nimrod Decl. ¶ 17; Titus Decl. ¶ 48.) Titus

attests specifically that he had “simply forgotten” that Claim 21 had been ruled invalid, as the Motorola

court’s analysis was focused on Claim 32. In any event, according to Titus, he “had no reason”

intentionally to assert an invalid claim “given that other patent claims (namely, claims 6 and 34 of the ‘067

patent) covered the same products as claim 21 and there would have been no hope of prevailing on claim

21 given the prior invalidity finding.” (Titus Decl. ¶ 53.) Titus also points out that it appears that ULT’s

counsel had also forgotten about the invalidity ruling as to claim 21, since ULT raised no objection

regarding claim 21 until nearly a year after Plaintiffs filed their April 2004 infringement claim chart.

Finally, Plaintiffs point out that this matter was stayed effective January 5, 2006, pursuant to

ULT’s unopposed motion, pending reexamination proceedings concerning three of the remaining patents

in suit by the USPTO, as well as the bench trial scheduled in Osram v. Nilssen. Essentially nothing else

substantive happened in this matter once it was stayed. The Osram court issued its findings of fact and

conclusions of law in June 2006. ULT sought to file a supplemental motion for summary judgment on

collateral estoppel grounds in September 2006, but the stay continued in effect pending the Federal

Circuit’s review of the Illinois District Court’s ruling. The Federal Circuit affirmed the prior decision and

issued its mandate on January 23, 2008. Shortly thereafter, Plaintiffs’ counsel contacted ULT’s counsel

regarding the possibility of a stipulated dismissal. ULT declined, instead choosing to file its supplemental

motion for summary judgment in order, apparently, to preserve its right to claim attorneys’ fees. Within a

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 6 of 7

 7

few weeks of the filing of the supplemental motion for summary judgment, plaintiffs’ counsel

communicated a willingness to agree to a consent judgment. The proposed consent judgment was

presented to and ultimately entered by this Court in April 2008.

III. FINDINGS AND CONCLUSIONS

ULT’s argument to the contrary notwithstanding, while this Court is bound by the Osram court’s

finding of inequitable conduct, it is not bound by the finding of exceptionality. This case is procedurally

quite different from Osram: It did not go to trial; this Court made no substantive legal or factual

conclusions; and the parties drafted their own stipulation of dismissal. From the Court’s perspective, this

case distinguished itself only by the amount of time during which it was stayed. ULT has not established

that this case was frivolous at its inception nor that Plaintiffs engaged in bad-faith litigation tactics.

Instead, Plaintiffs never opposed the stays sought by ULT and moved promptly to dispose of this case

once it was clear that the holding in Osram was binding here. The declarations of counsel, which this

Court has no reason not to accept, indicate that Plaintiffs had a reasonable basis (or a reasonable

excuse) for their various litigation decisions and did not act in bad faith. In sum, notwithstanding the

Osram court’s finding, by which this Court is bound, that Nilssen engaged in inequitable conduct, the

Court finds that ULT has not presented clear and convincing evidence of exceptionality. On that basis, an

award of attorneys’ fees is not warranted by the statute. Moreover, even if the matter could be

characterized as exceptional, the Court would nonetheless exercise its discretion to deny the motion for

attorneys’ fees, based largely, again, upon this case’s unusual procedural posture and the fact that most

of the substantive work was performed in the context of the Osram proceedings and the USPTO’s

reexamination.

Accordingly, defendant ULT’s Motion for Attorneys’ Fees (Doc. No. 186) and Amended Motion for

Attorneys’ Fees (Doc. No. 191) are hereby DENIED.

It is so ORDERED.

Thomas A. Wiseman, Jr.

Senior U.S. District Judge

Case 3:04-cv-00080 Document 217 Filed 01/27/2009 Page 7 of 7