Plaintiffs Litigation Position on Defendant's Equitable Estoppel Defense Not Objectively Unreasonable

Last month, in Akeso Health Sciences, LLC v. Designs for Health, Inc., District Judge S. James Otero of the U.S. District Court for the Central District of California denied a Motion for Exceptional Case Determination and Award of Attorneys' Fees filed by Defendant Designs for Health, Inc. ("DFH").  In its Motion, DFH argued that the case should be deemed "exceptional" within the meaning of 35 U.S.C. § 285, and that DFH should therefore be awarded attorneys' fees.

Akeso had filed suit against DFH for infringement of U.S. Patent No. 6,500,450, which relates to a dietary supplement for the treatment of migraine headache, asserting that DFH's manufacture and sale of the migraine treatment product Migranol indirectly infringed the asserted claims due to various instructions and implications on the label.  DFH had responded to the Akeso's complaint by filing a motion for summary judgment, asserting that Akeso should be equitably estopped from asserting the '450 patent due to Akeso's ten-year delay in filing suit.  The District Court granted DFH's motion for summary judgment, finding that equitable estoppel barred Akeso's suit.  In particular, the Court found that the adversarial stance of a cease-and-desist letter to DFH, followed by the significant length of delay in enforcement, qualified as misleading conduct for the purpose of an equitable estoppel analysis (see "Akeso Health Sciences, LLC v. Designs for Health, Inc. (C.D. Cal. 2018)," June 18, 2018).

Following the Court's grant of summary judgment in favor or DFH, DFH filed its Motion for Exceptional Case Determination and Award of Attorneys' Fees, Akeso then filed an opposition to DFH's Motion, and DFH filed a reply to Akeso's opposition.  The District Court noted that in DFH's Motion, DFH asserted that the case should be deemed "exceptional" for three reasons.  First, DFH Defendant argued that Akeso failed to conduct a reasonable pre-suit investigation, as evidenced by Akeso's failure to consider or conduct discovery into DFH's affirmative defense of equitable estoppel, and that Akeso's litigation position that equitable estoppel would not apply was not objectively unreasonable.  Second, DFH argued that Akeso's filing of nine separate actions for patent infringement within two years of the expiration of the '450 patent demonstrated subjective bad faith and oppressive litigation tactics.  Third, DFH argued that Akeso used artificially inflated calculations of "lost profits" damages to coerce DFH into a quick settlement, despite having no basis for these calculations.

With respect to DFH's first argument, the District Court noted that in SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC, 137 S. Ct. 954 (2017), the Supreme Court extended its holding in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014) -- where the Court held that the doctrine of laches cannot be used to bar a suit for copyright infringement that was properly brought within the Copyright Act's three-year statute of limitations -- to actions for patent infringement, several months after the present suit was filed.  As in Petrella, the Supreme Court in SCA indicated that the doctrine of equitable estoppel was still available to provide protection against the more problematic practices of unscrupulous patentees.

According to DFH, Akeso unreasonably relied on the Supreme Court's dicta in Petrella for the proposition that equitable estoppel only applies when a patent owner "engages in intentionally misleading representations" despite consistent Federal Circuit precedent that held that a period of silence in some circumstances can qualify as misleading conduct.  However, the District Court determined that:

While Defendant's reliance on Petrella may have been misplaced, its position that the conduct described in this instance does not qualify as misleading was not objectively unreasonable.  While several Federal Circuit cases have addressed the issue, there is no clear holding on when silence, without affirmative misrepresentations, can be sufficiently misleading as to provide a basis for equitable estoppel.  In reaching its decision, the Court had to analyze several Federal Circuit decisions on the question and analogize the facts at issue to these cases.  Reasonable minds could have differed on the outcome.

Regarding DFH's second argument that Akeso's filing of multiple infringement actions demonstrated subjective bad faith and oppressive litigation tactics, the District Court determined that neither Akeso's filing of nine separate actions nor its filing suit in California despite the fact that DFH's headquarters and state of incorporation are both located on the East Coast "necessarily demonstrate bad faith."  In particular, the Court stated that:

A patent owner is entitled to enforcement of his patent whether the patent is twenty or two years away from expiry.  Absent conduct that would warrant equitable estoppel, which, as noted above, Plaintiff reasonably could have believed did not apply, a patent owner may choose to monetize his intellectual property at any time that he believes in his best interest.  Defendant has not adequately demonstrated that any of the nine lawsuits filed by Defendant were objectively baseless. . . .

The Court added that "[f]iling a lawsuit in a forum where venue was appropriate under the law at the time of filing does not indicate bad faith."

Finally, as to DFH's third argument that Akeso relied on artificially inflated damages calculations, the District Court explained that "plaintiffs generally have an incentive to overestimate the amount of damages they are entitled to if judgment is awarded in their favor," adding that "the amount of damages awarded to a plaintiff is almost always less than the requested amount, if not drastically so."  The Court also noted that DFH "has not pointed to any case that was found exceptional on the basis of an inflated damages calculation alone."

Finding that DFH failed to meet its burden of proving that the case was "exceptional" within the meaning of § 285, the District Court denied DFH's Motion for Exceptional Case Determination and Award of Attorneys' Fees.

Akeso Health Sciences, LLC v. Designs for Health, Inc. (C.D. Cal. 2018)
Order Denying Defendants' Motion for Exceptional Case Determination and Award of Attorneys' Fees by District Judge Otero