In July 2018, United Cannabis Corporation (UCANN) sued Pure Hemp Collective (Pure Hemp) for infringement of U.S. Patent No. 9,730,911 (the '911 patent) in the District of Colorado. After prolonged litigation, the parties stipulated to dismissal of their claims and counterclaims. Pure Hemp then moved for attorney fees and sanctions, which the district court denied. Pure Hemp appealed to the Federal Circuit. Patent Law.

Background

The '911 patent is titled "Cannabis Extracts and Methods of Preparing and Using the Same" and discloses extraction of cannabinoids from cannabis. In April 2020, UCANN filed for bankruptcy, staying the litigation until January 2021, when the parties stipulated to dismissal. 

Pure Hemp's motion for attorney fees cited two grounds: (1) UCANN's prosecution counsel allegedly committed inequitable conduct regarding prior art; and (2) UCANN's litigation counsel had a conflict of interest. The district court denied the motion, finding the record undeveloped on inequitable conduct and no prevailing party status or exceptional circumstances for a fee award.

Analysis

Pure Hemp challenged the district court's decision to deny attorney fees based on three alleged errors: not recognizing Pure Hemp as the prevailing party, failing to establish inequitable conduct from undisputed facts, and overlooking a conflict of interest among UCANN's attorneys that should result in sanctions. The appeals court addressed each issue in turn.

Prevailing Party

The district court erred in not finding Pure Hemp to be the prevailing party. Pure Hemp successfully defended against UCANN's patent infringement claims, which were dismissed with prejudice, preventing UCANN from asserting the patents against Pure Hemp again. This constitutes a material alteration of the legal relationship between the parties in Pure Hemp's favor. However, this error was harmless because the district court provided alternate grounds for denying attorney fees.

Inequitable Conduct

To prove inequitable conduct, the challenger must show by clear and convincing evidence that the patent applicant misrepresented or omitted information material to patentability and did so with specific intent to mislead or deceive the Patent and Trademark Office (PTO). The court reviews district court findings on materiality and intent for clear error.

In this case, there are no findings to review because Pure Hemp voluntarily dismissed its counterclaim for inequitable conduct before the district court made any findings. Pure Hemp later told the district court it was not seeking further evidentiary proceedings in connection with its post-dismissal motion for attorney fees. The district court did not abuse its discretion by not conducting an inequitable conduct proceeding when Pure Hemp explicitly disclaimed desire for such a proceeding.

Pure Hemp argues the undisputed facts show inequitable conduct, but the limited record reveals disputes on intent and materiality. The procedural posture did not require the district court to resolve these disputes, so Pure Hemp failed to show the case is exceptional due to inequitable conduct.

Conflict of Interest

Pure Hemp contended that UCANN's legal representatives (Cooley) harbored a conflict of interest. However, this claim was waived when they neglected to reference the pertinent rule before the lower court. Rule 1.7 of the Model Rules of Professional Conduct explicitly bars attorneys from advocating for clients in scenarios entailing conflicting interests, where advocating for one party could directly oppose another's position. 

The absence of substantial evidence endorsing Pure Hemp's allegations regarding Cooley's conflicting stances for UCANN and GW Pharma significantly undermines their stance. Pure Hemp's failure to establish that Cooley's acquisition of patents for UCANN mirrored those secured for GW Pharma, or to showcase any actions directly detrimental to each other's interests, further weakened their position. 

Consequently, the court would likely dismiss Pure Hemp's contention of an unverified conflict of interest involving UCANN's legal team at Cooley. Even if reached on the merits, the conflict claim would fail.

Final Ruling

Though Pure Hemp's position is weak, its victory on being the prevailing party shows the appeal had merit when filed. As for Pure Hemp's arguments, the court is displeased with unsupported attacks on opposing counsels' integrity but cannot call the whole appeal frivolous.

The Federal Circuit affirmed the district court's denial of Pure Hemp's motion for attorney fees, finding no abuse of discretion.

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