December 23, 2024

The Federal Circuit addressed this question in PS Products Inc. v. Panther Trading Co. Inc., No. 2023-1665, ---F.4th---, 2024 WL 4996328 (Fed. Cir. Dec. 6, 2024).  PS Products and an individual (collectively, “PSP”) sued Panther in an Arkansas federal court for infringement of a design patent directed to a long-spiked electrode for a stun device. 2024 WL 4996328, at *1.  Pursuant to Fed. R. Civ. P. 11, Panther sent a Rule 11 letter and draft motion for Rule 11 sanctions to PSP’s attorney of record. Id.  The letter stated that PSP’s infringement allegations were facially frivolous because the patented design and accused product were plainly dissimilar. Id. The letter also stated that venue was statutorily improper. Id.  That same day, Panther moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim and 12(b)(3) for improper venue. Id.  PSP did not respond to the Rule 11 letter or motion to dismiss. Id.  Soon after, Panther found a prior art marketing brochure from PSP depicting a design nearly identical to the design claimed in the asserted patent. Id.  Panther sent another letter to PSP’s attorney demanding dismissal of the lawsuit in view of the brochure. Id.  Within days, PSP moved to voluntarily dismiss the case with prejudice. Id.  Panther then demanded PSP reimburse it for the attorneys’ fees and expenses incurred to defend against the frivolous lawsuit. Id.  Panther warned it would seek sanctions to dissuade PSP from further frivolous filings if PSP refused. Id.  PSP did not respond. Id.

The district court dismissed the case with prejudice as PSP requested.  The next day Panther moved under § 285 for attorneys’ fees and costs, and further sought $100,000 in deterrence sanctions under the court’s inherent power. Id.  The district court deemed the case exceptional under § 285 and granted Panther’s motion for fees and costs, for which PSP and its attorney were jointly and severally liable. Id.  The district court also ordered PSP and its attorney to, jointly and severally, pay $25,000 in deterrence sanctions to the court. Id.  PSP’s request for reconsideration of the deterrence sanctions was denied.  PSP appealed, but only from the imposition of deterrence sanctions, and advanced several grounds of error by the district court. Id. at *1-2.

PSP first argued the district court lacked authority to award sanctions when it already awarded attorneys’ fees and costs. Id. at *2.  Citing precedent, the Court wrote, “It is well-settled that § 285 does not preclude a district court from separately imposing sanctions or fees under another authority.” Id. (e.g., sanctions for Rule 11 violations or expert witness fees under the court’s inherent power).  The Court saw “no reason to treat sanctions under the court’s inherent power differently from sanctions under Rule 11 or expert fees under the court’s inherent power.” Id.  It held that “the district court can impose sanctions under its inherent power in addition to awarding attorney fees and costs under § 285.” Id.

PSP next argued that the district court used the wrong legal standard because it failed to state the imposed sanctions were due to bad faith or fraudulent conduct. Id. at *2-4.  The Court explained that PSP’s bad faith conduct was inferred based on the lawsuit’s lack of legal merit and PSP’s history of repeatedly filing meritless lawsuits in the district. Id.  The Court found “serious flaws” with PSP’s case. Id.  These flaws included lack of a plausible claim for design patent infringement given the “plainly dissimilar” accused product and patented design and venue allegations based on the wrong venue statute (PSP wrongly alleged venue based on the general venue statute, 28 U.S.C. § 1391, instead of the patent-specific statute, 28 U.S.C. § 1400; under the correct statute, the facts rendered venue in Arkansas improper). Id.  Also, since 2010 PSP filed twenty-five patent infringement lawsuits in the same Arkansas court, all of which incorrectly asserted venue based on § 1391 instead of § 1400. Id.  The Court summarized the procedural posture of these other cases and explained that while they were not individually analyzed by the district court, “it was reasonable given [the facts] for the district court to infer PSP’s many other lawsuits mirroring this suit’s procedural posture were similarly meritless.  Under these circumstances, the district court did not clearly err when it inferred bad faith from PSP’s history of filing meritless lawsuits.” Id.

Lastly, PSP claimed the district court abused its discretion when it imposed deterrence sanctions under its inherent power and argued the quantity of lawsuits filed does not warrant sanctions. Id. at *4.  PSP relied on SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1349–50 (Fed. Cir. 2015), where the Court affirmed a judgment denying fees and holding the case unexceptional under § 285. Id.  The sole basis argued for exceptionality was the patentee’s history of filing many lawsuits and settling for low amounts. Id.  The Court was not persuaded by PSP’s argument and explained that here, unlike in SFA Sys., the exceptionality determination was not challenged on appeal and, more importantly, the sanction was not solely based on PSP’s history of filing many lawsuits but on PSP’s history of filing meritless lawsuits. Id. (citing PSP’s use of the wrong venue statute to bring its many cases in the Arkansas court and counsel’s admission that it was the only way they could have brought the cases and noting that at least in the present case venue in Arkansas was improper under the correct statute).  PSP’s assertion that its conduct must be “sufficiently beyond exceptional” to justify sanctions under the court’s inherent power was similarly unpersuasive. Id.  PSP did not dispute the sanction could have been imposed under Rule 11. Id.  Here, though, Rule 11 sanctions were unavailable because PSP dismissed the case before Panther could file a Rule 11 motion. Id.  Quoting Supreme Court guidance in Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991), for circumstances under which a court can “safely rely on its inherent power” to sanction bad faith litigation conduct, the Court explained that there being no other “mechanism to sanction PSP’s bad faith conduct except the court’s inherent power, the district court acted within its discretion by relying on its inherent power to sanction conduct that would typically fall under Rule 11.” Id.  The Court found no abuse of discretion in the deterrence sanction awarded. Id. at *5.

For its part, Panther sought attorneys’ fees and costs for defending an appeal that was frivolous as argued. Id. at *5.  This was a close question for the Court but ultimately it denied the fee request. Id.  The Court discussed its discretion to award just damages and single or double costs to the appellee and conditions under which an appeal can be held frivolous as filed or frivolous as argued. Id.  Here, Panther claimed the latter. Id.  While the Court found PSP’s appeal and arguments “entirely without merit,” the appeal was “not quite frivolous.” Id.  The Court explained, for example, that it was not frivolous for PSP to argue that the district court could not award deterrence sanctions under its inherent power in addition to attorneys’ fees pursuant to § 285. Id.  It reasoned that while the argument was without merit, it had not previously been decided by the Court. Id.

In the end, the Court affirmed the imposition of deterrence sanctions against PSP.