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Capital Security Systems, Inc. v. NCR Corp.

United States District Court, N.D. Georgia, Atlanta Division

January 5, 2018

CAPITAL SECURITY SYSTEMS, INC., Plaintiff,
v.
NCR CORPORATION, SUNTRUST BANKS, INC., and SUNTRUST BANK, Defendants.

          OPINION AND ORDER

          WILLIAM S. DUPFEY, JR. UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendant NCR Corporation's (“NCR”) Motion for Attorney's Fees [152] and Motion for Additional Attorney's Fees and Costs [198] (collectively, the “Motions”). Also before the Court is NCR's Motion for Leave to File Matters Under Seal [200] (“Motion to Seal”).[1]

         I. BACKGROUND

         On May 19, 2014, Plaintiff Capital Security Systems, Inc. (“Capsec”) filed this action for patent infringement against Defendants NCR, SunTrust Banks, Inc., and SunTrust Bank (collectively, “Defendants”), asserting infringement of United States Patent Nos. 5, 897, 625 (“the '625 Patent”); 7, 653, 600 (“the '600 Patent”); 7, 991, 696 (“the '696 Patent”); and 8, 121, 948 (“the '948 Patent”) (collectively, “Patents-in-Suit”). (See Compl. [1]). On May 29, 2014, Defendants filed their counterclaims [8], seeking a declaratory judgment that the Patents-in-Suit are invalid, unenforceable, or not infringed.

         On May 24, 2016, the Court held a Markman hearing, and, on June 28, 2016, the Court issued an order [133] (the “Claim Construction Order”) construing certain disputed terms in the Patents-in-Suit. On October 24, 2016, Capsec filed its Motion for Entry of Judgment of Non-Infringement in favor of NCR so that Capsec could appeal the Court's Claim Construction Order. ([143]). Capsec also sought to dismiss NCR's invalidity and unenforceability counterclaims. On December 9, 2016, the Court issued its order on Capsec's motion. ([145]). The Court entered judgment for NCR of non-infringement of the Patents-in-Suit and held that its order constituted a final, appealable decision of the Court within the meaning of Rule 54(b) of the Federal Rules of Civil Procedure. The Court also denied Capsec's request to dismiss NCR's counterclaims for invalidity and unenforceability. On December 20, 2016, Capsec filed its notice of appeal with the Federal Circuit challenging the Court's Claim Construction Order. The appeal is currently pending.

         On December 22, 2016, NCR filed its Motion for Attorney's Fees seeking an award of NCR's “full fees” incurred for the period of June 2014 to November 2016. ([152] at 25; see also [170]; [171]; [182]). NCR seeks attorney's fees under 35 U.S.C. § 285 and 28 U.S.C. § 1927. ([152] at 25). On January 19, 2017, Plaintiff filed its Opposition to Defendant's Motion for Attorney's Fees [164] (“Response to Motion for Attorney's Fees”).

         The parties engaged in additional motion practice following Capsec's appeal of the Court's Claim Construction Order, including NCR's Motion for Summary Judgment of Invalidity [162] filed on January 13, 2017. On June 30, 2017, the Court granted NCR's Motion for Summary Judgment of Invalidity with respect to its indefiniteness arguments, issuing an order finding the claim term “apparent signature” and “transactional operator” to be indefinite. ([192]) (the “Invalidity Order”). On July 28, 2017, the Court entered a Consent Judgment of Invalidity [193] so that Capsec could appeal the Court's Invalidity Order in concert with its already filed appeal of the Court's Claim Construction Order. The Consent Judgment of Invalidity granted a judgment of invalidity of the Patents-in-Suit against Capsec and for NCR. ([193] at 3). The same day, the Clerk entered a docket entry terminating the case.

         On August 8, 2017, NCR filed its Motion for Additional Attorney's Fees seeking “additional attorney's fees and costs that NCR has incurred during this district court litigation, from December 2016 through July 2017.” ([198] at 2). On September 1, 2017, Plaintiff filed its Response and Objections to Defendant NCR Corporation's Motion to Include Additional Attorney's Fees and Costs [204] (“Response to Motion for Additional Attorney's Fees”).

         II. DISCUSSION

         A. Attorney's Fees Pursuant to 35 U.S.C. § 285

         35 U.S.C. § 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Determining whether a party should be afforded attorney's fees under 35 U.S.C. § 285 requires a two-step inquiry: (1) the court must determine whether the case is “exceptional” and (2) where the court finds the case is “exceptional, ” the court must determine whether the requested attorney's fees are appropriate. Wedgetail Ltd. v. Huddleston Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir. 2009). “An ‘exceptional' 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 & Fitness, Inc., 134 S.Ct. 1749, 1756 (U.S. 2014); see also Crossfit, Inc. v. Quinnie, 232 F.Supp.3d 1295, 1314. Although the Federal Circuit once required a plaintiff to prove that a case was exceptional by clear and convincing evidence, the Supreme Court in Octane Fitness rejected “such a high standard of proof.” Octane Fitness, LLC, 134 S.Ct. 1749, 1758. Instead, it appears now that a plaintiff need only meet the preponderance of the evidence standard in demonstrating the exceptionality of a case. Id. (“Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less a high one. Indeed, patent-infringement litigation has always been governed by a preponderance of the evidence standard.”). In the past, the Federal Circuit has found exceptionality in instances of “inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement.” Wedgetail, Ltd., 576 F.3d at 1304-05 (collecting cases).[2]

         NCR argues that its case is “exceptional” because Capsec engaged in litigation misconduct. NCR asserts that Capsec produced “sham” licensing agreements “created for the purpose of this litigation, ” which constituted an attempt to “artificially inflate the value of [Capsec's] claims” and thus perpetuate “a fraud on NCR and the Court.” ([152] at 12-13). NCR further argues that Capsec acted “unreasonably throughout” the litigation, including because it advanced “entirely new infringement theories” at the Markman hearing without complying with Local Patent Rule 4.1(b). (Id. at 14). NCR finally argues that the Court can infer misconduct from the fact that Capsec's former counsel moved to withdraw because, in part, Capsec “persist[ed] in a course of action involving Counsel's services that Counsel believe[d] [wa]s fraudulent.” ([99.1] ¶ 2). NCR points out that when Capsec opposed the motion to withdraw, its then-counsel replied that they were “prepared to show evidence, in camera . . . including support for, among other[] activities, misrepresentations made by Capital Security to Counsel and fraud.” ([102] at 2-3).

         NCR next argues that its case is “exceptional” because Capsec's claims were “objectively baseless” from the inception of the litigation. NCR asserts that “[a]ny meaningful pre-suit investigation would have revealed that NCR ATMs do not practice key elements of the asserted claims.” ([152] at 17). NCR further alleges that NCR sent Capsec several letters explaining how its technology worked, offered to meet in person to demonstrate its products, and provided a declaration from an NCR employee that refuted Capsec's claims. (Id. at 17-18). NCR states that the Court's “thorough[] reject[ion] [of] Capsec's constructions” at the Markman hearing, Capsec's continued reference to software not used in NCR's ATMs, and Capsec's acknowledgment that its claims relating to the ‘625 patent “were not important” are further evidence that its claims were “objectively baseless” from the start. (Id. at 16-20).

         Plaintiff argues, in contrast, that it did not engage in litigation misconduct by producing and citing the two licensing agreements NCR calls “sham” agreements.[3]Plaintiff asserts that no evidence of fraud exists, and that the licensing agreements were “obviously relevant to this lawsuit under Fed.R.Civ.P. 26(b)(1), ” and “Capsec was therefore required to produce the license agreements and could not have committed misconduct by simply doing so.” ([164] at 15). Capsec also disclaims that it “improperly relied on” the licensing agreements. (Id.). Capsec states that it never served an expert report relying on the agreements or otherwise substantively relied on them before new counsel “explicitly disavowed reliance on [them] as ‘lack[ing] sufficient probative value to be meaningfully relevant to a reasonable royalty analysis for patent damages against a large volume manufacturer of ATM machines.'” (Id. at 15-16). Plaintiff further states that NCR has not identified any “false statements of fact, ” “misleading information, ” or “falsified documents, ” and has presented no evidence that the licensing agreements were “not what they appear to be, were falsified, or otherwise ...


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