Sanctions — Sloppy Argument and Overstatement ≠ Misrepresentation or Litigation Misconduct Punishable under Rule 11 and Form No Basis for Finding Patent Case Not Exceptional within 35 U.S.C. § 285

Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., 2015 U.S. App. LEXIS 10736 (Fed. Cir. June 25, 2015):

Cincinnati Sub-Zero Products, Inc. ("CSZ"), the prevailing party in this patent infringement case, appeals the district court's denial of attorney's fees under 35 U.S.C. § 285. In holding that this was not an "exceptional case," the district court found that plaintiff Gaymar Industries, Inc.'s ("Gaymar") litigation position was not objectively baseless. In assessing the totality of the circumstances, the district court relied on several instances of defendant CSZ's purported litigation misconduct as a basis for finding that the case was not exceptional. We affirm the district court's finding of a lack of objective [*2]  baselessness. We reverse the exceptional case finding insofar as it was based on CSZ's purported misconduct, and remand.

***

Without question, CSZ's arguments . . . could be properly characterized as overstatements. But none of the cited examples amounts to misrepresentation [*19]  or litigation misconduct. In addressing potential litigation misconduct in analogous contexts, other circuits have concluded that isolated overstatements do not rise to the level of sanctionable litigation misconduct under Federal Rule of Civil Procedure 11. See, e.g., Kiobel v. Millson, 592 F.3d 78, 83 (2d Cir. 2010) (a "possible overstatement" does not violate Rule 11); Navarro-Ayala v. Hernandez-Colon, 3 F.3d 464, 467 (1st Cir. 1993) ("Rule 11 neither penalizes overstatement nor authorizes an overly literal reading of each factual statement."); Fed. Deposit Ins. Corp. v. Tekfen Constr. & Installation Co., 847 F.2d 440, 443-45, 444 n.6 (7th Cir. 1988) (vacating Rule 11 sanctions "even if [a] minor argument were off the mark" and "not meritorious" when the defendant's "persistence, perhaps more than the substance of its arguments, led to the sanctions"); see also, e.g., A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1402-03 (9th Cir. 1992) (Under a statute providing grounds for vacating an arbitration award procured by "undue means," 9 U.S.C. § 10(a)(1), "mere sloppy or overzealous lawyering" does not "constitute[] 'undue means.'").

III

In summary, the examples cited by the district court--whether considered in isolation or in the aggregate--amount to sloppy argument, at worst. While such sloppiness on the part of litigants is unfortunately all too common, it does not amount to misrepresentation or misconduct. In view of the serious consequences of a finding of misconduct, it is important that the district court be particularly careful not to [*20]  characterize bad lawyering as misconduct. "CSZ's own litigation misconduct," J.A. 36, was cited by the district court for finding that this was not an exceptional case in light of Octane. Because none of the examples cited by the district court constitutes litigation misconduct, a remand is required.

We reverse the district court's denial of attorney's fees, and remand for reconsideration on the totality of the circumstances under Octane. On remand, the district court remains free to deny attorney's fees based on the totality of the circumstances, including the strength of Gaymar's litigation position and the sustained finding that Gaymar's litigation position was not objectively baseless.

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