No Sanctions under Rule 11 Where Both Sides Contributed to Frivolous Filings or under Inherent Power Where Bad Faith Not Shown

Buckhorn v. Orbis Corp., 2015 U.S. App. LEXIS 11409 (Fed. Cir. July 2, 2015):

Orbis Corporation and Orbis Material Handling, Inc. (collectively, "Orbis"), the defendant and prevailing party in a patent infringement suit, seeks attorney's fees against Buckhorn, Inc. ("Buckhorn"), one of the plaintiffs in the infringement action. Buckhorn's co -plaintiff, Schoeller Arca Systems, Inc. ("SAS"), had previously been held liable to Orbis for fees pursuant to an agreement between it (SAS) and Orbis. Orbis argues that it is entitled to recover fees against Buckhorn under an indemnification provision in a patent licensing agreement (the [*2]  "PLA") between Buckhorn and SAS. Orbis also relies on the district court's inherent power to award attorney's fees.

The district court awarded fees to Orbis against Buckhorn under the PLA. But Orbis cannot recover under the PLA because Orbis is neither a party to the PLA nor a third-party beneficiary. Moreover, the district court neither invoked nor had inherent power to award fees in this case. We therefore reverse the district court's award of fees to Orbis.

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Alternatively, Orbis asserts that district courts have "broad discretion in fashioning joint-and-several liability," and that we should affirm the district court's award on that ground, see Appellee's Br. 23, even though the district court did not rely on it. Significantly, the district court did not purport to award fees under its inherent powers. The district court previously stated that fees were not appropriate under 35 U.S.C. § 285 or as sanctions under Fed. R. Civ. P. 11 because the case was not "exceptional" and "both sides contributed to the dilatory tactics, discovery disputes, and frivolous motions for sanctions." J.A. 211, 213. Focusing on the equities, the court additionally noted that an award of fees under the RX agreement would be "unconscionable." J.A. 203. [*13]  The district court's award of fees was based on the PLA, not its "inherent power to impose sanctions for bad faith conduct." See Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991).

While it is true that federal courts may exercise "inherent power to sanction bad-faith misconduct," id., "courts are not free to fashion drastic new rules with respect to the allowance of attorneys' fees to the prevailing party in federal litigation." Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 269 (1975). Rather, "the narrow exceptions to the American Rule effectively limit a court's inherent power to impose attorney's fees as a sanction to cases in which a litigant has engaged in bad-faith conduct or willful disobedience of a court's orders." Chambers, 501 U.S. at 47. This situation does not exist here, nor does Orbis argue that it does.

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