United States: Defendant's "Staged Delay" In Withdrawing FRAND Affirmative Defenses Amounted To "Rank Gamesmanship" And Supported An Award Of Attorneys' Fees

Chief Judge Gilstrap of the Eastern District of Texas held that the litigation conduct of defendants Huawei Device USA, Inc. and Huawei Device (Shenzhen) Co., Ltd. (collectively, “Huawei”), in a patent infringement action, merited a finding of exceptional case status and an award of attorneys’ fees to the plaintiff patent holders.

On February 10, 2017, Plaintiffs Optis Wireless Technology, LLC, PanOptis Patent Management, LLC, and Optis Cellular Technology, LLC (collectively, “PanOptis”) sued Huawei for infringement of five standard essential patents (SEPs). Four of the patents were declared essential to the LTE cellular communications standard, and the fifth patent was declared essential to the H.264 video-coding standard. In Count IX, PanOptis sought a declaratory judgment that it had offered to license its SEPs to Huawei on fair, reasonable and non-discriminatory (FRAND) terms. Huawei countered with five FRAND affirmative defenses, alleging that PanOptis failed to offer a license on FRAND terms.

At Huawei’s urging, the Court bifurcated PanOptis’s claims into a jury trial and bench trial, with the declaratory action on FRAND relegated to the bench trial. In the jury trial, Huawei raised its FRAND defenses to argue that damages sought by PanOptis were not consistent with FRAND terms and that Huawei’s conduct was not willful because it sought only a FRAND license. When the Court proceeded to take up the bench trial while the jury was deliberating, however, Huawei dropped its FRAND defenses and argued that the Court lacked subject matter jurisdiction over Count IX. The jury ultimately found that the asserted patents were willfully infringed by Huawei and not invalid, and that Huawei owed PanOptis damages in the amount of $10,553,565. Over Huawei’s objection, the Court later held a bench trial, but based on insufficient evidence, the Court declined to issue a declaratory judgment on whether PanOptis complied with its FRAND obligations. The Court entered final judgment in favor of PanOptis and, in light of willfulness, enhanced the jury award by 25 percent. PanOptis then moved for a finding of exceptional case status and an award of attorneys’ fees under 35 U.S.C. § 285.

PanOptis asserted three grounds for exceptional case status: (1) Huawei’s use of timing and delay to force PanOptis to spend unnecessary resources; (2) Huawei’s assertion of weak infringement defenses; and (3) the jury’s willfulness finding. The Court found that PanOptis’s grounds were true and indicative of a “wide-spread pattern of litigation abuse.” The Court focused in particular on Huawei’s “staged delay” in withdrawing its FRAND defenses, characterizing it as “nothing less than rank gamesmanship that crossed the line of zealous advocacy.” The Court reasoned that Huawei was able to take advantage of its FRAND defenses before the jury, while depriving PanOptis of its opportunity for a declaratory judgment. According to the Court, the egregious nature of the conduct was compounded because Huawei would neither disavow that the delay was a planned tactic nor commit to refraining from this sort of conduct in the future. Based on the totality of the circumstances, the Court found exceptionality and awarded PanOptis all its attorneys’ fees and expenses.

Optis Wireless Technology, LLC et al. v. Huawei Device USA, Inc., No. 2:17-CV-00123-JRG (E.D. Tex. November 15, 2019)

Practice Tip: Although parties are encouraged to streamline issues for trial, they must do so in a timely manner so that their strategic decisions are not later viewed as exceptional litigation tactics unfairly timed to disadvantage and impose unnecessary costs on the opposing party.

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