In a recent post on this blog, fellow contributor Mike Zabel addressed how a prevailing party might recover the costs of e-discovery in litigating disputes in federal court under 28 U.S.C. § 1920. In Eon-Net LP v. Flagstar Bancorp, No. 2009-1308, 2011 U.S. App. LEXIS 15650 (Fed. Cir. July 29, 2011), the Court of Appeals for the Federal Circuit highlighted another avenue for litigants in patent cases to recover costs based on discovery violations, affirming sanctions of nearly $500,000 for litigation misconduct. Under 35 U.S.C. § 285, the court may award the prevailing party in a patent dispute reasonable attorneys fees in "exceptional cases." Plaintiff Eon-Net engaged in improper tactics and made a habit of filing nuisance infringement cases – well over one hundred of them in total – but the court began its exceptional case discussion with Eon-Net's "retention policy."
Eon-Net adopted a policy that it would not retain relevant documents and destroyed important documents pursuant to that policy. Indeed, Eon-Net's principal testified that "I don't save anything so I don't have to look." Flagstar, 2011 U.S. App. LEXIS 15650, at *18. Eon-Net's approach actively rejected any duty to save documents related to the infringement claim upon which the suit was brought and violated its duty to preserve evidence during prior lawsuits on the same patents. Id. Based on this misconduct, as well as Eon-Net's improper legal tactics, the court affirmed a costs award that approached $500,000.
Discovery sanctions under Rule 37 and prevailing party costs under 28 U.S.C. § 1920 allow litigants to recoup discovery costs in certain circumstances. The threat of sanctions under either of those rules should be sufficient to keep parties from engaging in outrageous conduct such as the conduct of the plaintiff in Flagstar. When an opposing party engages in such tactics, however, parties to patent litigation should keep the "exceptional case" rule in mind as another tool for recovering costs lost due to discovery misconduct.
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