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Environmental Manufacturing Solutions, LLC v. Peach State Labs, Inc.

United States District Court, M.D. Florida, Orlando Division

August 11, 2017

ENVIRONMENTAL MANUFACTURING SOLUTIONS, LLC, Plaintiff,
v.
PEACH STATE LABS, INC., Defendant. Stage of Litigation Total Fees Peach State Incurred Fees Peach State Claims are Attributable to EMS's Misconduct Expert Discovery Dispositive Motion Practice Pre-Trial Preparation Trial Post-Trial Motions Misconduct Matters Fee Petition Total Fees Attributable to EMS's Misconduct Total Litigation Expenses and Costs Attributable to EMS's Misconduct

          ORDER

          JOHN ANTDON II, UNITED STATES DISTRICT JUDGE.

         A jury returned a verdict finding that Environmental Manufacturing Solutions, LLC (EMS) infringed a patent owned by Peach State Labs, Inc. (Peach State). Based on that verdict, this Court entered a permanent injunction preventing EMS from further infringing the patent. Peach State also alleged that EMS engaged in litigation misconduct, and the Court, after holding an evidentiary hearing, agreed. But the Court withheld imposition of sanctions pending the United States Patent and Trademark Office's (USPTO) reconsideration of the validity of Peach State's patent. More than five years after the jury returned its verdict, the USPTO declared Peach State's patent invalid. The Court then entered judgment reflecting the USPTO's determination of invalidity and vacated Peach State's favorable jury verdict.

         Peach State now submits Proposed Findings of Fact Regarding Litigation Misconduct, (Peach State Facts, Doc. 385), [1] and moves the Court to award attorneys' fees and costs it incurred during the litigation, (Mot. for Fees, Doc. 369). Peach State further requests the Court to impose a monetary contempt sanction against EMS for its misconduct, (Id. at 23-25). EMS filed objections to the proposed findings of fact, (Objs. to Facts, Doc. 392), and a memorandum in opposition to Peach State's request for attorneys' fees and costs, (Resp. to Mot. for Fees, Doc. 386). As set forth below, Peach State's motion is granted in part and denied in part.

         I. Background[2]

         On February 27, 2009, EMS sued Peach State in this Court, [3] seeking a declaratory judgment that Patent No. 5, 672, 279 (the '279 Patent)-owned by Peach State-is invalid and not infringed by EMS. (Compl., Doc. 1, ¶¶ 18-23). Along with its answer, Peach State filed a counterclaim alleging that several of EMS's products infringed the '279 Patent, that EMS contributed to and induced infringement of the '279 Patent by others, and that EMS's infringement was willful. (Am. Answer & Countercl., Doc. 29, ¶¶ 20-24).

         A. The '279 Patent

         The '279 Patent is titled "Method for Using Urea Hydrochloride" and describes a method of solubilizing calcium carbonate using urea hydrochloride to remove unwanted calcium carbonate, which is often produced in industrial processes but is only slightly soluble in water.[4] (Ex. A to Compl., Doc. 1 at 12). Calcium carbonate is a major cause of boiler scale in heating systems and raises the pH and solids content of industrial liquids, preventing their disposal in publicly owned treatment facilities. Peach State's patent provided a method using urea hydrochloride for removing that mineral buildup.

         B. The Dispute

         Peach State alleged that several of EMS's products (the Accused Products) contained urea hydrochloride and were used in a method claimed in the '279 Patent. (Doc. 29 ¶ 21). Specifically, Peach State contended that EMS, by selling the Accused Products to its customers with instructions on how to use it in a manner that infringes the '279 Patent, induced its customers to infringe the '279 Patent and contributed to the infringement. (Id. ¶¶ 21-22). Peach State sought damages, in part, in the form of a reasonable royalty based on all sales of the Accused Products from June 2008 through trial. (Peach State Trial Br., Doc. 138, at 11).

         EMS stipulated that its Accused Products contained urea hydrochloride in the molar concentration set forth in the '279 Patent, (Trial Tr. Vol. II, Doc. 222, at 113), but nonetheless contended that the '279 Patent was invalid and that the Accused Products did not literally infringe the '279 Patent because the active ingredient in the Accused Products that converted unwanted calcium carbonate into water-soluble salt was not urea hydrochloride. With regard to the latter contention, EMS argued that its products contained so little urea hydrochloride that urea hydrochloride could not have been the driver behind the Accused Products' ability to convert calcium carbonate into water-soluble salt. (See EMS Mot. Summ. J., Doc. 126, at 21-31; Pretrial Statement, Doc. 143, at 7 ("As a result of the extremely low percentage of [urea hydrochloride] in the Accused Products (between 2% to 10%), EMS denies that Peach State can prove [urea hydrochloride] is actually solubilizing calcium carbonate insofar as the EMS Accused Products are concerned."); jg\ at 8 ("The most the evidence could possibly show is that the presence of [urea hydrochloride] in these Accused Product formulas tends to enhance the reaction rate.")). On the contrary, EMS contended that the driving force behind its products' ability to solubilize calcium carbonate was glycolic acid or phosphoric acid, both of which were present in much greater amounts in the Accused Products and were exclusively responsible for its products' effectiveness in converting unwanted calcium carbonate into water-soluble salt. (See Doc. 126 at 27 ("Dr. Grubbs provides scientific evidence that the solubilizing that is observed [in the Accused Products] occurs primarily because of the presence of phosphoric acid or glycolic acid." (internal quotation marks omitted)); Id. ("[I]f urea hydrochloride were not present in [the Accused Products], they would still work." (footnote and quotation marks omitted))).

         The parties further disagreed about whether the '279 Patent was valid; whether the inventors were accurately listed on the '279 Patent; whether EMS induced its customers to use the product in the manner claimed in the '279 Patent; whether EMS contributorily infringed the '279 Patent; whether the infringement was willful; and the amount of damages. (See Doc. 143 at 20).

         C. Discovery

         During discovery, Peach State sought information from EMS about the Accused Products. In its requests for production, Peach State defined "Accused Products" to include Ready Mix Truck Wash and Wax, Basic CR, Barracuda, BlowOut, Eximo, SynTech pH, and SynTech I. (Peach State Am. Reqs. for Produc, Doc. 71-2, at 3).[5] Peach State's list of Accused Products was based on deposition testimony of John MacDonald, EMS's owner and manager, who testified regarding which EMS products contained urea hydrochloride. (Doc. 385-11 at 4). Peach State served a broad request for production of documents concerning those products. (Doc. 71-2 at 7-10). In those requests, Peach State sought samples and a description of the chemical formulas composing each of the Accused Products, (]d at 8, 10). After EMS did not produce the requested information, Peach State moved to compel production. (Mot. to Compel, Doc. 71). On October 18, 2010, Magistrate Judge Baker issued an order on Peach State's motion to compel, requiring EMS to produce unredacted formulas and samples of the Accused Products and a summary of its sales data. (Order on Mot. to Compel, Doc. 107, at 8-9).

         EMS produced the formulas along with one-gallon samples of each Accused Product as required by the order. (See EMS Sworn Summ., Doc. 385-1 at 2-3). EMS also produced a "sworn summary" of its sales, (]d. at 4-5). Along with the documents, EMS submitted a sworn statement of Mr. MacDonald, who attested that the information was true and correct and was kept in the ordinary course of EMS's business. (Id. at 9).

         EMS's formulary data confirmed EMS's position that urea hydrochloride was present in the Accused Products in low amounts-concentrations ranging from 0% to 10%. (Doc. 385-6 at 2-7; Doc. 385 ¶ 17).[6] Moreover, the formulary data confirmed that many of the products contained 25%-40% of either glycolic or phosphoric acid. (Id.).

         D. Motions for Summary Judgment

         After discovery, the parties filed cross motions for summary judgment on all issues- invalidity, infringement, and inventorship. (Docs. 125 & 126). With regard to the issue of infringement, EMS contended in part that Peach State could not establish that urea hydrochloride-as opposed to glycolic or phosphoric acid-was the driving force behind the Accused Products' mechanism of solubilizing calcium carbonate. (Doc. 126 at 21-31). In support, EMS introduced expert opinions that "the phosphoric and glycolic acids in the Accused Products solubilized calcium carbonate-not the urea hydrochloride." (Order on Mot. Summ. J., Doc. 169, at 31; see Doc. 126 at 26-27).

         On March 31, 2011, this Court issued an order on the parties' cross motions for summary judgment, denying EMS's motion on the issue of infringement in part because Peach State created a genuine issue of material fact "regarding whether the urea hydrochloride in the Accused Products . . . solubilizes calcium carbonate in accordance with the limitations of the '279 patent."[7] (Doc. 169 at 30). Additionally, the Court granted Peach State's motion on the issue of invalidity but denied it with regard to the question whether Peach State incorrectly listed Richard Sargent as an inventor on the '279 Patent. Id. at 25-26).

         The case then proceeded to a jury trial on the issues of induced infringement, contributory infringement, willfulness, whether Richard Sargent was properly named as co-inventor of the '279 Patent, and damages.

         E. Jury Trial

         After a six-day trial, on April 18, 2011, the jury returned a verdict finding that EMS induced and contributed to infringement of Claim 1 of the '279 Patent, that the infringement was willful, and that Peach State was entitled to a "reasonably royalty" in the amount of $.44 per gallon of infringing product, or $151, 392. (Jury Verdict, Doc. 204, at 1-3). The jury further found that EMS did not infringe the other claims of the '279 Patent and that EMS failed to establish that Richard Sargent was improperly named as a co-inventor. (Id.).

         F. Litigation Misconduct[8]

         During trial and after the jury verdict, the parties filed various motions.[9] At a June 3, 2011 hearing on those matters, Peach State raised the issue of litigation misconduct on the part of EMS. (June 3, 2011 Mins., Doc. 245; Post-Trial Mot. Hr*g Tr., Doc. 251, at 48-57). The Court ordered a post-trial discovery period regarding EMS's alleged misconduct. (Doc. 251 at 151-52). On July 26, 2011, the Court held an evidentiary hearing during which Peach State presented evidence of EMS's misconduct. (July 26, 2011 Mins., Doc. 262). Thereafter, counsel for both parties presented oral argument on the issue of litigation misconduct. (Misconduct Hr'g Tr., Doc. 274, at 131-86).

         The revelations of EMS's misconduct were manifold. When EMS produced the unredacted formulary data in response to Magistrate Judge Baker's order, it represented that it produced those formulas as they were "ke[pt] in the ordinary course of its business." (Doc. 385-1 at 8). But it is clear that EMS created those formulary documents for litigation and in response to Magistrate Judge Baker's order. (Doc. 385 ¶¶ 28-32). And, consistent with EMS's representation that its products had little or no urea hydrochloride, the formulary data indeed stated that the Accused Products contained little or no urea hydrochloride and a large amount of glycolic or phosphoric acid. (Doc. 385-6 at 2-7). That formulary data matched the chemical composition of the one-gallon samples EMS produced in response to Magistrate Judge Baker's order, but, significantly, they did not match the composition of products Peach State obtained directly from EMS's customers in the marketplace. (Doc. 385 ¶¶ 20-25, 51-54; see Doc. 385-2 at 4-5, 7-8, 26-27). The samples Peach State obtained in the marketplace were shown to contain no glycolic or phosphoric acid and more urea hydrochloride than was represented in EMS's formulary sheet. (Doc. 385 ¶¶ 20-25; see Doc. 385-2 at 4-5, 7-8, 26-27).

         During the post-trial discovery period, Peach State analyzed Mr. MacDonald's computer and found a document from May 2010 titled "Product Formulas" that contained formulas for the Accused Products that someone had tried to delete and that was not produced during trial. (Doc. 385 ¶¶ 34, 85; see Doc. 385-9). In that document, none of the Accused Products were listed as having either glycolic or phosphoric acid as ingredients, but some were shown to contain significantly higher levels of urea hydrochloride than originally disclosed. (Doc. 385 ¶ 34; see Doc. 385-9). Additional documents were recovered from a "server computer" at EMS that contained formulary information that was not previously disclosed. (Doc. 385 ¶¶ 46-50). The documents found on the server computer collectively showed that there was no glycolic or phosphoric acid in any of the Accused Products and that urea hydrochloride was found in much higher quantities than represented in the originally produced formulary sheets. (Id.).

         Additionally, EMS sought and obtained a patent-Patent No. 7, 938, 912 ('912 Patent)-that indicated that the Accused Products contained much higher concentrations of urea hydrochloride and no glycolic or phosphoric acid. (Doc. 385 ¶¶ 13-15; Ex. A to EMS Mot. New Trial, Doc. 229-1, at 2-4). EMS applied for the patent on April 7, 2009, and the USPTO awarded it on May 10, 2011-after the jury trial but before the post-trial motions. (Doc. 229-1 at 2). The patent is for a method for removing concrete, cement, and masonry from industrial surfaces, (Id. at 2-3), with a solution that has a minimum 14.3% to a maximum 50% concentration of urea hydrochloride. (Williams Decl., Doc. 243-1. ¶¶ 5-12). And, according to the '912 Patent, the solution contains no glycolic or phosphoric acid. (]d. ¶¶ 6-8; see Doc. 229-1 at 2-4). Significantly, EMS represented in its motion for a new trial that the Accused Products "practiced the patented methods" of EMS's new '912 Patent. (Doc. 229 at 25 (stating that because the '912 patent had not yet been awarded at the time of the trial, "Mr. MacDonald could not testify that the Accused Products, when used as instructed, merely practiced the patented methods claimed in the 912 Patent.")). That representation was essentially an admission that the Accused Products contained between 14% and 50% urea hydrochloride, that the Accused Products did not contain glycolic or phosphoric acid, and that urea hydrochloride was the driving force behind the Accused Products' ability to solubilize calcium chloride. (Doc. 243-1 ¶¶ 7-12).

         Finally, the sworn summary of sales data provided by EMS in response to Magistrate Judge Baker's order does not match the production logs and invoices that Peach State obtained from EMS's customers, which show that EMS sold high volumes of products that contained concentrated urea hydrochloride that were never disclosed to Peach State as products containing urea hydrochloride. (Doc. 385 ¶¶ 66-81). Specifically, in an earlier deposition, Mr. MacDonald failed to disclose several products that were highly concentrated versions of the Accused Products and EMS did not disclose those products or the sales from those products at any time during the litigation. (Id. ¶¶2, 11).

         At the conclusion of the hearing on EMS's misconduct, the Court found that "there is clear and convincing evidence of litigation misconduct"; that the misconduct was "egregious"; and that the misconduct, "together with the totality of the circumstances in this case, some of which are unique, is sufficient to meet the standard for enhancement of damages and fees pursuant to 35 [U.S.C. §]... 285." (Doc. 274 at 187-88).

         G. Permanent Injunction

         On August 12, 2011, the Court entered a permanent injunction against EMS, enjoining it from infringing, inducing infringement of, and contributorily infringing any one or more claims of the '279 Patent until its expiration. (Order on Mot. for Inj., Doc. 276, at 16-19). The Court found that "the injunction is properly applied to both the Accused Products and those products presented during the July 26, 2011 evidentiary hearing in light of the uncontested evidence demonstrating that the[] additional products [containing urea hydrochloride] are no more than colorable variations of the Accused Products that clearly infringe the '279 patent." (]d at 14 (footnote omitted)). The Court reasoned that "it is clear that but for EMS's litigation misconduct, the[] additional products [containing urea hydrochloride] would have been disclosed to Peach State and included in the underlying jury trial." (Id.). The injunction required EMS to provide ongoing testing and certifications of the content of its products. (Id. at 18). On September 30, 2014, the '279 Patent expired and the parties agreed that all of EMS's obligations under the permanent injunction also terminated. (Stip. of Expiration, Doc. 348, at 1-2).

         H. Reexamination of Patent with USPTO

         On May 9, 2011, a few weeks after the jury returned its verdict, EMS filed a Request for Reexamination of the '279 Patent with the USPTO. (See Doc. 368 at 3). The USPTO accepted the request, and on June 29, 2011, it issued an order indicating that Claims 1 through 5 of the '279 Patent would be reexamined. (Id.)- On September 27, 2012, the USPTO found that all claims in the '279 are unpatentable under 35 U.S.C. § 103(a). (Id.). On November 1, 2013, the Patent Trial and Appeal Board (PTAB) affirmed the USPTO's decision, and on February 5, 2014, the U.S. Court of Appeals for the Federal Circuit did the same. (Id.). On March 23, 2015, Peach State filed a Petition for Panel Rehearing or Rehearing En Banc with the Federal Circuit, which was denied, (]d). On May 25, 2016, the USPTO issued an Ex Parte Reexamination Certificate canceling Claims 1 through 5 of the '279 Patent-the claims upon which this lawsuit was based, (Id.; Doc. 359-1 at 3).

         I. Final Judgment

         Meanwhile, on August 12, 2011, the Court had directed the Clerk to enter final judgment for Peach State "in accordance with the portion of the Verdict Form" finding that EMS induced and contributed to infringing the patent. (Doc. 276 at 15). The Court stated that "[a]ll other issues raised in the Motion for Final Judgment. . . will be addressed in a separate order to be entered at a later date." (Id. at 2 n.2). The Clerk did not enter final judgment at that time. On August 26, 2011, Peach State moved for attorneys' fees, expert fees, expenses, and a monetary sanction. (Doc. 282). On September 29, 2011, the Court ordered that the motion for attorneys' fees was premature and instructed Peach State to renew the motion after final judgment was entered in the case. (See Order on First Mot. for Fees, Doc. 300, at 2 ("No final judgment is reflected in the docket.")). On August 6, 2015, after the Federal Circuit affirmed the USPTO's decision to cancel the '279 Patent, the Court held a status conference and encouraged the parties to attempt to settle the matter. (August 6, 2015 Mins., Doc. 357). The Court ordered that if settlement efforts were unsuccessful, the parties were to submit a proposed form of final judgment and a proposed schedule for pending motions. (Id.).

         On July 26, 2016, the parties submitted a proposed form of final judgment, (Doc. 361), which was adopted and issued by the Court on August 5, 2016. (Order & Judgment, Doc. 368). The judgment states:

(1) Based on the USPTO's reexamination, which concluded May 25, 2016, claims 1, 3, and 4 of U.S. Patent No. 5, 672, 279 are invalid.
(2) Because there can be no infringement of an invalid claim, EMS is not liable for direct infringement, induced infringement or contributory infringement of claims 1, 3, or 4 of U.S. Patent No. 5, 672, 279.
(3) Because there can be no infringement of an invalid patent and as a result of the USPTO's cancelation of claims 1, 3, and 4, judgment of invalidity of claims 1, 3, and 4 of U.S. Patent No. 5, 672, 279 and noninfringement of claims 1, 3, and 4 U.S. Patent No. 5, 672, 279 is hereby entered in favor of EMS.
(4) The Jury Verdict entered on April 18, 2011 (Doc. 204) finding that EMS induced and contributed to infringement of claim 1 of the '279 patent; that infringement was willful; and that Peach State was entitled to damages in the amount of $151, 392, or $ 0.44 per gallon of infringing product is hereby set aside and vacated.
(5) Partial Judgment was previously entered in favor of Plaintiff, Peach State Labs, and against Defendant, EMS, in the form of a Permanent Injunction, which was in place and in force until U.S. Patent No. 5, 672, 279 patent expired on September 30, 2014. The Permanent Injunction is no longer in place and has no effect.
(6) The Court retains jurisdiction to award attorney's fees and litigation expenses.

(Id. at 4-5 (footnote omitted)).

         J. The Renewed Motion for Attorney's Fees, Costs, and Contempt Sanctions

         On August 5, 2016, Peach State filed a renewed motion for an award of attorneys' fees, experts' fees, and costs it incurred during the lengthy litigation of this case, and Peach State also sought a monetary contempt sanction against EMS for its litigation misconduct. (Doc. 369). Peach State asserts in its motion that it is the prevailing party in this case and that as such, it is entitled to recover its attorneys' fees in the amount of $1, 806, 269.14 and costs totaling $233, 572.74. (]dj. Peach State also argues that the Court should impose a monetary civil contempt sanction of $200, 000.00 against EMS. ]d In its response memorandum, EMS argues that Peach State is not the prevailing party in this case and that EMS should only be liable for the attorneys' fees and costs directly attributable to the litigation misconduct.

         II. Discussion

         A. Findings of Fact

         This Court has already found based on the evidence adduced at the July 26, 2011 evidentiary hearing that there is clear and convincing evidence that EMS engaged in egregious litigation misconduct. The Court further finds that EMS willfully and intentionally violated the Court's discovery order and that EMS's acts constitute discovery abuse. Specifically, Peach State established that in response to Magistrate Judge Baker's October 18, 2010 order (Doc. 107) EMS produced false formulary data. The false formulary data contained an incomplete list of products containing urea hydrochloride; it underrepresented the amount of urea hydrochloride in the products; and it listed "active ingredients" that were not actually present in the products. The Court also finds that, to corroborate the false formulary data, EMS produced product samples that it had deliberately altered to match the chemical compositions stated in the false formulary data. Finally, EMS produced false sales data that vastly underrepresented the amount of sales it made of products that contained urea hydrochloride and violated EMS's patent. These acts prolonged litigation, wasted the resources of both Peach State and this Court in addressing frivolous arguments, and prevented the Court from administering justice.

         In response to Peach State's proposed findings of fact, EMS filed a four-page objection, stating that it "continues to dispute the evidence submitted at the June 26, 2011 [sic] hearing as well as in [Peach State's] most recent Second Amended Proposed Findings of Fact." (Doc. 392 at 2). In its objections, EMS argues that any undisclosed sales figures "were not disclosed because [Peach State] chose to identify the accused products in this case and it was not EMS's duty to determine which products infringed [Peach State's] patent." (Id. But EMS fails to recognize that Mr. MacDonald was the one who represented in his deposition the names of all of the products EMS sold that contained urea hydrochloride, yet he failed to include those samples that were highly concentrated, colorable variations of the infringing products. (Doc. 385 ¶ 2). Moreover, EMS did not strictly follow Peach State's characterization of the "Accused Products"-it volunteered sales data on a product that benefitted its position but was not identified by Peach State as an "Accused Product, " and it ultimately produced sales data after trial for the concentrated products in response to identical requests for production that EMS previously interpreted to exclude those products, (Id. ¶¶ 56-58).

         EMS additionally argues that it "stipulated to the fact that its products contained urea hydrochloride in the molar ratio claimed in the patent such that any arguments regarding the amount of urea hydrochloride are superfluous because the amount was already stipulated to." (Doc. 392 at 2). This argument fails and demonstrates EMS's incorrect use of the term "molar ratio." That term, as it was used in the patent, was defined to mean "a ratio comparing a number of urea molecules to a number of hydrochloric acid molecules." (Order on Claim Construction, Doc. 96, at 18). "Molar ratio" does not have any bearing on the percentage of urea hydrochloride that made up the Accused Products. For example, a product may have 10% urea hydrochloride at ¶ 1:4 molar ratio, and another product may have 20% urea hydrochloride at ¶ 1:4 molar ratio. The percentage of urea hydrochloride in the Accused Products-as opposed to its molar ratio-was a hotly contested issue in the case and was not a stipulated issue. The percentage of urea hydrochloride in the Accused Products was relevant to the issue of damages-which, according to EMS's experts, should be calculated based on the amount of urea hydrochloride in the Accused Products. That percentage was also relevant to the issue of literal infringement-that is, whether the Accused Products' mechanism of converting calcium carbonate into a water-soluble salt was carried out by urea hydrochloride or by some other acid (such as glycolic or phosphoric acid).

         The remainder of EMS's arguments-that the samples were not fabricated and that samples obtained from the marketplace should not be trusted-are without support in the record. EMS's objections to Peach State's proposed findings of fact are overruled.

         B. Attorneys' Fees

         In a motion for attorneys' fees and costs, the movant must "specify the judgment and the statute, rule, or other grounds entitling the movant to the award." Fed.R.Civ.P. 54(d)(2)(B)(ii). Peach State argues that it has four bases for entitlement to attorneys' fees: (1) under 35 U.S.C. § 285, based on this case's status as an "exceptional" patent case; (2) pursuant to the Court's inherent authority; (3) pursuant to Federal Rule of Civil Procedure 37(b)(2)(C) based on EMS's failure to comply with the Court's discovery order; and (4) pursuant to Rule 56(h) based on EMS's submission in bad faith of an affidavit in support of a summary judgment motion. Peach State seeks to recover the full amount of its attorneys' fees or, alternatively, to recover fees that are attributable to EMS's misconduct.

         1. 35 U.S.C. § 285

         "The court in exceptional [patent infringement] cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285."[A]n '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 (2014). "District courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances." ]d This Court has already exercised its discretion and determined that this case is exceptional based on EMS's egregious misconduct. (Doc. 274 at 187-88). But since that determination, Peach State's patent has been declared invalid by the USPTO and the jury verdict finding infringement and awarding damages has been vacated. (Doc. 368 at 4-5). This is important because under 35 U.S.C. § 285, attorneys' fees can only be awarded to a prevailing party. Inland Steel Co. v. LTV Steel Co.. 364 F.3d 1318, 1319-20 (Fed. Cir. 2004). The Court must now determine whether Peach State is still the "prevailing party."

         '"[P]laintiffs may be considered "prevailing parties" for attorney's fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing the suit."' Farrar v. Hobby. 506 U.S. 103, 109 (1992) (quoting Hensley v. Eckerhart. 461 U.S. 424, 433 (1983)). This occurs when the plaintiff "obtain[s] an enforceable judgment against the defendant from whom fees are sought, or comparable relief through a consent decree or settlement." ]g\ at 111 (internal citations omitted). "In short, a plaintiff 'prevails' when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Id. at 111-12. There can be only one prevailing party, but "[a] party is not required... to prevail on all claims in order to qualify." Shum v. Intel Corp.. 629 F.3d 1360, 1367-68 (Fed. Cir. 2010).

         Peach State contends that it is the prevailing party because the Court issued a permanent injunction in its favor that lasted until it expired about three years later, during which time "EMS was no longer able to compete in the market utilizing a mixture that practiced Peach State's proprietary method." (Doc. 369 at 4). Even if the patent did not expire, Peach State argues, it still would have enjoyed injunctive relief for nearly five years-from the issuance of the permanent injunction on August 12, 2011, until the USPTO issued a Reexamination Certificate canceling the '279 Patent on May 25, 2016. EMS, however, argues that Peach State is not the prevailing party because Peach State's patent was ultimately declared invalid by the USPTO. The Court agrees with EMS.

         The Court is unconvinced by Peach State's argument that it prevailed because it enjoyed years of benefit under the permanent injunction.[10] Although EMS initially failed to carry its summary judgment burden on the issue of invalidity, the USPTO ultimately reexamined Peach State's patent and found that its claims were unpatentable for obviousness under 35 U.S.C. 103(a). (Ex. A to Resp. to Mot. for Fees, Doc. 386-1, at 14 ("[I]t would have been obvious for one of ordinary skill in the art to use [urea hydrochloride] instead of customary [hydrochloric acid] to dissolve the calcium carbonate in aqueous suspension or dispersions, and to arrive at the invention of instant claims 1, 3 and 4." (emphasis omitted))). Thus, the permanent injunction should never have issued. That Peach State enjoyed a few years of benefit from that injunction does not make it the prevailing party. It would be similarly illogical for a plaintiff who obtains a preliminary injunction in its favor but ultimately fails on the merits to cite the preliminary injunction as evidence of its prevailing status. Likewise, it would make no sense for a plaintiff who prevails on the merits but is ultimately reversed on appeal to cite "prevailing in the trial court" as an indication of its prevailing party status. Of course, the plaintiff in neither situation is a prevailing party.

         Because the USPTO ultimately cancelled the '279 Patent, the jury verdict in Peach State's favor was vacated and if the patent had not already expired, the permanent injunction would also have been extinguished. Furthermore, a final judgment has been entered in EMS's favor on the issues of infringement and invalidity, and "as a matter of law, a party who has a competitor's patent declared invalid meets the definition of 'prevailing party.'" Manildra Milling Corp. v. Ogilvie Mills. Inc.. 76 F.3d 1178, 1183 (Fed. Cir. 1996); see also Inland Steel. 364 F.3d at 1320 (finding that the USPTO's determination of invalidity on reexamination renders the party who sought invalidation the prevailing party despite the patent holder initially succeeding on the issue of infringement). In light of the final judgment in EMS's favor, [11] Peach State cannot be the "prevailing party" under 35 U.S.C. § 285.

         2. Rules 37(b)(2)(C) and 56(h)

         Next, Peach State seeks to recover attorneys' fees and costs under Federal Rules of Civil Procedure 37(b)(2)(C) and 56(h), which, respectively, authorize an award of reasonable expenses, including attorneys' fees, incurred by a party for the other party's failure to comply with a discovery order and for submitting in bad faith an affidavit in support of a summary judgment motion. Although EMS clearly violated Magistrate Judge Baker's October 18, 2010 discovery order by producing fraudulent documents and product samples, [12] the misconduct in this case was vast and permeated all of the ensuing stages of the litigation. Indeed, the ramifications of EMS's misconduct extended into the parties' retention of expert witnesses, their cross motions for summary judgment, pre-trial preparation, the issues to be litigated at trial, post-trial motions, and extensive discovery into the misconduct. It further caused Peach State to incur expert witness fees and other costs it would not have otherwise incurred. Thus, instead of awarding fees and costs under Rule 37, the Court will do so under its inherent power, which is better suited to providing a full remedy for EMS's misconduct. Chambers v. NASCO. Inc.. 501 U.S. 32, 50 (1991) ("[A] federal court [is not] forbidden to sanction bad-faith conduct by means of the inherent power simply because that conduct could also be sanctioned under the statute or ...


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