United States District Court, D. Nevada
ORDER (1) AWARDING DEFENDANTS ATTORNEYS' FEES, COSTS, AND DAMAGES AND (2) DENYING DEFENDANTS' MOTION FOR FEES AND COSTS AGAINST COUNSEL
DAVID ALAN EZRA, Senior Distict Judge.
On May 22, 2014, the Court entered an Order Granting Defendants' Motion for Attorney Fees and Costs. (Dkt. # 367.) In that Order, the Court reserved ruling on the amount of those fees and costs pending additional briefing by the parties. Following the submission of additional briefing, the Court heard oral argument on the amount and reasonableness of the fees and costs on March 12, 2015. On the same date, the Court heard oral argument on Defendants' Motion for Attorney Fees and Costs Against Counsel Pursuant to 28 U.S.C. § 1927 and the Court's Inherent Powers. (Dkt. # 391.) After reviewing the briefing and considering the arguments at the hearing, the Court awards Defendants $571, 001.70 in attorneys' fees, $17, 882.83 in costs, and $772, 534.26 in damages, for a total award of $1, 361, 418.79 against Plaintiffs. Additionally, the Court DENIES Defendants' Motion for Attorney Fees and Costs Against Counsel (Dkt. # 391).
I. Factual Background
On September 1, 1998, the United States Patent and Trademark Office issued Patent No. 5, 800, 268, titled "Method of Participating in a Live Casino Game from a Remote Location" (the "Method Patent"), to inventor Mel Molnick. (Dkt. # 98 ("FAC") ¶ 12.) Molnick subsequently assigned all rights in the Method Patent to Plaintiff Home Gambling Network ("HGN"). (Id.) In 2003, Molnick, the President of HGN, contacted Defendant Casinowebcam.com ("CWC") about licensing the Method Patent. (Id. ¶ 4.) On November 25, 2003, CWC entered into five license agreements with Plaintiffs, which were superseded by a patent license agreement (the "HGN Contract") on August 10, 2004. (Id. ¶¶ 24, 27.)
The HGN Contract granted Defendants a license to use the Method Patent and, in turn, to grant sublicenses to other companies. (Id. ¶¶ 29-34.) More specifically, the HGN Contract gave CWC "a perpetual, exclusive, royalty-free worldwide license to use the Licensed Technology" and the right "to grant sublicenses therein to CWC Resellers, CWC Licensees, and End Users." (Dkt. # 111-3 ("HGN Contract") § 2.1.) The HGN Contract also expressly provided that "[n]o further approval or documentation" was "required" from Plaintiffs with respect to the granting of sublicenses. (Id.) The HGN Contract further defined "CWC Software" as "any software owned or licensed by CWC, which CWC makes generally available to its customers, and which enables CWC and CWC Licensees to provide any games over computer networks to end users, excluding Bingo, Keno, Lottery and all sporting events." (Id. § 1.4 (emphasis added).)
Pursuant to the HGN Contract, CWC used the Method Patent in conjunction with online gambling operations. (Dkt. # 312-5 ("Piche Decl.") ¶ 3.) CWC ran a "live webcam casino" (the "Live Casino"), which functioned like any other casino except that it was outfitted with digital cameras to allow physically remote customers to view and interact with the casino, which was located in Costa Rica, through the internet. (Id.) Players could access the Live Casino through the website www.casinowebcam.com. (Id.) CWC also ran a related business that offered licenses to third-party online gaming websites, allowing them to use CWC software to offer live webcam casino gaming without needing to operate their own "live" casinos. (Id.) At all relevant times, CWC's computer servers, which hosted the online games, and the employees of the Live Casino were located in Costa Rica. (Id.; see also FAC ¶¶ 5, 7 (admitting that Defendants are all foreign individuals or entities and that CWC was a Costa Rican business with its principal place of business in Costa Rica); Dkt. # 274 ("Beall Decl."), Ex. 1 ¶ 1 (claiming servers recorded time in their local Costa Rica time).)
II. Procedural Background
On July 10, 2006, Plaintiffs filed a First Amended Complaint, alleging, among other things, that CWC infringed their Method Patent through CWC's operation of an online gambling website and its production and distribution of online gambling software, all of which permitted sports betting and lottery, keno, and bingo games. (FAC ¶¶ 88-89.) While recognizing that Defendants had the right to grant sublicenses under the HGN Contract, Plaintiffs asserted that CWC improperly sublicensed its software without excluding bingo, keno, lottery, and sports betting. (Id. ¶¶ 112-14.)
On August 10, 2006, Defendants filed a Motion for Summary Judgment on all counts of the First Amended Complaint. (Dkt. # 111.) On March 30, 2007, the Court issued an Order Granting in Part and Denying in Part Defendants' Motion for Summary Judgment. (Dkt. # 143.) The Court granted summary judgment as to Count Two (Declaratory Judgment) and Count Seven (Conversion) of the First Amended Complaint. (Id.) The Court denied summary judgment as to Count One (Patent Infringement), Count Three (Preliminary and Permanent Injunction), Count Four (Accounting), Count Five (Breach of Contract), and Count Six (Intentional Interference with Contractual Relationships). (Id.)
Approximately six years later, on February 27, 2013, Defendants filed a second Motion for Summary Judgment, contending that "the record is ripe for summary judgment on the remaining counts of the complaint." (Dkt. # 312 at 2.) On September 30, 2013, this Court granted Defendants' Motion for Summary Judgment in its entirety and dismissed all of Plaintiffs' claims. (Dkt. # 333.) In relevant part, the Court concluded that (1) there was no liability under 35 U.S.C. § 271(a) because at least one of the method steps was performed outside of the United States (id. at 16); (2) there was no inducement to infringe the patent because there was no direct infringement of the patent (id.); (3) Defendants did not infringe the Method Patent by operating a website and licensing software that permitted sports betting, lottery, keno, and bingo games because these activities were excluded from the Method Patent pursuant to the prosecution history disclaimer (id. at 23); and (4) Defendants had no contractual liability because the HGN Contract did not prevent CWC from licensing the CWC Software to third parties for bingo, keno, lottery, or sporting events (id. at 25). Importantly, the Court found that Plaintiffs purposefully attempted to exclude subject matter that was beyond the scope of the Method Patent from the license granted to CWC so that they could license that subject matter to others for money. (Id. at 26.) Plaintiffs appealed the Court's summary judgment order, (Dkt. # 342), and on June 9, 2014, the Federal Circuit affirmed this Court without opinion pursuant to Federal Circuit Rule 36. (Dkt. # 396.)
On October 24, 2013, Defendants filed a Motion for Attorney Fees and Costs (Dkt. # 337), arguing that they were entitled to a total award of $1, 806, 416.59. (Id. at 1.) On May 22, 2014, the Court issued an Order Granting Defendants' Motion for Attorney Fees and Costs, finding that based on the totality of the circumstances, this is an "exceptional case" under 35 U.S.C. § 285. (Dkt. # 367.) The Court so found because (1) Plaintiffs alleged in their amended complaint that live casinos were located outside the United States in Costa Rica despite controlling Federal Circuit law holding that a claim for infringement of a method patent could not lie unless all steps were performed in the United States; (2) Plaintiffs attempted to sue for infringement of a patent they did not own and in fact voluntarily relinquished years earlier; and (3) Plaintiffs engaged in patent misuse by purposefully attempting to limit Defendants' usage of subject matter that was beyond the scope of the Method Patent from the license granted to CWC so that they could license that subject matter to others for money. (Id. at 22.) Additionally, the Court concluded that Defendants, as the prevailing party, are entitled to recover "reasonable attorney's fees, court costs, and double damages" pursuant to the licensing agreement between the parties. (Id. at 29.)
Because Plaintiffs did not specifically object to any of Defendants' calculations regarding either the amount of attorneys' fees awarded under § 285 or the amount of damages awardable under the contract, instead remaining steadfast in their opposition to Defendants receiving any fees whatsoever, the Court ordered the parties to submit briefing on the issue of the reasonableness of attorneys' fees and the amount of damages. (Id.)
On June 20, 2014, Defendants filed a Supplement to their Motion for Attorney Fees and Costs requesting additional attorneys' fees incurred since their original Motion was submitted. (Dkt. # 372.) On July 8, 2014, Plaintiffs filed a Supplemental Brief addressing Defendants' award calculations. (Dkt. # 374.) On July 22, 2014, Defendants filed a Response to Plaintiff's Supplemental Brief. (Dkt. # 383.) The Court considers these supplemental filings along with Defendants' original Motion for Attorney Fees and Costs in determining the amount of fees, costs, and damages to which Defendants are entitled.
On January 19, 2015, Defendants filed the instant Motion for Attorney Fees and Costs Against Counsel Pursuant to 28 U.S.C. § 1927 and the Court's Inherent Powers. (Dkt. # 391.) On February 24, 2015, Plaintiffs' counsel Snell & Wilmer filed an Opposition to Defendants' Motion. (Dkt. # 397.) On the same day, Plaintiffs' counsel Craig Marquiz also filed an Opposition. (Dkt. # 398.) On March 6, 2015, Defendants filed a Reply to both Oppositions. (Dkt. # 403.)
Together, Defendants' Motion for Attorney Fees and Costs (Dkt. # 337), Defendants' Motion for Attorney Fees and Costs Against Counsel (Dkt. # 391) and the supporting and opposing memoranda submitted by both parties raise the following issues for the Court to adjudicate: (1) whether any fees awarded pursuant to the licensing agreement must be segregated from fees awarded pursuant to § 285; (2) the amount of reasonable attorneys' fees to be awarded; (3) the amount of costs to be awarded; (4) whether Defendants are entitled to recover the type of damages they request under the licensing agreement and in what amount; and (5) whether Defendants are entitled to collect fees, costs, and expenses from Plaintiffs' counsel under 28 U.S.C. § 1927 and the Court's inherent powers.
I. Segregation of Fee Awards
In its Order Granting Defendants' Motion for Award of Attorney Fees and Costs, the Court found that Defendants were entitled to an award of reasonable attorneys' fees under § 285. (Dkt. # 367 at 22.) The Court also held that Defendants were entitled to recover "reasonable attorney's fees, court costs and double damages" pursuant to the licensing agreement between the parties. (Id. at 27.) Section 6.8 of the licensing agreement provides as follows:
If either party employs attorneys to enforce or defend any rights, duties or obligations arising out of or relating to this Agreement, and such party prevails in such legal action, then such prevailing party shall recover its reasonable attorney's fees, court costs and double damages.
(HGN Contract § 6.8.) Thus, Defendants are entitled to fees under this section for the defense of Plaintiffs' breach of contract claim. Because patent law is within the Federal Circuit's exclusive jurisdiction, Federal Circuit law applies to claims for attorneys' fees under § 285. Bywaters v. United States, 670 F.3d 1221, 1227-28 (Fed. Cir. 2012) (citing Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1299 (Fed. Cir. 2004)). Pursuant to its terms, Nevada law applies to the licensing agreement, including the fee provision. (HGN Contract § 6.3.)
Plaintiffs argue that § 285 does not authorize fee awards for fees incurred in the litigation of non-patent issues, and that the Court must segregate fees awarded under § 285 for the litigation of patent issues from fees awarded under the licensing agreement. (Dkt. # 374 at 12.) Defendants counter that fees may be awarded for non-patent claims under § 285 if the patent and non-patent issues are sufficiently intertwined. (Dkt. # 383 at 16.)
Generally speaking, fees for non-patent issues are not allowable under § 285. Rohm & Haas Co. v. Crystal Chem. Co., 736 F.2d 688, 693 (Fed. Cir. 1984). However, the Federal Circuit has recognized that "in an action having both patent and non-patent claims, recovery may be had under § 285 for the non-patent claims if the issues involved therewith are intertwined with the patent issues." Beckman Instruments, Inc. v. LKB Produckter AB, 892 F.2d 1547, 1552 n.2 (Fed. Cir. 1989). Similarly, under Nevada law, courts need not apportion attorneys' fees where the claims for which fees are proper are "inextricably intertwined" with the claims for which fees are disallowed. Mayfield v. Koroghli, 184 P.3d 362, 369 (Nev. 2008). The Court must therefore decide whether the issues in this case are sufficiently intertwined as to relieve any segregation requirement.
As the Court noted in its Order Granting Defendants' Second Motion for Summary Judgment, "Plaintiffs' entire action [was] premised on the allegation that Defendants infringed the Method Patent through their operation of an online gambling website that included sports betting, lottery, keno, and bingo games and through the distribution of online gambling software that also included sports betting, lottery, keno, and bingo games." (Dkt. # 333 at 19.) Consequently, resolution of all of Plaintiffs' claims turned on the true coverage of the Method Patent and the implications of that coverage with respect to the HGN Contract. The Court found that Molnick gave up rights to non-interactive games (including lottery, keno, bingo, and sports betting) by limiting his patent prosecution claims to interactive games. (Id. at 23.) Accordingly, the Court found that Defendants could not infringe the Method Patent by operating a website and licensing software that permitted lottery, keno, bingo, and sports betting because those games were excluded from the Method Patent. (Id.) The Court dismissed Plaintiffs' claims for preliminary and permanent injunction and accounting for the same reasons. (Id. at 24.)
The Court next granted summary judgment on Plaintiffs' breach of contract and intentional interference with contractual relations claims, finding first that the HGN Contract did not prevent CWC from licensing the CWC Software to third parties for lottery, keno, bingo, and sports betting. (Id. at 25.) The Court further found that even if the HGN Contract did include such limitations, it impermissibly encompassed subject matter that Plaintiffs affirmatively surrendered during the course of patent prosecution, and that Plaintiffs' breach of contract claim consequently failed as a matter of law. (Id. at 28.) The Court granted summary judgment on Plaintiffs' intentional interference with contractual relations claim for the same reasons. (Id. at 29.) Overall, resolution of the claims in this case largely turned on the same questions of fact regarding the scope of the Method Patent and, in turn, the scope of the licensing agreement.
Because the claims share an underlying factual basis and apportioning fees between the claims would be unfeasible, under both the law of the Federal Circuit and Nevada law, the Court need not segregate the fee award. Furthermore, the amount of fees can be calculated using the same method under either § 285 or the licensing agreement. Nevada law holds that "district courts have great discretion to award attorney fees, and this discretion is tempered only by reason and fairness." Haley v. Dist. Ct., 273 P.3d 855, 860 (Nev. 2012). As such, courts may use "any method rationally designed to calculate a reasonable amount, so long as the requested amount is reviewed in light of the factors set forth in Brunzell v. Golden Gate National Bank." Id . Thus, so long as the fee award under § 285 is evaluated in light of the Brunzell factors (the qualities of the attorney, the character of the work, the actual work performed, and the case's result, Brunzell, 455 P.2d 31, 33 (Nev. 1969)), the award will also be proper under Nevada law. Assuming that any method approved by the Federal Circuit to calculate reasonable fees under § 285 is "rationally designed to calculate a reasonable amount, " the Court concludes that the most expeditious way of calculating the fee award is to compute reasonable fees under § 285, and review that award under the Brunzell factors. By using this method, the Court ensures that the fee award is appropriate under both § 285 and the licensing agreement.
II. Attorneys' Fees
Defendants request $740, 368.47 in attorneys' fees for all work performed in this case, including costs incurred in making and defending their motion for attorneys' fees. (Dkt. # 337 at 15-16.) Defendants arrived at this figure using the lodestar method, whereby reasonable attorneys' fees are calculated by multiplying the number of hours reasonably expended on the litigation by a reasonable hourly billing rate. (Id. at 24.)
Plaintiffs counter that the measure of the fee award should instead be the amount Defendants actually paid for legal representation. (Dkt. # 374 at 8, citing Medtronic Navigation, Inc. v. BrainLab Medizinsche Comp. Sys. GmbH, No. 98-cv-01072-RPM, 2008 WL 4452137, at *2 (D. Colo. Sept. 30, 2008)). However, the Federal Circuit has made clear that in determining the appropriate award under § 285, "courts should not be, and have not been, limited to ordinary reimbursement of only those amounts paid by the injured party." Mathis v. Spears, 857 F.2d 749, 754 (Fed. Cir. 1988).
The Court finds that the lodestar method should be used in calculating the fee award in this case. As the Federal Circuit has noted, the Supreme Court has consistently upheld use of the lodestar method in determining the amount of reasonable attorneys' fees under federal fee-shifting statutes such as § 285. Bywaters, 670 F.3d at 1228-29 (citing Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 551 (2010)). The Supreme Court has identified three "important virtues" making the lodestar method particularly well-suited for application to fee-shifting statutes. Perdue, 559 U.S. at 551. First, the lodestar method roughly approximates the fee that the prevailing attorney would receive under the prevalent market rates in the relevant community, in accordance with the aims of fee-shifting statutes. Id . Second, the lodestar method is "readily administrable." Id . Third, the lodestar calculation is "objective" and "thus cabins the discretion of trial judges, permits meaningful judicial review, and produces reasonably predictable results." Id. at 552. Significantly, the Federal Circuit has ...