Attorney Fees Denied Due to Lack of Support in Cannabis Litigation Record

In 2018, United Cannabis Corporation (“UCANN”) sued Pure Hemp Collective (“Pure Hemp”) for infringement of U.S. Patent No. 9,730,911 (the “‘911 patent”), entitled “Cannabis Extracts and Methods of Preparing and Using the Same. The ‘911 patent relates to “extraction of pharmaceutically active components … more particularly … botanical drug substance (B.D.S.) comprising cannabinoids obtained by extraction from cannabis.”

UCANN filed for bankruptcy in 2020, which stayed the litigation. The parties stipulated to dismiss the infringement claims with prejudice in 2021. The stipulation made no mention of attorney fees.

After the dismissal, Pure Hemp moved for attorney fees, stating two bases for relief: “(1) UCANN’s prosecution counsel had allegedly committed inequitable conduct by copying text from a piece of prior art” and did not disclose the prior art to the United States Patent and Trademark Office (“USPTO”) and “(2) UCANN’s litigation counsel … purportedly took conflicting positions in its representation of UCANN and another client ….”

Pure Hemp argued it was entitled to attorney fees under three different legal theories. First, under 35 U.S.C. § 285, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Second, under 28 U.S.C. § 1927, fees may be awarded when an opposing attorney “multiplies the proceedings in any case unreasonably and vexatiously.” Third, the court has an inherent authority to award attorney fees when counsel acts in “bad faith, vexatiously, wantonly, or for oppressive reasons.”

The district court denied the motion for attorney fees. In denying the motion, the district court found that Pure Hemp was not the prevailing party and that the record on inequitable conduct was “woefully undeveloped” because “the parties stipulated to dismissal of the case before many of the factual disputes Defendant cites were adjudicated on the merits.” In addition, Pure Hemp did not request an evidentiary hearing in connection with its motion for attorney fees.

On appeal, Pure Hemp pointed to “three supposed errors committed by the district court: (1) failing to find Pure Hemp to be the prevailing party in the litigation; (2) not concluding that the undisputed facts establish inequitable conduct; and (3) not recognizing that UCANN”s attorneys had a conflict of interest for which they should be sanctioned.”

As to the first supposed error, the Federal Circuit agreed with Pure Hemp that the district court erred in not finding Pure Hemp to be the prevailing party. To determine the prevailing party, a court determines “whether the [court’s] decision effects or rebuffs a plaintiff’s attempt to effect a material alteration in the legal relationship between the parties. UCANN sued Pure Hemp attempting to alter “the parties’ relationship by imposing liability on Pure Hemp.” Therefore, this effort failed when the dismissal with prejudice was granted, making Pure Hemp the prevailing party. However, the appellate court determined this error was harmless because the district court identified additional reasons for denying attorney fees.

Pure Hemp also alleged the district court erred in not awarding attorney fees because of alleged inequitable conduct by the patent applicant. For Pure Hemp to prevail on its claim of inequitable conduct, it needed to prove “by clear and convincing evidence that the patent applicant (1) misrepresented or omitted information material to patentability, and (2) did so with specific intent to mislead or deceive the [USPTO].”

The Federal Circuit reviews district court findings regarding inequitable conduct for clear error. Here, there were no findings to review. The counterclaim for inequitable conduct was dismissed before findings had been made, and Pure Hemp did not request an evidentiary hearing in conjunction with its motion for attorney fees. The district court was not required to provide findings under these circumstances.

Under another theory, Pure Hemp argued the patent prosecutor committed inequitable conduct by copying and pasting excerpts from prior art references into the ‘911 patent application without disclosing the prior art to the USPTO. The patent prosecutor argued the copied portions consisted of background information, making the prior art not material to the applications. If the prior art references were not material, disclosure was not required. The Federal Circuit found “no reason to disbelieve her testimony” based on the undeveloped record.

In yet another argument, Pure Hemp proposed that the Federal Circuit “can make its own findings on intent and materiality” even when “the record contains genuine disputes of material fact.” The Federal Circuit disagreed, stating that it would not “invade the province of the district court.”

The Federal Circuit also rejected Pure Hemp’s argument the district court erred because it didn’t “provide a more fulsome analysis” of the inequitable conduct issues. The district court “stated that it considered ‘all of the parties’ arguments,” and Pure Hemp “provided no reason for [the Federal Circuit] to question this statement.”

Finally, Pure Hemp alleged the case was exceptional because the UCANN lawyers had a conflict of interest. However, Pure Hemp did not raise the basis for this argument in the district court. Absent exceptional circumstances, “[a] position not presented in the [lower court] will not be considered on appeal.” Further, the Federal Circuit stated it would also deny this argument on the merits.

For all these reasons, the Federal Circuit affirmed the ruling of the district court that Pure Hemp was not entitled to attorney fees.

This case provides three important reminders. First, do not assume that a joint motion to dismiss means there will be no prevailing party and, thus, no award of attorney fees. When a patent infringement case is dismissed with prejudice, the accused defendant is the prevailing party under most circumstances. Therefore, it is best to include a statement about attorney fees in motions to dismiss, assuming the parties can agree. Second, the record must support the basis for any request for attorney fees. If the record is incomplete, request an evidentiary hearing. Third, remember to raise all bases for your arguments in the lower court because it is highly unlikely an appellate court will consider a position not previously raised.