IP Law Daily, PATENT—Fed. Cir.: Denial of attorney fees affirmed in cannabis patent suit dismissed by stipulation, (May 8, 2023)

By Kevin M. Finson, J.D.

The district court did not abuse its discretion in finding that the case was not “exceptional” under the Patent Act.

An Oregon federal district court did not abuse its discretion in finding that a company accused of infringing a patent directed to extraction of cannabis compounds was not entitled to attorney fees under the Patent Act’s fee shifting provision after the case was voluntarily dismissed with prejudice, the U.S. Court of Appeals for the Federal Circuit has held. The parties had resolved the case by stipulation and the trial court acted within its discretion in finding that the case was not exceptional, despite the defendant’s assertion of unresolved counterclaims alleging inequitable conduct (United Cannabis Corp. v. Pure Hemp Collective Inc., May 8, 2023, Stark, L.).

United Cannabis Corporation (UCANN) was the owner of U.S. Patent No. 9,730,911 (the ’911 patent), which was directed at methods of extracting pharmaceutically active components from cannabis. In 2018, UCANN brought suit against Pure Hemp Collective, Inc. (Pure Hemp) for infringement. In April 2019, the district court rejected Pure Hemp’s patent eligibility challenge, finding that the ’911 patent was not directed to a law of nature or natural phenomenon.

The case was stayed due to UCANN’s bankruptcy in April 2020, and later dismissed by stipulation of the parties. UCANN’s infringement claims were dismissed with prejudice, while Pure Hemp’s counterclaims for invalidity and inequitable conduct were dismissed without prejudice. The stipulation did not mention attorney fees. Pure Hemp subsequently moved for an award of attorney fees on the ground that UCANN’s prosecution counsel had copied text from a piece of prior art into the patent application and then not disclosed the prior art reference to the USPTO, and that UCANN’s prosecution counsel had taken conflicting positions in their representation of another client. The trial court denied the motion for attorney fees, finding that Pure Hemp had failed to meet its burden to show the case was exceptional. Pure Hemp appealed.

Attorney fees. Pure Hemp argued that the trial court erred by failing to find that Pure Hemp was the prevailing party below, by not concluding that undisputed facts established inequitable conduct, and by not recognizing that UCANN’s attorneys had a conflict of interest.

The Federal Circuit determined that there was no dispute that Pure Hemp was the prevailing party, and UCANN had in fact not contested that point, but the trial court’s error was harmless. The court noted that inequitable conduct requires 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 PTO. The court agreed with UCANN that the record below was insufficient for a finding of inequitable conduct because the case had been resolved by stipulation, not trial, and so there was no finding in the record that UCANN’s counsel’s alleged copying and failure to disclose a prior art reference was material. The lower court made no findings of fact because it was not required to do so. Finally, the Federal Circuit held that Pure Hemp’s allegation of attorney conflict of interest was waived because it had not been raised in the trial court and was mentioned for the first time on appeal.

The Federal Circuit affirmed the trial court’s denial of attorney fees. The court also raised sua sponte the issue of frivolousness of the appeal because the parties had made reference to their belief that the appeal was frivolous, and indicated that it would deny any motion for fees based on frivolousness because Pure Hemp’s position, while extremely weak, was not so one-sided as to be frivolous.

The Case is No. 22-1363.

Attorneys: Orion Armon (Cooley LLP) for United Cannabis Corp. James R. Gourley (Carstens, Allen, & Gourley, LLP) for Pure Hemp Collective Inc.

Companies: United Cannabis Corp.; Pure Hemp Collective Inc.

Cases: Cannabis Patent FedCirNews ColoradoNews