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M-I Drilling Fluids UK Ltd. v. Dynamic Air Inc.

United States District Court, D. Minnesota

March 30, 2017

M-I DRILLING FLUIDS UK LTD. and M-I LLC, Plaintiffs/Counter-Defendants,
v.
DYNAMIC AIR INC., Defendant/Counter-Claimant.

          Adam D. Swain and Scott J. Pivnick, ALSTON & BIRD LLP, Patrick J. Flinn, ALSTON & BIRD LLP, and Casey A. Kniser and Eric H. Chadwick, PATTERSON, THUENTE, CHRISTENSEN, PEDERSEN, PA, for M-I Drilling Fluids UK Ltd. and M-I LLC.

          Alan G. Carlson, Nathan Louwagie, and Todd S. Werner, CARLSON CASPERS VANDENBURGH LINDQUIST & SCHUMAN PA, for Dynamic Air Inc.

          MEMORANDUM OPINION AND ORDER ADOPTING REPORT AND RECOMMENDATION

          JOHN R. TUNHEIM Chief Judge

         Pursuant to 35 U.S.C. § 285, 28 U.S.C. § 1927, and the Court's inherent powers, Defendant Dynamic Air Inc. (“DAI”) filed a motion for reasonable attorney fees, expert witness fees, and costs incurred by DAI in defending against patent infringement claims brought by Plaintiffs M-I Drilling Fluids UK Ltd. and M-I LLC (collectively “M-I”). DAI further moved for costs associated with this case pursuant to Fed.R.Civ.P. 54(d). DAI brought this motion at the conclusion of protracted and contentious litigation against M-I.

         M-I first brought a patent infringement action against DAI in 2013 (referred to as “the 2013 Minnesota case”). The court dismissed M-I's claims without prejudice because M-I had not “alleged enough factual specifics concerning [DAI]” to state a claim for relief. M-I Drilling Fluids UK Ltd. v. Dynamic Air Inc., No. 13-2385 (ADM/HB), 2014 WL 494680, at *7 (D. Minn. Feb. 6, 2014).[1] In 2014, M-I filed another patent infringement against DAI, this time including more detailed allegations in its complaint. After conducting extensive discovery and amending its complaint, M-I dismissed its action against DAI. M-I “judg[ed] that pursuit of the indirect infringement case against DAI did not justify the effort.” (Decl. of Scott Pivnick (“Pivnick Decl.”) ¶ 17, June 24, 2016, Docket No. 246.) In June 2016, DAI brought this motion seeking attorney fees from M-I.

         United States Magistrate Judge Hildy Bowbeer issued a Report and Recommendation (“R&R”) on February 3, 2017, recommending that the Court award DAI attorney fees and costs under § 285 and Fed.R.Civ.P. 54(d) respectively. (R&R at 36, 38-39, Feb. 3, 2017, Docket No. 270.) The Magistrate Judge found that an award of other sanctions was inappropriate.

         M-I filed timely objections to the R&R asserting that (1) its action was not exceptional enough to warrant attorney fees under § 285, and (2) even if its action was exceptional, DAI's culpable conduct during the litigation negates recovering any award. (See Pls.' Objs. to R&R (“Objs.”), Feb. 17, 2017, Docket No. 275.)

         Because M-I relied upon insufficient evidence to support its detailed allegations in the 2014 complaint and 2015 amended complaint, the Court will overrule M-I's objections, adopt the R&R, and award attorney fees and costs to DAI.

         BACKGROUND

         I. THE 2013 COMPLAINT: DISMISSED BASED UPON AN ALTER EGO THEORY OF LIABILITY

         M-I is a petroleum services company based in the United Kingdom. (Compl. ¶¶ 2, 4, Nov. 25, 2014, Docket No. 1.) M-I also has a sister company named M-I Swaco do Brasil-Comerico, Servicos E Mineracao Ltda. (“M-I Brazil”). M-I Drilling Fluids, 2014 WL 494680, at *1. DAI is a Minnesota corporation principally located in St. Paul, Minnesota. (Compl. ¶ 3.) DAI is the 51% majority owner of Dynamic Air Limitada (“Limitada”), a Brazilian company. (Decl. of Todd S. Werner (“Werner Decl.”), Ex. 14 ¶¶ 1, 2, 10, June 3, 2016, Docket No. 231.)

         In late 2011 or early 2012, Petróleo Brasileiro (“Petrobras”), a nonparty petroleum company organized under Brazilian law with its principal place of business in Brazil, sought design proposals for a pneumatic conveyance system designed to transport waste rock, sand, and other materials from a drill on an offshore oil platform to a ship. M-I Drilling Fluids, 2014 WL 494680, at *1. M-I Brazil and Limitada both submitted bids for the project, which Limitada won. Id. Limitada proceeded to design and operate at least three of these systems for Petrobras. Id.

         In 2013, M-I sued DAI and Limitada, alleging that Limitada “along with [DAI] designed, sold and operated [] a system” which infringed five patents held by M-I. Id. at *5. To attempt to show liability on DAI's part, M-I argued that Limitada was the “alter ego” of DAI and that the corporate veil should be pierced. Id. at *2.

         The Court nevertheless found the complaint to be factually insufficient as to DAI, noting that:

M-I does not establish prima facie evidence of an alter ego relationship between Defendants. M-I's only evidence is two printouts of [DAI's] website, on which [Limitada] is listed as an ‘international office' for Brazilian sales. While website statements regarding a corporate relationship may be relevant to alter ego analysis, M-I's evidence standing alone does not demonstrate sufficient control or dominance over [Limitada].

Id. at *4 (internal citation omitted). The court also noted that “[o]n its face, the Complaint fails to plausibly identify conduct by [DAI] that has allegedly infringed the patents in suit.” Id. at *5. The Court therefore dismissed M-I's infringement claims without prejudice. Id. at *6.

         II. THE 2014 COMPLAINT: M-I ALLEGES DIRECT, INDUCED, AND CONTRIBUTORY INFRINGEMENT

         In 2014, M-I again sued DAI, this time with more detailed allegations of “direct, induced, and/or contributory infringement of [five] patents owned by M-I.” (Compl. ¶ 1.)

         As part of that complaint, M-I alleged that DAI was “engaging in acts constituting infringement under 35 U.S.C. § 271.” (Id. ¶ 42.) Although the complaint makes allegations under § 271 generally, a careful review suggests purported liability under § 271(a), (b) and (c). (Id. ¶¶ 42-44.) In the complaint, M-I alleged that Limitada won the bidding process with Petrobras but that Limitada was unequipped to complete the contract, and thus signed it jointly with DAI as its “partner” in the project. (Id. ¶¶ 18-19.) Thereafter, the complaint alleged, DAI provided Limitada with infringing devices (“Accused Systems”), which were then installed on two U.S. ships. (Id. ¶¶ 18-21.) To support these claims M-I alleged the following facts (“the Sixteen Detailed Allegations”):

• “DAI directed the design, manufacture and installation of . . . systems for Petrobras . . . .” (Id. ¶ 19.)
• “DAI then directed that [Limitada] install these . . . systems aboard at least two U.S.-flagged ships . . . .” (Id. ¶ 20.)
• “DAI provided and continues to provide onsite support . . . including supervising and assisting in the installation and startup of the systems aboard the two U.S.-flagged ships.” (Id. ¶ 21.)
• “The Accused Systems are operated on the U.S.-flagged ships either directly by DAI or under the direction and supervision of DAI.” (Id. ¶ 22.)
• “[T]he Accused Systems were manufactured, sold, delivered and installed, ” and “[t]hese activities were either performed directly by DAI or at the direction of DAI.” (Id. ¶ 23.)
• “[T]he Accused Systems were then used . . . in an infringing way” and “[t]hese activities were either performed directly by DAI or at the direction of DAI.” (Id. ¶ 24.)
• “DAI provided the conception and design of the . . . system and additionally supervised and assisted with its manufacture and installation aboard the U.S.-flagged HOS Resolution.” (Id. ¶ 25.)
• “DAI employees visited the system to assist and supervise its manufacture and installation.” (Id.)
• “DAI employees continue to visit the system aboard the U.S.-flagged HOS Resolution and provide instructions for its use. During these visits, DAI ...

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