In considering an appeal in a patent and breach of contract case, the US Court of Appeals for the Federal Circuit explained that a district court’s damages ruling was not dispositive where it did not foreclose the plaintiff’s ability to prove the required elements of the cause of action. Princeton Digital Image Corp. v. Office Depot Inc., Case Nos. 17-2597, -2598, -2600, -2602, -2605, -2606, -2609, -2611, -2612, -2627, -2628, -2629, -2630, -2631, -2632, -2633, -2634, 18-1006 (Fed. Cir. Jan. 22, 2019) (Dyk, J). Since there was no final judgement, the Federal Circuit found that the district court’s decision was not appealable and thus there was no appellate jurisdiction.

Princeton Digital Image Corporation (PDIC) licensed a patent that covered encoding image data and digital images to Adobe. PDIC later initiated litigation against several Adobe customers alleging that the customers were encoding images on their websites that infringed on its patent. Adobe intervened on behalf of the defendants, filed a breach of contract claim against PDIC, and sought damages, attorneys’ fees and sanctions.

The district court declined to award attorneys’ fees or sanctions, reasoning that although the case stood out from others, PDIC’s conduct was not “so exceptional” as to merit an award of fees. Nor could the district court say that PDIC’s pre-suit investigation was inadequate or made for an improper purpose to justify a sanctions award. As to damages, the district court ruled that Adobe could collect damages only for “defensive fees” that it expended in defending its customers from PDIC’s infringement suit. The district court twice struck Adobe’s claimed damages, finding that they did not disclose a purely defensive number. Although the district court entered judgment in PDIC’s favor at Adobe’s request, the court reiterated its position that there were purely defensive fees that could be proven in the record. Adobe appealed.

Adobe contended that the Federal Circuit had jurisdiction because Adobe was appealing a “final decision of a district court.” The Federal Circuit disagreed, finding that a district court decision is not a final decision where it does not resolve the issue of infringement. The Federal Circuit followed a long line of precedent from both before and after the Supreme Court’s 2017 ruling in Microsoft v. Baker finding that the district court did not foreclose Adobe’s ability to prove the required elements of its claim. To the contrary, the district court merely restricted the damages Adobe could pursue and repeatedly emphasized its willingness to consider a damages award regarding purely defensive damages. Although Adobe faced the prospect of a smaller damages award, it could have proceeded to trial on its claims and was obligated to do so to receive a final judgment on the merits. As the Federal Circuit explained, the fact that continuing litigation may be economically imprudent does not create a final decision that can be appealed.

The Federal Circuit also found that it lacked jurisdiction over Adobe’s appeal and PDIC’s cross-appeal because the district court’s ruling constituted an interim order denying fees and sanctions because it preceded final judgment on the merits. No exceptional circumstances justified treating the denial of fees as an order collateral to the merits.