Award of Attorneys’ Fees Hinges on a Finding of an Exceptional Case, Not an Exceptional Part of a Case

In Intellectual Ventures I LLC v. Trend Micro Inc., [2019-1122] (December 19, 2019), the Federal Circuit vacated and remanded a finding of excptionality under 35 USC 285, because it was unclear whether the
district court applied the proper legal standard.

During cross-examination at trial, Intellectual Ventures’s expert
changed his opinion about the meaning of the term “characteristic.” Following the completion of trial in the Symantec action, Trend Micro moved for clarification of the district court’s claim constructions in light of the expert’s changed opinion. During the hearing on Trend Micro’s motion, Intellectual Ventures’s counsel maintained that the expert had not changed his opinion, despite the expert’s clear trial testimony to the contrary. The
district court granted Trend Micro’s motion for clarification. The district court also granted leave for Symantec and Trend Micro to file motions
for judgment as a matter of law that the asserted patent claims were invalid under 35 U.S.C. § 101.

Trend Micro moved for attorney fees under § 285, requesting that the court declare the case exceptional due to the circumstances surrounding Intellectual Ventures’s expert’s changed opinion. The district court granted Trend Micro’s motion, concluding that Intellectual Ventures’s conduct was exceptional solely with respect to this collection of circumstances regarding its expert’s changed testimony, and awarded $444,051.14 in attorneys’ fees. . However, the Federal Circuit found that the case overall was not exceptional, concluding that it would be wrong to say that Intellectual Ventures’s case was objectively unreasonable.

Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. An exceptional case “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is ‘exceptional’
in the case-by-case exercise of their discretion, considering the totality of the circumstances.

Applying an abuse of discretion standard, the Federal Circuit said it was not clear that the district court applied the proper legal standard when it considered whether the case was exceptional under §285. The Federal Circuit said that instead of determining whether the case was exceptional,
it appears that the district court may have focused on whether one discrete portion of the case stood out from other cases, from all the other portions of this case, in terms of either the substantive strength of a position was advocating or the manner with which Intellectual Ventures was litigating.

The Federal Circuit said that Section 285 gives the district court discretion to depart from the American Rule and award attorney fees “in exceptional cases.” Accordingly, under the statute, the district court in this case should
have determined whether the circumstances surrounding the expert’s changed opinion were such that, when considered as part of the totality of circumstances in the case, the case stands out as exceptional.

The Federal Circuit rejected Intellectual Venture’s argument that a case cannot be found exceptional based on a single, isolated act, holding that a district court has discretion, in an appropriate case, to find a case exceptional based on a single, isolated act. Whether the conduct is a single, isolated act or otherwise, the relevant question for the district court is the same. The district court must determine whether the conduct, isolated or otherwise, is such that when considered as part of and along with the totality of circumstances, the case is exceptional, i.e., the case stands out among others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated. However in all cases there must be a finding of an exceptional case—not a finding of an exceptional portion of a case—to support an award of
partial fees.

Plaintiff Who Dismissed Patent Infringment Case Still Must Pay Defendant’s Attorneys’ Fees/

In Blackbird Tech LLC v. Health in Motion LLC, [2018-2393] (December 16, 2019), the Federal Circuit affirmed the award of $363,243.80 attorney fees and expenses when Blackbird after nineteen months of litigation, voluntarily dismissed its suit with prejudice and executed a covenant not to sue.

An exceptional case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. There is no precise rule or formula for making these determinations; instead, district courts may determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances.

Considering the totality of the circumstances, the District Court found that Blackbird’s case against Appellees is exceptional within the meaning of §285 because it stands out from others with respect to both the substantive strength of Blackbird’s litigation position and the unreasonable manner in which the case was litigated by Blackbird.

The Federal Circuit noted that the District Court found that Blackbird’s litigation position was “meritless” and “frivolous, determining that when challenged on the merits, Blackbird raised flawed claim construction and infringement contentions, and ultimately did not prevail on the merits because Blackbird dismissed its claims with prejudice, and submitted a covenant not to sue on the eve of trial. The Federal Circuit noted that even accepting Blackbird’s proposed construction, the accused device does not include a housing that meets the requirements of independent claim 1.

The Federal Circuit rejected Blackbird’s argument that the district court merely found its position “flawed” and not objectively baseless. The Federal Circuit also rejected Blackbird’s argument that neither Health in Motion nor the district court gave adequate notice of the purported weakness of its position. The Federal Circuit said that the district court was not obliged to advise Blackbird of the weaknesses in its litigation position, and further that the exercise of even a modicum of due diligence by Blackbird, as part of a pre-suit investigation, would have revealed the weaknesses in its litigation position.

The Federal Circuit also agreed that the case stands out with respect to the manner in which Blackbird litigated. The district court found that the case was exceptional because Blackbird litigated in an unreasonable manner. including making nuisance value settlement offers, unreasonable delays in producing documents, and finally, filing a notice of dismissal, covenant not to sue, and motion to dismiss without first notifying Health in Motion’s counsel, on the same day pretrial submissions were due and shortly before its motion for summary judgment was to be decided. The Federal Circuit further found that the district court did not abuse its discretion by considering the need to deter future abusive litigation, noting that Blackbird has filed over one hundred patent infringement lawsuits, and none have been decided, on the merits, in favor of Blackbird.

Finally, the Federal Circuit rejected Blackbird’s complaint about the amount of the award. Specifically the Federal Circuit rejected the argument that defendants should not have spent so much on the defense of such a small claim. The Federal Circuit added that the record supports the conclusion that Blackbird’s misconduct so severely affected every stage of the litigation that a full award of attorney fees was proper.

Infringement Prior to Notice of Patent Could Not be Willful

In SRI International, Inc., v. Cisco Systems, Inc., [2017-2223] (March 20, 2019), the Federal Circuit affirmed the district court’s denial of summary judgment of ineligibility, adopt its construction of “network traffic data,” and affirmed its summary judgment of no anticipation. The Federal Circuit vacated and remanded the district court’s denial of judgment as a matter of law of no willful infringement, and therefore vacate the district court’s enhancement of damages. The Federal Circuit also vacated the district court’s award of attorneys’ fees and remanded for recalculation. Finally, the Federal Circuit affirmed the district court’s award of ongoing royalties on postverdict sales of products that were actually found to infringe or are not colorably different.

The litigation involved U.S. Patent Nos. 6,484,203 and 6,711,615 directed to network intrusion detection. The Federal Circuit rejected Cisco’s assertion that the claims are just directed to analyzing data from multiple sources to detect suspicious activity. The Federal Circuit found that instead, the claims are directed to an improvement in computer network technology. The focus of the claims is on the specific asserted improvement in computer capabilities—that is, providing a network defense system that monitors network traffic in real-time to automatically detect large-scale attacks. The Federal Circuit concluded that the claims are not directed to an abstract idea under step one of the Alice analysis, and thus did not reach step two.

On claim construction, the Federal Circuit held that SRI’s statements in the prosecution history do not invoke a clear and unmistakable surrender of all preprocessing, including decryption, decoding, and parsing. Accordingly, the Federal Circuit agreed with the district court’s construction of “network traffic data” to mean “data obtained from direct examination of network packets.”

On the issue of anticipation, the Federal Circuit held that SRI’s statements in the prosecution history did not invoke a clear and unmistakable surrender of all preprocessing, including decryption, decoding, and parsing. Accordingly, the Federal Circuit agreed with the district court’s construction of “network traffic data” to mean “data obtained from direct examination of network packets.” On this record, the Federal Circuit concluded that summary judgment was appropriate. The prior art did not expressly disclose directly examining network packets as required by the claims—especially not to obtain data about network connection requests.

On the denial of JMOL on the issue of willfulness, the Federal Circuit agreed that the jury’s finding that Cisco willfully infringed the patents-in-suit prior to receiving notice thereof is not supported by substantial evidence and therefore vacated and remanded them. Among other things, SRI argued that Cisco employeees did not read the patent before their depositions, but the Federal Circuit noted that it is undisputed that these Cisco employees were engineers without legal training. Given Cisco’s size and resources, the Federal Circuit said it was unremarkable that the engineers—as opposed to Cisco’s in-house or outside counsel—did not analyze the patents-in-suit themselves. The Federal Circuit also noted that it was undisputed that Cisco did not know of SRI’s patent until SRI sent its notice letter to Cisco, and that this notice letter was sent years after Cisco independently developed the accused systems and first sold them. Under these circumstances the Federal Circuit vacated the finding of willfulness prior to the Notice letter, and remanded for the district court to determine whether the finding of willfulness after the Notice letter was supported by substantial evidence. The Federal Circuit also vacated the award of enhanced damages and remanded for further consideration along with willfulness.

The Federal Circuit vacated the district court’s award of attorneys’ fees under § 285, remanding solely for recalculation. The Federal Circuit found no error in the district court’s determination that the case was exceptional, agreeing that Cisto had “crossed the line in several regards.” However, there were several entries included by mistake, and the Federal Circuit remanded only for removal of attorney hours clearly included by mistake and consequent recalculation of reasonable attorneys’ fees.

Finally, on the issue of on-going royalty, the Federal Circuit found that the district court did not abuse its discretion in awarding a 3.5% compulsory license for all post-verdict sales. Cisco complained that the court was obligated to consider its design-arounds. The Federal Circuit agreed that Cisco was untimely, finding Cisco did not redesign its products until after trial, and Cisco did not file its motion to supplement until after completion of post-trial briefing.

Exceptional Does Not Mean “Wrong” — Otherwise Every Case Would be Exceptional

In Spineology Inc. v. Wright Medical Technology, Inc., [2018-1276] (December 14, 2018), the Federal Circuit affirmed the denial of Wright Medical Technology, Inc.’s motion for attorney fees under 35 U.S.C. § 285, finding no abuse of discretion.

The district court issued a claim construction order in, acknowledging that the parties disputed construction of the term “body,” but it declined to
adopt either party’s construction. Wright and Spineology then filed cross-motions for summary judgment on infringement.  Recognizing the alleged infringement depended on how “body” was construed, the district court
construed “body” consistent with Wright’s noninfringement position and granted Wright’s motion.  Wright then moved for attorney fees, arguing Spineology’s proposed construction of “body,” its damages theories, and its litigation conduct rendered this case “exceptional” under § 285. The district court denied the motion, determining that, while ultimately the court rejected Spineology’s proposed construction, it was not so meritless as to render the case exceptional.  It similarly determined the arguments
made by Spineology to support its damages theory were not so meritless as to render the case exceptional.  The district court concluded that n]othing about this case stands out from others with respect to the substantive strength of Spineology’s litigating position or the manner in which
the case was litigated.

The Federal Circuit agreed with the district court that, while Spineology’s proposed construction of “body” was ultimately rejected at summary judgment, the attempt was not so meritless as to render the case exceptional.  The Federal Circuit stressed that a party’s position ultimately need not be correct for them not to standout.   The Federal Circuit noted that Wright was hardly in a position to complain about Spineology’s continuing to pursue a construction not adopted by the district court in the claim construction order, since the district court declined to adopt Wright’s proposed construction as well.

Even though the case was resolved in summary judgment, Wright complained about Spineology’s damages theory,.  While conceding that perhaps Spineology’s damages theories would not have prevailed, the Federal Circuit said “a strong or even correct litigating position is not the standard by which we assess exceptionality.”

The Federal Circuit noted that Wright was asking the court to basically decide the damages issues mooted by summary judgment in order to determine whether it ought to obtain attorney fees for the entire litigation. The Federal Circuit refused to do so — it will not force the district court, on a motion for attorney fees, to conduct the trial it never had, and the Federal Circuit declined to conduct the trial in the first instance.

The bottom line is exceptional  does not mean “wrong” — otherwise every case would be exceptional.

There Must be at least Some “Causal Connection” Between the Misconduct and the Fee Award

In In re Rembrandt Technologies LP Patent Litigation, [2017-1784] (August 15, 2018), the Federal Circuit held that the district court did not abuse its discretion in deeming this case exceptional, but that the court erred by failing to analyze fully the connection between the fees awarded and Rembrandt’s misconduct, and vacated the district court’s fee award, and remanded for further proceedings.

Rembrandt asserted two patents that were revived improperly; allowed spoliation of evidence; improperly gave consultants an interest contingent on the litigation outcome; and threatened AOPs with a baseless injunction demand.  The district court determined that the case was “indeed exceptional” for three reasons. First, the court found that “the evidence shows that Rembrandt improperly compensated its fact witnesses, in violation of ethical rules of conduct.” Second, the court was “convinced that Rembrandt engaged in (or failed to prevent) widespread document spoliation over a number of years.”  Finally, the court found that “Rembrandt should have known that the ‘revived patents’ were unenforceable.”  The district court ultimately ordered Rembrandt to pay more than $51 million in fees to all Appellees.

On the exceptionality finding, The Federal Circuit said that Rembrandt raised strong arguments with respect to the district court’s factual findings. The Federal Circuit said that the district  court’s remarkably terse orders (four pages) shed little light on its justifications for its decisions on these fact-intensive issues. But abuse of discretion is a deferential standard. On the record before it, the Federal Circuit could not say that any of the district court’s findings was based “on an erroneous view of the law or on a clearly erroneous assessment of the evidence.”

On the issue of the amount of the award, Rembrandt raised no specific objections to Appellees’ tabulations of the hours they expended; nor did Rembrandt contend that
Appellees should have calculated fees using a lower hourly rate. Rembrandt instead argued that the fee award is excessive and unreasonable because the district
court failed to establish a causal connection between the claimed misconduct and the fees awarded, and the Federal Circuit agreed.  The district court did not explain why
an award of almost all fees was warranted or whether it had accepted appellee’s argument that the pervasive misconduct justified an award of all fees.  The district court, by and large, did not even attempt to assess which issues the claimed misconduct affected.

Even if Rembrandt’s misconduct, taken as a whole, rendered the case exceptional, the district court was required to establish at least some “causal connection” between the misconduct and the fee award.  What the district court did —award all fees with
no explanation whatsoever of such a causal connection—was not enough.  The Federal Circuit thus vacated the district court’s fee award and remanded for the district court to conduct the appropriate analysis in the first instance.

American Rule Defeats USPTO’s Claim for Attorneys’ Fees in §145 Actions

In Nantkwest, Inc. v. Iancu, [2016-1794] (July 27, 2018), the en banc Federal Circuit affirmed the district court decision that an award of “all expenses” pursuant to 35 U.S.C. §145 did not include the USPTO’s attorneys’ fees in its unsuccessful defense of the rejection of Nantkwest’s application.

35 USC §145 permits a disappointed patent applicant to challenge
the PTAB’s decision in district court. However, applicants who invoke §145 are required by statute to pay “[a]ll the expenses of the proceedings” incurred by the U.S. Patent and Trademark Office in defending the Board’s decision, regardless of the outcome. Historically, the PTO sought recovery of travel and printing expenses, and more recently  expert witnesses fees.  Most recently, the PTO has interpreted §145 as including its attorneys’ fees.

Calling the American Rule a “bedrock principle” of this country’s jurisprudence, the majority of the Federal Circuit held that the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a “specific and explicit” directive from Congress. Contrary to the panel decision that sided with the PTO, the Federal Circuit affirmed the district court judgement denying the PTO’s request for attorneys fees.

 

Invalidity Contentions Citing 32 Prior Art References with Only General Explanations, and “Inconsistent and Unilluminating” Claim Charts Not Enough to Put Patent Owner on Notice of the Weakness of its Position

In Stone Basket Innovations, LLC v. Cook Medical LLC, [2017-2330] (June 11, 2018), the Federal Circuit affirmed the denial of attorneys fees to defendant under 35 U.S.C. § 285 after plaintiff dismissed its complaint for infringement of U.S. Patent No. 6,551,327 on a basket-type stone extraction medical device used to remove stones from biological systems, when defendant instituted in inter partes review.

This appeal involved two main issues: whether the District Court erred in its assessment of: (1) the substantive strength of Stone’s litigating position, and (2) the alleged pattern of vexatious litigation by Stone.  On the first issue, the Federal Circuit held that the District Court did not abuse its discretion in finding that the substantive strength of Stone’s ultimately non-prevailing litigating position did not warrant an award of fees. The Federal Circuit held that the patent owner was not put on clear notice of the invalidity of its patent by defendants invalidity contentions listing 32 prior art references with general statements of invalidity, and “inconsistent and unilluminating” claim charts.  The Federal Circuit further noted that the invalidating prior art used in the inter partes review was listed on the face of the patent, creating a presumption of good faith in asserting its patent rights against Cook.  The Federal Circuit likewise found the statements of the inventor to be taken out of context, and in any even irrelevant because a post-issuance statement regarding a single element of a claimed invention does not establish invalidity.  Lastly, the Federal Circuit noted the district court’s explanation that following the service of the invalidity contentions, Cook took no action to ensure a rapid termination of the instant litigation.  Cook complained that the prevailing party’s conduct is not a proper consideration, but the Federal Circuit said it was a proper part of the totality of the circumstances.

The Federal Circuit added that Cook’s failure to provide early, focused, and supported notice of its belief that it was being subjected to exceptional litigation behavior further supports the District Court’s determination that Stone’s litigating position did not “stand out” from others.

The Federal Circuit concluded that absent any evidence that Stone’s litigating position was frivolous when filed or at any point before it filed for dismissal, it was not persuaded the District Court abused its discretion in determining Stone’s case did not meet the standard for an award of attorney fees.  The Federal Circuit said a party cannot simply hide under a rock, quietly documenting all the ways it’s been wronged, so that it can march out its “parade of horribles” after all is said and done.”

 

 

It Costs $440,000 to Dismiss a Case for Lack of Standing, but Plaintiff Had to Pay it

In Raniere v. Microsoft Corp., [2017-1400, 2017-1401] (April 18, 2018), the Federal Circuit held that the district court did not err in finding that Microsoft and AT&T were the prevailing parties under 35 U.S.C. § 285  (2012), and did not abuse its discretion in awarding attorneys’ fees and costs.

Raniere sued for infringement of a total of five patents (U.S. Patent Nos. 6,373,936, 6,819,752, 7,215,752, 7,391,856, and 7,844,041), and Microsoft and AT&T challenged Raniere’s standing.  Rainiere and the other inventors assigned the underlying inventions to Global Technologies, Inc.  In May 1996, GTI was administratively dissolved.  In December 2014, Raniere executed a document on behalf of GTI, claiming to be its president and “sole owner,” that purportedly transferred the asserted patents from GTI to himself.

Microsoft challenged Raniere’s standing, and the district court ordered Raniere to produce documentation proving his representations. The district court found that the documents produced by Raniere failed to indicate that Raniere had an ownership interest in GTI at any time or that Raniere had the right to assign the patents at issue from GTI to himself.  Given Raniere’s failure to produce evidence to support his standing, the district court permitted Appellees to conduct limited discovery into the standing issue and stayed the cases pending its resolution.  The parties suspended discovery when they began negotiating terms of settlement, but Raniere refused
to finalize the settlement. AT&T then filed a motion for an order to show cause why the action should not be dismissed under Federal Rule of Civil Procedure 41(b) for
lack of standing.

The district court found that Raniere’s testimony surrounding the alleged transfer contradicted Raniere’s earlier representations and was “wholly incredible and untruthful. Moreover, the district court found that Raniere’s conduct demonstrated “a clear
history of delay and contumacious conduct.”  In a subsequent fees motion the district court award fees.  AT&T submitted evidence that it incurred $395,050.30 in attorney fees and $13,917.10 in costs, and Microsoft submitted evidence that it incurred
$176,166.40 in attorney fees and $2,073.68 in costs.  The district court found Appellees were not entitled to fees spent on certain matters after the district court issued its stay order. And, the district court reduced the lodestar for both Appellees by twenty percent due to duplication of efforts between Microsoft and AT&T attorneys. In view of these determinations, the district court awarded $300,295.71 to AT&T and $143,719.26 to Microsoft in attorney fees and costs.

The Federal Circuit agreed that the Appellees were the prevailing parties, and that the district court did not abuse its discretion finding the case exceptional and awarding fees. The Federal Circuit, noting that the district court was in a better position to determine whether a case is exceptional, had no reason to disturb the district court’s well-reasoned determination.  The Federal Circuit also concluded that the district court’s discretionary determination of fees and costs is well-supported and reflects the court’s careful consideration of the relevant billing rates, invoices, and records.

 

Alice Changed the Law; Patent Plaintiff Should have Reassessed its Claim

In Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., [2016-2442] (December 8, 2017), the Federal Circuit affirmed the district court’s award of fees on the grounds that following the Alice decision, patent owner’s claims were objectively without merit.

The district court awarded BBB its attorneys’ fees beginning from the date of the Alice decision, including fees incurred during the § 101 appeal. The district court determined that the case was exceptional
based solely on the weakness of IH’s post-Alice patent-eligibility arguments and the need to deter future “wasteful litigation” on similarly weak arguments.

The Federal Circuit, reviewing for abuse of discretion,  found that the district court acted within the scope of its discretion in finding the case to be exceptional based on the weakness of IH’s § 101 arguments and the need to deter similarly weak arguments in the future.  The Federal Circuit said that under Alice, the claims of the patent were manifestly
directed to an abstract idea, which the district court accurately described as “local processing of payments for remotely purchased goods.”  The
idea that a customer may pay for items ordered from a remote seller at a third-party’s local establishment is the type of fundamental business practice that, when implemented using generic computer technology, is not patent eligible under Alice. The Federal Circuit continued noting that under Alice’s second step, the only components disclosed
in the specification for implementing the asserted method claims are unambiguously described as “conventional.” These components do not supply an inventive concept.

The Federal Circuit held that Alice was a significant change in
the law as applied to the facts of this particular case, noting that prior to Alice, the state of the law for computer implemented business transaction inventions was less than clear.   While as a general matter
was and is sometimes difficult to analyze patent eligibility under the framework prescribed by the Supreme Court in Mayo, the Federal Circuit said there was no uncertainty or difficulty in applying the principles set out in Alice to reach the conclusion that the ’582 patent’s claims are ineligible. The Federal Circuit said that it was IH’s responsibility to reassess its case in view of new controlling law.

Because the district court did not abuse its discretion
in awarding attorney fees under § 285, the district court’s
decision was affirmed.

Federal Circuit to Rethink Whether an Applicant has to Pay the USPTO’s Lawyers

In Nantkwest, Inc. v. Matal, [2016-1794](August 31, 2017) the Federal Circuit sua sponte granted rehearing en banc of the panel decision discussed here on the issue of whether 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees?

Not part of this review is its most unfair aspect — that a successful applicant still must pay the USPTO’s “expenses” (whatever that means).