Federal Circuit: Court Erred in Finding Case “Exceptional”

Spectrum Labs v. Tech International (Fed. Cir. December 29, 2004).

Spectrum sued Tech Int’l for infringement for its patent related to a method of removing unwanted substances from human urine samples.  The purification method allows urine to be tested without interference from the unwanted substances.  The Nevada District Court granted summary judgment of non-infringement to Tech and granted Tech’s motion for attorney’s fees — noting that the suit was frivolous and in bad faith. 

Tech appealed the award of attorney’s fees.

On appeal, the Federal Circuit reversed — finding that the case was not "exceptional" under the statute (35 USC 285).

The CAFC listed types of cases that may create an "exceptional" circumstance: inequitable conduct before the PTO, litigation misconduct, vexatious and otherwise bad faith litigation, frivolous suit or willful infringement.  However, the Appeals Court found "none of those circumstances present" in this case.

A district court must provide reasoning for its determination that a case is exceptional for us to provide meaningful review. Further, an exceptional case finding is not to be based on speculation or conjecture but upon clear and convincing evidence.  The facts cited in the section 285 order do not provide clear and convincing evidence that Spectrum’s investigation and credit check constituted vexatious behavior. The section 285 order merely highlighted the fact that the credit check and background investigation occurred after issuance of the summary judgment order. Section 285 Order, slip op. at 3. The district court’s open speculation about the purpose of Spectrum’s investigations adds no support to its finding.

The Law: The determination whether to award attorney’s fees under section 285 involves a two-step process. First, the district court must determine whether Tech proved by clear and convincing evidence that this case is "exceptional." . . . Second, if the court finds the case to be exceptional, it must then determine whether an award of attorney’s fees is appropriate.

Comment: This case is really a commentary on claim construction jurisprudence.  In my view, the court could not call this an exceptional case because of the uncertainty associated with claim construction.