By Dennis Crouch
Kilopass Tech v. Sidense Corp. (Fed. Cir. 2013)
In a 2012 decision, the district court ruled that Sidense did not infringe any of the claims of Kilopass’s three asserted memory-cell patents and that decision was affirmed on appeal (without opinion). However, the district court denied an exceptional-case attorney-fee award because Sidense had failed to provide clear and convincing evidence that the infringement action was brought or prosecuted in bad faith. In a decision calling for broader awards of exceptional-case attorney-fees, the Federal Circuit has vacated and remanded. Judge O’Malley penned court’s opinion with a concurring opinion filed by Chief Judge Rader.
35 U.S.C. § 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Over the past several years, Exceptional-case awards have been few-and-far-between and the perception is that those awards are particularly rare for prevailing defendants who successfully avoid liability for infringement. In Brooks Furniture, the Federal Circuit ruled that a prevailing accused infringer can receive fees under Section 285 based upon either (1) objectively baseless litigation brought in subject bad faith or (2) other misconduct during the litigation.
The attorney-fee issue is hot right now. The Supreme Court will hear two pending cases on the interpretation of Section 285 later this term and Congress is considering several bills that would make it easier for a prevailing party to also get its fees paid-for. These actions are primarily focuses ways to push-back against patentees who raise unsuccessful infringement claims.
Here, Sidense argued that the case should be found exceptional because the lawsuit was objectively baseless and brought in bad faith. The district court rejected that argument, and, in vacating that decision, the Federal Circuit made several important findings:
- A case can still be brought in bad faith even if the plaintiff-patentee did not have actual knowledge of its baselessness. Rather, the knowledge requirement can be met when a lack of objective foundation for a claim was either known or obvious. Thus, a plaintiff with a misguided belief in its case can still be found to have brought the case in bad faith if the baselessness of the claim would have been obvious to someone more reasonable.
- Subjective knowledge of bad faith can be proven through a variety of direct and circumstantial evidentiary proofs and should be based on the “totality of the circumstances.” Thus, even though clear-and-convincing evidence is required to prove bad faith, courts can still “infer bad faith from circumstantial evidence.”
- A “smoking gun” that reveals “that a patentee knew that he had no chance of winning a lawsuit” is sufficient to show subjective bad faith despite other evidence to the contrary (such as an opinion of counsel that the case is a good one).
- “Factors such as the failure to conduct an adequate pre-suit investigation, vexatious or unduly burdensome litigation tactics, misconduct in procuring the patent, or an oppressive purpose are factors which can be indicative of bad faith.”
Judge O’Malley also discussed, but rejected, the defendant’s arguments that (1) subjective bad faith be eliminated as an element of an exceptional case finding and that (2) fees should be awarded in cases where a patentee loses a week but reasonable case.
In light of patentees’ First Amendment right to petition the government (by, for instance, filing a lawsuit seeking relief in the courts), we do not think Congress intended to discourage patentees from bringing reasonable claims of infringement by raising the specter of fee shifting—even when the patentee’s legitimate claims are on less than the firmest ground.
. . . Patent owners possess presumptively valid property rights which convey the right to exclude others from practicing the claims in their patents. The property right conveyed by a patent has constitutional underpinnings. . . . And, patentees have a constitutional right to petition the government to enforce or otherwise vindicate those rights. Thus, where there is no basis upon with to predicate exceptionality other than the viability of the claims asserted, we conclude that § 285 fees should not be awarded as long as the patentee had an objectively reasonable basis for its claims [or] if an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome.”
Instead, when a plaintiff presses reasonable, but weak, claims of infringement, a prevailing defendant must look to the many other bases for fee shifting under § 285.
Writing in concurrence, Chief Judge Rader argued that the rule for fee-shifting should be more liberal and generally allowed whenever the circumstances require fee shifting in order to prevent a gross injustice. See Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805 (Fed. Cir. 1990).