Further thoughts on Fee-Shifting from Judges Rader and O’Malley

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:

  1. 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.
  2. 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.”
  3. 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).
  4. “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).

Dennis Crouch

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

17 thoughts on “Further thoughts on Fee-Shifting from Judges Rader and O’Malley

  1. Those interested my look at Prof. Hricik’s blog on this case and topic. See the tab above. He argues forcefully that Congress could by statute shift attorney fees and costs to a losing plaintiff as a matter of right without any constitutional problem whatsoever. I argue there in opposition.

  2. The appellate judges said they want the law changed. This looks almost like an order to the appellant to seek en banc review. I doubt we have seen the last of this case.

    1. A dual edged sword, no doubt….the best justice money can buy. If indeed attorney fees are simply granted to the prevailing party, then prevail at ALL and ANY costs will be the order of the day, and attorney fees will skyrocket.

  3. Can anyone provide any additional information as to the appeal of the Media Queue v. Netflix case (which was also directed to awarding attorney’s fees to defendants who were targeted by trolls wielding junk patents)? link to plainsite.org…The case certainly seems to have “stalled out”. I’m curious as to whether anyone has knowledge of its potential to start up again or is it really and truly “dead.”

  4. an oppressive purposeIs the mere desire to make as much money as quickly as possible by grifting off the hard work of hundreds or thousands of other people “an oppressive purpose” or is that something that we, as a society, should encourage because, e.g., everyone likes to look at a giant McMansion in Dallas or San Diego (even if you need a telescope or a helicopter to get a really good look because of the big fence around the perimeter of the property)?

    1. Malcolm, assume the patent is valid and literally infringed given the ordinary meaning of the terms of claim. Further, assume that counsel have reverse engineered the defendant’s products and found infringement. During trial, the defendant wins a construction of the claims that avoid infringement. The construction effectively limits a claim term from its ordinary meaning to a more limited meaning that incorporates structure from a preferred embodiment. The court does this based upon a disclaimer that is truly arguable.Should the defendant be awarded attorneys fees if they show that the patent owner was trying to make as much money as possible, grifting (what to you mean by this?) off the hard work of hundreds or thousands of other people?

      1. grifting (what to you mean by this?) off the hard work of hundreds or thousands of other peoplee.g., trolling with a patent (typical an alleged “improvement” described in functional terms that never should have granted in the first place) that was of no value or interest to anyone except the patent lawyer who “discovered” that, with the help of a broken system and some fancy lawyering, he/she could use the patent to extract money from productive citizens who somehow managed to become successful without knowledge of the functionally-claimed junk in the patent.assume the patent is valid and literally infringed given the ordinary meaning of the terms of claim [the rest of this highly unusual fact pattern is deleted to save space] Should the prevailing defendant be awarded attorneys fees if they show that the patent owner was trying to make as much money as possible, griftingThe fact that the patent owner is a troll (see note above explaining the concept of “grifting”) whose sole purpose is to find patents that are “arguably” valid and broad enough to shake down entire industries or thousands of independently run businesses (in other words, patents that in 99.999% of the cases should never have been granted in the first place) is the sort of circumstantial evidence that should substantially increase the likelihood of attorney fees being awarded to the defendant.Other relevant circumstantial evidence: a prior history of asserting invalid patents; contracting with an “enforcement entity” with a prior history of asserting invalid patents for the purpose of asserting the patent; a prior history of sanctioned activity in the context of patent assertion; etc.

      2. grifting (what to you mean by this?) off the hard work of hundreds or thousands of other peopleOh, for example, a lawyer who “discovers” a patent that was ignored by everyone (e.g., because it’s invalid and/or beyond the pale of what any ethical person would assert) and who “realizes” that, due to the broken patent system, the patent could be used to shake down people who, without knowledge of the patent, managed to create successful businesses providing useful products and services to people. That’s one example of “grifting”.Your hypothetical makes some rather unusual assumptions, to say the least. But I think it’s possible to imagine a totality of the circumstances which would justify awarding the defendant fees even given your carefully chosen facts. For example, if the patentee is an NPE with a notorious history of trolling patents that are “arguably” not infringed (or invalid), and if the NPE had been repeatedly warned by the defendant of this “arguable” interpretation of the claim, then shifting the fees to the loser seems very reasonable. It’s at least as reasonable as awarding treble damages for “willful” infringement of the “valid and literally infringed” claims in the alternative scenario where the claims are construed broadly.

      1. The GAO reportYou cling to that thing like Linus clings to his blanket. The GAO report didn’t prove that “patents help the economy” and even if such proof existed it wouldn’t justify encouraging more patent trolling behavior.

        1. MM, you are obviously a paid blogger. The GAO said that there was no troll problem. The GAO report is arguably the most unbiased report done in the last 5 years. It said there isn’t a problem.

            1. Please, Malcolm, grace us with a substantive post on the meaning of the GAO report….(what are the odds that no such substantive comments will be forthcoming…)LOL – Malcolm as Bueller:link to youtube.com…LOL, b-b-b-but Malcolm’s view on this (too) is perfectly ‘clear’…Oh wait, that is Malcolm defining ‘clear’ as in absent again. Oh, how very Carroll of him.

  5. This case is between two competing players in the market, as opposed to between a player and a “non-practicing entity”. The patentee had plenty of opportunity to assess the likelihood of its success against this single competitor, and in fact obtained opinions from three different law firms in this regard; and yet the CAFC said that the defendant’s assertion of exceptionalness had to be properly considered by the district court. Given that many NPEs seem to file large numbers of suits against similarly-situated defendants on the same groups of patents in short spans of time, suggesting a degree of pre-suit investigation falling far short of what Kilopass did, this decision would seem to put such plaintiffs at greater risk of having their pre-filing actions reviewed. Which, of course, is exactly what this CAFC panel wanted. It will be interesting to see if the decision has the (presumably desired) effect of reducing the number of suits filed by NPEs against large numbers of defendants. It will also be interesting to see if the decision reduces the number of declaratory judgment actions against such NPEs, as fee shifting in favor of the alleged infringer would seem to apply only when that alleged infringer is a successful defendant, not a successful DJ plaintiff. But that strikes me as more of a second-order effect.

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