Federal Circuit’s “Red Flags” Fee Analysis Under Fire: DISH Seeks En Banc Review

Patent

by Dennis Crouch

DISH Network is seeking en banc review of a Federal Circuit panel decision that vacated a $3.9 million attorney fee award to the victorious defendant in Realtime Adaptive Streaming L.L.C. v. Sling TV, L.L.C., 113 F.4th 1348 (Fed. Cir. 2024).  The petition challenges the panel’s approach to reviewing district court fee determinations under 35 U.S.C. § 285, arguing that it contradicts Supreme Court precedent of both Octane Fitness and Highmark, which provided district courts with substantial autonomy in determining whether to award attorney fees.

The case stems from Realtime’s assertion of patents related to digital data compression against DISH. After protracted litigation including inter partes review proceedings and multiple stays, the District of Colorado ultimately found Realtime’s asserted claims from U.S. Patent No. 8,867,610 patent ineligible under 35 U.S.C. § 101. The district court judge, R. Brooke Jackson, then deemed the case “exceptional” under § 285 and awarded DISH $3.9 million in attorney fees.

After talking through the en banc petition, this post spends some time focusing in on another recent fee award – this one a $9 million award against Dartmouth College and its exclusive licensee ChromaDex.

Judge Jackson based the fee award on six specific “red flags” that he found should have warned Realtime its case was fatally flawed:

  1. Prior decisions from the Central District of California and District of Delaware finding similar claims in a related patent (the ‘535 patent) ineligible;
  2. The Federal Circuit’s decision in Adaptive Streaming Inc. v. Netflix, Inc., 836 F. App’x 900 (Fed. Cir. 2020), which found similar claims ineligible;
  3. PTAB decisions invalidating claims in the related ‘535 patent;
  4. USPTO office actions rejecting claims during reexamination;
  5. DISH’s warning letter to Realtime about fee exposure; and
  6. The opposing expert’s testimony supporting invalidity.

The district court concluded that “carrying on despite numerous danger signals” rendered the case exceptional and justified the substantial fee award.

Writing for the Federal Circuit panel, Judge Albright (sitting by designation) vacated the fee award. While agreeing that the prior district court decisions finding similar claims ineligible constituted a valid warning sign, the panel rejected the district court’s reliance on the other factors. The panel found that without a detailed claim-by-claim comparison, mere similarity to claims found ineligible in Adaptive Streaming couldn’t justify fees. The panel also dismissed DISH’s warning letter as insufficient, suggesting that accepting such letters as red flags would incentivize parties to routinely send them to manufacture grounds for later fee requests.

DISH’s petition for en banc review argues that the panel’s analysis fundamentally contradicts two Supreme Court precedents from 2014:

First, in Highmark Inc. v. Allcare Health Management System, Inc., 572 U.S. 559 (2014), the Supreme Court held that appellate courts must review all aspects of § 285 determinations for abuse of discretion. This highly deferential standard requires finding “a clear error of judgment in weighing relevant factors or in basing its decision on an error of law or on clearly erroneous factual findings.” Energy Heating, LLC v. Heat On-The-Fly, LLC, 15 F.4th 1378, 1382 (Fed. Cir. 2021).

Second, in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014), the Court directed district courts to determine exceptionality case-by-case, considering the totality of circumstances. An exceptional case is “one that stands out from others with respect to the substantive strength of a party’s litigating position… or the unreasonable manner in which the case was litigated.”

The petition argues the panel erred in two fundamental ways:

1. Failure to Apply Proper Abuse of Discretion Review

Although the panel correctly stated the clear-error standard for appellate review, DISH contends the panel essentially conducted de novo review.  In particular, the case appears to create a new requirement for “side-by-side analysis of all limitations” without identifying why the district court’s reliance on general technological similarity was clearly erroneous. Similarly, in rejecting the defendant’s expert opinions as a red flag, the panel substituted its own judgment about competing expert testimony without explaining why the district court’s assessment was irrational or clearly erroneous. The panel’s treatment of DISH’s warning letter also demonstrates de novo review by artificially requiring evaluation of the letter in isolation from other factors, rather than identifying clear error in the district court’s consideration of the letter as part of the totality of circumstances.

According to DISH, these examples reflect a broader pattern where the panel, while claiming to apply clear error review, effectively reweighed evidence rather than examining for abuse of discretion. In other cases, such as Inventor Holdings, LLC v. Bed Bath & Beyond, Inc., 876 F.3d 1372 (Fed. Cir. 2017), the Federal Circuit affirmed fees based on fairly weak eligibility arguments and without requiring such granular analysis.

2. Improper “Divide-and-Conquer” Analysis

DISH argues that the Federal Circuit’s examination of each red flag in isolation also violates Octane Fitness, which focuses on a totality-of-circumstance test that allows for consideration of the cumulative effect of multiple signals. Although not a patent case, the petition cites District of Columbia v. Wesby, 583 U.S. 48 (2018), where the Supreme Court explicitly rejected such “divide-and-conquer” approaches to totality-of-circumstances tests. (Holding that police officers had probable cause to arrest those attending a party in Washington, D.C.).  The idea here is that even if individual flags weren’t independently sufficient, the do provide probative weight that, in combination, justify finding the case exceptional.

Of course, the panel would likely strongly contest DISH’s characterization that it conducted de novo review. For each red flag, the opinion analyzed whether the district court’s reliance on that factor constituted an abuse of discretion and then noted that the district court relied upon the red flags “without explaining the weight for each flag.” That was important, given that “Some of these red flags should not have been accorded any weight.”  In addition, the panel vacated and remanded — meaning that on remand the district court may still reinstate the attorney fee award.

= = =

In ChromaDex, Inc. v. Elysium Health, Inc., D.Del. Chief Judge Connolly recently awarded over $9 million in attorney fees under § 285 to the successfully defendant Elysium, finding the case exceptional based primarily on ChromaDex’s failure to meaningfully address controlling Supreme Court precedent on patent eligibility.

The case involved patents claiming compositions containing isolated nicotinamide riboside (NR) – a naturally occurring form of vitamin B3 found in cow’s milk. The patents were invalidated under § 101 because the claimed compositions remained “indistinguishable from natural milk because, other than separation from some other components, the isolated NR is no different structurally or functionally from its natural counterpart in milk.” After the Federal Circuit affirmed and the Supreme Court denied certiorari, Chief Judge Connolly found the case exceptional based primarily on ChromaDex’s failure to meaningfully address controlling Supreme Court precedent. The court explained that ChromaDex’s litigation position regarding Association for Molecular Pathology v. Myriad Genetics “was so lacking in substance that it ‘stands out’ from the dozens of § 101 challenges” encountered by the court. Unlike the multiple “red flags” analysis rejected in Realtime, Judge Connolly focused on one dispositive issue – ChromaDex’s inability and lack of attempt to distinguish its patent claims for isolated nicotinamide riboside from Myriad‘s clear holding that “merely isolating” naturally occurring molecules without changing their chemistry cannot confer patent eligibility.

The ChromaDex fee award is particularly notable for holding both the patent owner (Dartmouth College) and its exclusive licensee (ChromaDex) jointly and severally liable. Although Dartmouth argued it should be absolved from fee liability as a non-profit educational institution that had merely allowed ChromaDex to include it as a party, the court rejected this attempt to avoid responsibility. The court appears to have agreed with Elysium’s arguments that Dartmouth had actively participated in the litigation alongside ChromaDex – sharing counsel, joining in discovery and claim construction arguments, and even asserting its own separate damages claims.