Sanctions and Fees Against Patent Owner- Basics

  • BASICS: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. “We hold that 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. District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Octane Fitness (U.S. 04/29/2014) (overturning “rigid and mechanical formulation” Fed. Cir. had adopted in 2005, that case is “exceptional” only “when there has been some material inappropriate conduct,” or when the litigation is both “brought in subjective bad faith” and “objectively baseless.”) May award fees “in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so ‘exceptional’ as to justify an award of fees.” Octane Fitness (U.S. 04/29/2014). Court can consider same factors as in Copyright Act fees determination. Preponderance of the evidence. Id. (overturning Fed. Cir. “clear and convincing evidence” standard); OPlus Tech. (Fed. Cir. 04/10/15) (vacating denial of fees; overturn of “clear and convincing evidence” standard “lowers considerably the standard for awarding fees.”)
  • In Awarding Attorney Fees, Court Exercises Discretion In View Of The Totality Of The Circumstances, And May Advance Compensation To Defendant And Deterrence Of Similar Behavior In Future: S. Ct. quoted Fogerty Fantasy, Inc., 510 U. S. 517 (1994) (copyright fees award) non-exclusive list of factors trial court may consider: “frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Octane Fitness (U.S. 04/29/2014); cf. Lumen View (Fed. Cir. 01/22/16) (deterrence may be a factor in determining whether to award fees but not in setting the amount of fees); In re Rembrandt Tech. (Fed. Cir. 08/15/18) (aff’g exceptional case finding, vacating $51 MM fees award for trial court “to establish at least some ‘causal connection’ between the misconduct and the fee award.”) S. Ct. did not revoke discretion of a district court to deny fee awards even in exceptional cases. Icon Health (Fed. Cir. 08/26/14) (Octane Fitness remand) (non-precedential).
  • Deferential “Abuse Of Discretion” Review For All Aspects Of Sec. 285 Decision: “Appellate court should review all aspects of a district court’s § 285 determination for abuse of discretion.” Highmark (U.S. 04/29/2014) (rejecting Fed. Cir. standard of de novo review). “A district court abuses its discretion when its ruling rests on an erroneous legal conclusion or on a clearly erroneous assessment of the evidence. The court also abuses its discretion when it makes a ‘clear error of judgment in weighing relevant factors.’” AdjustaCam (Fed. Cir. 07/05/17) (rev’g trial court denial of attorney fees award; new trial judge on remand deferred to retired judge who had previously denied fees award, rather than “independently evaluate the evidence in view of the Supreme Court’s intervening precedent, which changed the standard by which § 285 motions are to be evaluated,” weak “suit became baseless after” Markman order, repeated use of last-minute supplemental declarations, including new expert declaration served day of expert’s deposition, and plaintiff “asserted nuisance-value damages against many defendants, settled with them for widely varied royalty rates.”). Although a trial court’s error law assessing the merits may constitute an abuse of discretion, the appellate court need not decide whether the trial court’s decision on the merits was correct. SFA Sys. (Fed. Cir. 07/10/15) (aff’g denial of attorney fees). The Octane Fitness deferential standard applies “both ways”: “discretion is entitled to a district court’s findings that § 285 attorney’s fees are not applicable, as much as discretion is owed to findings that they are applicable.” Site Update (Fed. Cir. 02/01/16) (non-precedential) (aff’g denial of fees where “reasonable minds may differ”).
  • No Right To Jury Trial As To Any Aspect Of Sec. 285 Fees Award: An award of fees under Sec. 285 is an equitable remedy and there is no right to a jury trial, even on state-of-mind issues. AIA America (Fed. Cir. 08/10/17) (aff’g award of $3.9 Million in fees on account of fraudulent scheme by patent owner).
  • Fees May Be Awarded For Continuing Action After Change In Law Made Action Too Weak To Reasonably Pursue: Inventor Holdings (Fed. Cir. 12/08/17) (aff’g award of $931,903.45 in “post-Alice attorney fees, including fees incurred during the appeal of the district court’s § 101 decision,” even though defendant waited almost 8 months after Alice to file its R. 12(c) motion (to allow for discovery and start of claim construction), “based on the weakness of [the patent owner’s] § 101 arguments and the need to deter similarly weak arguments in the future,” where claims, as in Alice, “directed to a fundamental economic practice” and “implemented using generic computer technology.” (R. 12(c) Sec. 101 invalidity judgment had earlier been affirmed without opinion.)) A party must continually “reassess its case in view of new controlling law.” Inventor Holdings (Fed. Cir. 12/08/17); Taurus IP (Fed. Cir. 08/09/13).
  • Appellate Court Or Trial Court May Award Fees For Appeal Stage: Fed. R. App. Proc. 38 (“If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.”); Walker (Fed. Cir. 01/06/17) (aff’g award of sanction against party who continued litigation post settlement; and awarding fees and double costs on appeal, amounting to $51,801.88, against appellant and its counsel in view of appellant’s “bent to mischaracterize clear authority and to draw illogical conclusions from the law and facts.”); Therasense (Fed. Cir. 03/12/14) (2-1) (aff’g denial of fees for appeal stage); Icon Health (Fed. Cir. 08/25/17) (non-precedential) (aff’g district court’s denial on remand of fees on appeal stage); Inventor Holdings (Fed. Cir. 12/08/17) (aff’g district court award of $931,903.45 in “post-Alice attorney fees, including fees incurred during the appeal.”)
  • One Factor Is Whether Winning Party Promptly Put Losing Party On Notice Of Substantive Weakness Of Its Case: “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.’” Stone Basket (Fed. Cir. 06/11/18) (aff’g denial of fees where winning defendant did not move under Rule 11 or for summary judgment, did not in its invalidity contentions focus on particular cited reference that supposedly made case exceptional, and did not tell patent owner case was exceptional or ask that it be dropped until a year after its invalidity contentions.)
  • Fed. Cir. Cases Overruled In Part By Octane Fitness: “Absent litigation misconduct or misconduct in securing the patent, a case is exceptional under § 285 if ‘(1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.’ Similar to the evaluation under Rule 11, for litigation to be objectively baseless, the allegations “must be such that no reasonable litigant could reasonably expect success on the merits.’” Raylon (Fed. Cir. 12/07/12) (citations omitted); Monolithic (Fed. Cir. 08/13/13) (aff’g award of $8,419,429 attorney fees based on fabrication of evidence; need not show bad faith or baseless litigation if litigation misconduct shown); but see Octane Fitness (U.S. 10/01/2013) (granting cert. to review Fed. Cir.’s 2-part test for exceptional case determination against a patent owner). “Subjective bad faith only requires proof that the ‘lack of objective foundation for the claim ‘was either known or so obvious that it should have been known’ by the party asserting the claim,’” in view of totality of the circumstances. Kilopass (Fed. Cir. 12/26/13) (vacating denial of fees, for failure to adequately consider objective evidence that patentee should have known infringement claim had no basis. Also, suggesting that but for earlier panel rulings, this panel might hold that objective baselessness is enough for trial court to have discretion to award fees and clear and convincing evidence standard should not apply).