Federal Circuit Affirms District Court Exceptional Case Finding Under Section 285
05/07/2019On May 1, 2019, the Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion affirming a grant of attorney’s fees and costs under 35 U.S.C. § 285 by the United States District Court for the Southern District of California. Thermolife Int’l LLC et al. v. GNC Corp. et al., __ F.3d__ (Fed. Cir. May 1, 2019). The CAFC ruled that the district court had correctly decided that the (consolidated) cases were exceptional under § 285 because plaintiffs failed to conduct an adequate pre-filing investigation and because they engaged in a pattern of bringing suit against numerous defendants without carefully reviewing their claims.
Section 285 of the United States patent laws authorizes an award of fees to a prevailing party in “exceptional” cases. “An exceptional case is one that, under the totality of the circumstances, ‘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.’” Id. (quoting Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014)).
The patents-at-issue involve claims on compositions (and methods of using the compositions) of certain amino acids that are ingested to enhance vascular function and physical performance. Some of the asserted claims require efficacy in producing physiological results, while others explicitly enumerate a particular amount of the amino acids. With respect to the claims requiring efficacy, plaintiffs’ own expert testified that 1 gram of an amino acid was known to be ineffective, and, thus, products with 1 gram or below would not infringe the claims. In their pre-suit investigation, plaintiffs relied on advertisements of defendants’ products and labels on the products, but did not conduct any testing to determine the amount of the amino acids contained therein. Defendants’ products indisputably contained less than 1 gram of the amino acid. However, due to an agreement between the parties to first litigate validity before infringement—and because the claims were found invalid on summary judgment—infringement was never adjudicated.
Notwithstanding, the district court found the cases exceptional, relying on its conclusion that plaintiffs were unjustified in alleging infringement in the first place—having failed to do an adequate pre-filing investigation. The district court’s exceptional case finding was unusual because, typically, exceptional case findings are based on an assessment of the strength of the positions actually litigated (or on how plaintiffs litigated). Here, the exceptional case finding was premised not on the issue that disposed of the proceedings (i.e., validity), but rather on infringement, in combination with plaintiffs’ pattern of litigation practices (i.e., early settlements for low-dollar amounts, targeting plaintiffs with a small number of sales, asserting expired patents, and the quantity of infringement lawsuits that plaintiffs brought).
The CAFC affirmed. In doing so, the CAFC rejected the argument that the district court abused its discretion by resting its exceptional case determination on an examination of an issue that was neither fully adjudicated nor even fully litigated before the judgment on the merits. The CAFC further rejected the argument that defendants should be denied a fee award because they did not give early notice (e.g., by filing a Rule 11 motion) of the defects in plaintiffs’ infringement assertions. With respect to the infringement issue itself, the CAFC found that while “testing of an accused product is not necessarily a required part of an adequate pre-filing investigation,” in this case, it was not error for the district court to find that there was “no adequate substitute for simple testing” of the publicly available products. With respect to the district court’s finding on plaintiffs’ “pattern of action,” the CAFC found that this finding was ultimately tied to the finding that plaintiffs failed to conduct an adequate pre-suit investigation into infringement. The CAFC did note, however, that, alone, the “pattern” evidence would not have been sufficient for an exceptional case finding, as there could be legitimate reasons, e.g., numerous lawsuits and low-dollar settlement amounts.
The import of this case is that district courts have wide latitude in examining the totality of the circumstances that might weigh in favor of an exceptional case finding—which circumstances include issues that were not fully adjudicated in the litigation.