Federal Circuit Affirms Exceptional Case Finding And Award Of Attorneys’ Fees
On October 14, 2021, the Court of Appeals for the Federal Circuit (CAFC) affirmed the decision of the United States District Court for the District of North Dakota awarding attorneys’ fees on remand after it had previously found a patent unenforceable due to inequitable conduct. Energy Heating, LLC v. Heat On-The-Fly, LLC, __ F.4th __ (Fed. Cir. Oct. 14, 2021).
The underlying litigation involved a dispute between companies that compete in providing water-heating services during fracking. After assertions of potential patent infringement were raised during negotiations between the companies, plaintiffs-appellees sought a declaratory judgement that, among other things, the patent was unenforceable due to inequitable conduct.
At trial, the district court concluded that the patent was unenforceable due to inequitable conduct because it would not have issued but for the deliberate decision to withhold information from the Patent Office regarding substantial on-sale and public uses of the claimed invention before the patent’s critical date, and that the information was withheld with an intent to deceive the Patent Office. However, the district court denied a subsequent request for attorneys’ fees under 35 U.S.C. § 285. The parties appealed the district court’s various findings, and, relevant to this appeal, the CAFC vacated the decision denying an award of attorneys’ fees, and remanded the issue to the district court for reconsideration. On remand, the district court adopted a magistrate judge’s finding that an award of attorneys’ fees is appropriate. In doing so, the district court referenced the significant number of undisclosed prior sales and the amounts the company received from those sales, as well as that the company pursued claims of infringement without any apparent attempt to minimize litigation costs despite its knowledge that its patent was invalid.
Under § 285, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” An “exceptional” case under § 285 is “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.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014).
On appeal, defendants-appellants raised three challenges to the district court’s exceptionality finding: (1) that the district court based its decision on erroneous factual findings, (2) that the district court failed to address, or properly weigh, the factors relevant to an exceptional case finding and (3) that the district court failed to properly apply the relevant law.
With respect to the first challenge, the CAFC rejected defendants-appellants’ argument that the district court erroneously credited the jury’s bad-faith finding because, allegedly, that finding was exclusively tied to a claim for tortious interference. The CAFC explained that it was within the district court’s equitable discretion to consider—as part of the totality of the circumstances—that defendants-appellants had made representations in bad faith that they held a valid patent. The CAFC further rejected two additional arguments related to this first challenge: (1) that the district court’s finding that defendants-appellants did not commit the tort of deceit necessitated a finding that defendants-appellants did not engage in inequitable conduct, and (2) that the district court on remand erroneously failed to address factual findings purportedly made in the district court’s order denying fees before the first appeal. The CAFC explained that (1) the jury’s finding of no state-law “deceit” simply has no bearing on inequitable conduct and (2) the district court’s previous order is inapposite because the CAFC vacated it.
With respect to the second challenge, the CAFC rejected defendants-appellants’ argument that the district court improperly failed to address or weigh relevant factors such as (1) the strength or weakness of the litigation position, (2) the absence of a finding of litigation misconduct and (3) the Patent Office’s subsequent allowance of certain continuation applications that claim priority to the unenforceable patent. The CAFC explained that (1) the district court provided ample support for its conclusion that the litigation position was substantively weak; (2) while the manner or broader conduct of litigation is relevant, the absence of litigation misconduct is not separately of mandatory weight, and, therefore, the district court was not required to affirmatively weigh a purported lack of litigation misconduct; and (3) the subsequent allowance of certain continuation applications was properly found to be of little or no relevance because, e.g., the continuation applications concern different claims than the unenforceable patent.
With respect to the third challenge, the CAFC rejected defendants-appellants’ contention that the district court misapplied the law because it, allegedly, viewed an inequitable conduct finding as mandating a finding of exceptionality. The CAFC explained that the district court correctly explained, to the contrary, that, in fact, a finding of inequitable conduct does not mandate a finding of exceptionality (although often an exceptional case determination does follow a finding of inequitable conduct).