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Federal Circuit Clarifies Standard for Awarding Attorneys' Fees in Exceptional Cases
Practical Law Legal Update 7-553-2325 (Approx. 4 pages)
Federal Circuit Clarifies Standard for Awarding Attorneys' Fees in Exceptional Cases
by Practical Law Intellectual Property & Technology
| Published on 26 Dec 2013 • USA (National/Federal) |
In Kilopass Tech., Inc. v. Sidense Corp., the US Court of Appeals for the Federal Circuit vacated and remanded the district court's denial of the accused infringer's request for an award of attorneys' fees under 35 U.S.C. Section 285, finding that actual knowledge that an infringement claim is baseless is not required to succeed on a motion for attorneys' fees. The court held the district court should have considered the totality of the circumstances in evaluating the patent owner's subjective bad faith, including evidence that its claim was objectively baseless.
On December 26, 2013, in Kilopass Tech., Inc. v. Sidense Corp., the US Court of Appeals for the Federal Circuit issued an opinion vacating and remanding the US District Court for the Northern District of California's denial of Sidense's motion for an award of attorneys' fees under 35 U.S.C. Section 285, which authorizes courts to award attorneys' fees to prevailing parties in exceptional cases (No. 2013-1193, (Fed. Cir. Dec. 26, 2013)). The court clarified the exceptionality standard by holding that subjective bad faith does not require proof that the losing party had actual knowledge that its claim was objectively baseless. By finding that subjective bad faith should be evaluated based on the totality of the circumstances, including evidence of objective baselessness, the decision should make it easier for a prevailing accused infringer to recover its attorneys' fees.
Plaintiff Kilopass sued Sidense for infringement of US Patent Nos. 6,940,751, 6,777,757 and 6,856,540, which relate to programmable memory cells. After finding that Kilopass disclaimed claim scope during prosecution and striking late-disclosed infringement theories, the district court granted Sidense's motion for summary judgment of no infringement, which the Federal Circuit summarily affirmed under Federal Circuit Rule 36. While that appeal was pending, Sidense moved for an award of attorneys' fees under 35 U.S.C. Section 285. The district court denied the motion because Sidense failed to prove by clear and convincing evidence that Kilopass brought or maintained its patent suit in bad faith, finding that:
- Kilopass performed substantial pre-filing investigation and obtained opinions from two different law firms that it had a non-baseless claim against Sidense.
- A Kilopass employee analyzed Sidense's product and determined that a suit was appropriate.
On appeal, Sidense argued that the district court erred in not finding the case exceptional because Kilopass' claims were objectively baseless and brought in bad faith. In finding that the district court applied the incorrect legal standard for exceptionality, the Federal Circuit held that:
- To prevail on a motion for attorneys' fees, the moving party does not have to prove that the losing party actually knew its claim was objectively baseless. While actual knowledge is sufficient, bad faith also may be found when the patent owner recklessly should have known that its claim was objectively baseless.
- The district court should have considered the totality of the circumstances in evaluating Kilopass' subjective bad faith, including evidence that the case was objectively baseless. According to the Federal Circuit,
- objective evidence is more important than allegations of subjective good faith or lack of knowledge; and
- objective baselessness alone can create a sufficient inference of bad faith to establish exceptionality, unless the circumstances as a whole show a lack of recklessness on the patentee's part.
- In evaluating whether a case is exceptional, it is judicially efficient for a court to first consider the objective merits of a case and then assess the parties' proofs of subjective intent. The district court erred by focusing first and only on subjective factors.
- The court's opinion in Brooks Furniture Manuf. v. Dutailier, Inc. does not limit the factors that may show subjective bad faith and courts should consider the totality of the circumstances (393 F.3d 1378 (Fed. Cir. 2005)).
Sidense also argued on appeal that the Federal Circuit should change its standard for assessing exceptionality under 35 U.S.C. Section 285 by:
- Removing the requirement that the moving party must show subjective bad faith by the losing party.
- Changing the burden of proof from clear and convincing evidence to a preponderance of the evidence.
While the panel found some merit to these arguments, a majority refused to adopt them because doing so would overrule earlier panel decisions from the court, which may only be done by the court en banc. In a concurring opinion, Chief Judge Rader endorsed Sidense's proposed changes.
By clarifying the standard for exceptional cases, the Kilopass decision may curb litigation excesses and misconduct in patent cases by making it easier for district courts to award attorneys' fees to prevailing accused infringers. Perhaps motivated by similar concerns, the Supreme Court granted certiorari in two cases this term that also address the exceptionality standard under 35 U.S.C. Section 285 (Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.).