On
December 26, 2013, the U.S. Court of Appeals for the Federal Circuit published
its opinion in Kilopass Tech., Inc. v.
Sidense Corp., No. 2013-1193, available here. Patently-O and IPKat have already reported on
the decision, but I thought it would be worthwhile to add my two cents’ worth as well.
Plaintiff
sued defendant for infringement of a patent directed to a programmable memory
cell. The district court concluded that
the defendant’s product did not infringe and granted summary judgment for the defendant;
the Federal Circuit summarily affirmed. While
the appeal was pending, the defendant filed a motion for attorneys’ fees,
which the district court denied. The
defendant appealed this determination, and the Federal Circuit vacated and remanded.
Writing
for the court, Judge O’Malley went through the requirements under current law
for the prevailing defendant to recover its attorneys’ fees. First, the court determines whether the
prevailing party has proven by clear and convincing evidence—a higher standard
of proof than the normal “preponderance of the evidence” standard—that the case
is “exceptional,” as required by 35 U.S.C. § 285. Quoting the Federal Circuit’s 2005 decision
in Brooks Furniture, Judge O’Malley
noted that a case may be exceptional “when there has been some material
inappropriate conduct related to the matter in litigation, such as willful
infringement, fraud or inequitable conduct in procuring the patent, misconduct
during litigation, conduct that violates [Federal Rule of Civil Procedure] 11,
or like infractions. . . . Absent misconduct
in the litigation or in securing the patent, sanctions may be imposed against the
patentee only if both (1) the litigation is brought in subjective bad faith,
and (2) the litigation is objectively baseless.” Second,
if the case is exceptional, the court then determines whether a fee award is
appropriate.
The
issues on appeal centered on the subjective bad faith/objective baselessness
standard as applied to prevailing defendants.
One question was whether, as some previous Federal Circuit cases had
suggested, the subjective bad faith requirement can be satisfied only if the plaintiff
has actual knowledge that its infringement claim was baseless. Noting, among other things, that such a requirement
arguably would put prevailing defendants at a disadvantage in comparison with prevailing
plaintiffs (who can show exceptionality based on willful infringement, which requires
only evidence of recklessness), and that this is one of the bones of contention
in one of the two § 285 cases currently pending before the Supreme Court, Judge
O’Malley concluded that the case law requiring actual knowledge is not
controlling: all that is required is
that the defendant acted recklessly, meaning that the objective baselessness of
the claim was either known to the plaintiff or was so obvious that the
plaintiff should have known it was baseless.
In addition, subjective bad faith is a totality of the circumstances
inquiry; and because it can be difficult to prove subject bad faith by direct evidence, a court
should consider objective baselessness, which itself may be circumstantial
evidence of subjective bad faith, first.
Judge
O’Malley also discussed the defendant’s arguments that the court should do away
with the subjective prong and the “clear and convincing evidence” standard altogether,
and that it should allow defendants to recover fees as long as the plaintiff’s
claim had an “objectively low likelihood” of success. Judge O’Malley expressed some sympathy for
the first two arguments, but concluded that the panel was bound by Federal
Circuit precedent on these issues. As for the third
argument, she expressed concern that allowing fees to be recovered when the
plaintiff has a reasonable but weak claim of infringement was not the intent of
Congress in enacting § 285, and might conceivably interfere with the First
Amendment right to petition the government.
(I rather doubt this, but I’ll be giving the matter some further
consideration.) Concurring, Chief Judge
Rader “endorsed” the objective-baselessness-alone and preponderance-of-the-evidence
arguments, and argued that the correct approach for determining exceptionality
is the totality of the circumstances test.
As
I have noted before, Chief Judge Rader is already on record in favor of
awarding prevailing defendants their attorneys’ fees more frequently than is
currently done; the Supreme Court may weigh in on the issue, as noted above (see here); and the House of Representatives passed a bill late last year
that if signed into law would allow fee awards when the plaintiff’s
position is not “reasonably justified,” whatever that means (see here and here). As I note in my book (see pp. 148-49), the economic
literature expresses conflicting views as to whether routine awards of attorneys’
fees are good (because they discourage losing claims from being brought) or bad
(because they encourage parties with strong claims to overlitigate); others may be worried that routine fee-shifting discourages some meritorious claims, particularly by less well-off entities. In any event, many, though not all, countries routinely award fees to the prevailing
party, though often not in the full amount incurred. But routine fee-shifting doesn’t appear to be
on the table in the U.S. Instead, the question now
facing the courts and Congress is whether awarding fees in a somewhat greater
number (but probably still a minority) of cases would be a good idea, or
whether the costs (in terms of deterring meritorious claims, as well as the
costs of satellite litigation to determine whether whatever standard applies has been
satisfied or not) outweigh the benefits.
One of my research projects over the next year will be to focus on the
comparative law and economics of various approaches to defining and responding
to "wrongful" patent litigation, so I will be giving a good deal of thought to these
and other related issues over the course of the next several months.
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