Federal Circuit: An Isolated Act May Render A Case "Exceptional"

This morning the Federal Circuit handed down a precedential opinion in Intellectual Ventures I LLC v. Trend Micro Inc. (opinion by Judge Stoll, joined by Judges Dyk and Taranto).  In 2010, Intellectual Ventures filed  an infringement action against Trend Micro, Symantec, and two other defendants.  The Trend Micro and Symantec cases were severed, and the Symantec case went to trial.  During the course of that trial, Intellectual Ventures's expert changed his opinion regarding a matter of claim construction.  Eventually, the Federal Circuit held that the claims in suit recited unpatentable subject matter, as a result of which the district court then entered judgment for the defendant in the parallel Trend Micro case.  On appeal now was the district court's finding that the Trend Micro case was "exceptional," and thus merited an award of attorneys' fees.  The Federal Circuit holds that, while an isolated act may render a case exceptional, it was unclear whether the district court applied the correct legal standard (pp. 4-7):

Trend Micro . . . moved for attorney fees under § 285, requesting that the court declare the case exceptional due to the circumstances surrounding Intellectual Ventures’s expert’s changed opinion. Ruling from the bench, the district court granted Trend Micro’s motion. The district court concluded that Intellectual Ventures’s conduct was exceptional “solely with respect to this collection of circumstances regarding [its expert’s] changed testimony.” J.A. 58–59. Considering “whether the case overall is exceptional,” however, the district court expressly “f[ou]nd it was not.” J.A. 57. The district court also concluded that “it would be wrong to say that [Intellectual Ventures’s] case was objectively unreasonable.” J.A. 56. After reviewing the parties’ briefing regarding accounting, the district court awarded Trend Micro $444,051.14 in attorney fees. . . .

It is not clear that the district court applied the proper legal standard when it considered whether the case was exceptional under § 285. The district court considered “whether [Intellectual Ventures’s] case was objectively unreasonable” and concluded “it was not.” J.A. 56. The district court also considered “whether the case overall is exceptional” and concluded “it was not.” J.A. 57. Nonetheless, the district court found that the circumstances surrounding the expert’s changed opinion “stand out from other cases, [and] from all the other portions of this case[,] in terms of either the substantive strength of a position [Intellectual Ventures] was advocating or the manner with which [Intellectual Ventures] was litigating.” J.A. 58. The district court determined that the circumstances surrounding the expert’s changed opinion alone were “exceptional, st[ood] out, and [met] the standard of Section 285.” J.A. 59.

Instead of determining whether the case was exceptional, it appears that the district court may have focused on whether one discrete portion of the case stood out “from other cases, from all the other portions of this case[,] in terms of either the substantive strength of a position [Intellectual Ventures] was advocating or the manner with which [Intellectual Ventures] was litigating.” J.A. 58. This is not the appropriate analysis. Section 285 gives the district court discretion to depart from the American Rule and award attorney fees “in exceptional cases.” Accordingly, under the statute, the district court in this case should have determined whether the circumstances surrounding the expert’s changed opinion were such that, when considered as part of the totality of circumstances in the case, the case stands out as exceptional.

Intellectual Ventures argues that a district court may never find a case exceptional based on a single, isolated act. According to Intellectual Ventures, a case is exceptional only when there are “repeated instances—i.e., a pattern—of bad faith, sharp tactics, and unreasonable litigation positions.” Reply Br. 3. The district court made clear that it did not view the circumstances surrounding the expert’s changed opinion as a single, isolated act. Regardless, we decline Intellectual Ventures’s invitation to adopt this bright-line rule.

We hold that a district court has discretion, in an appropriate case, to find a case exceptional based on a single, isolated act. The Supreme Court has made clear that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Octane, 572 U.S. at 554. The Court has also explained that “[t]here is no precise rule or formula for making these determinations,” and disapproved a formulation that “superimpose[d] an inflexible framework onto statutory text that is inherently flexible.” Id. at 554–55 (first alteration in original) (citation omitted). Rather, “[section] 285 commits the determination whether a case is ‘exceptional’ to the discretion of the district court.” Highmark, 572 U.S. at 563. Whether the conduct is a single, isolated act or otherwise, the relevant question for the district court is the same. The district court must determine whether the conduct, isolated or otherwise, is such that when considered as part of and along with the totality of circumstances, the case is exceptional, i.e., the case stands out among others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated. Octane, 572 U.S. at 554.

Trend Micro notes that courts frequently award attorney fees under § 285 in an amount related to particular conduct and circumstances that stood out and made a case exceptional, even when the entirety of the conduct in the case was not exceptional from start to finish. This is, of course, true. For example, in Rembrandt Technologies, we explained that after determining that a case is exceptional, a court must award fees in an amount that “bear[s] some relation to the extent of the misconduct.” In re Rembrandt Techs. LP Patent Litig., 899 F.3d 1254, 1278 (Fed. Cir. 2018) (quoting Rambus Inc. v. Infineon Techs. AG, 318 F.3d 1081, 1106 (Fed. Cir. 2003)). But in all such cases we have required a finding of an exceptional case—not a finding of an exceptional portion of a case—to support an award of partial fees. See, e.g., id.; Beckman Instruments, Inc. v. LKB Produkter AB, 892 F.2d 1547, 1553 (Fed. Cir. 1989). Because the district court did not find that the case overall was exceptional, we vacate its finding of exceptionality under § 285 and remand for an analysis under the proper legal standard.