The Federal Circuit Clarifies the Standard for Obtaining Attorneys’ Fees in Patent Cases

In a recent decision, the Federal Circuit held that a “smoking gun” is not required to prove that a lawsuit was brought in bad faith, thereby making it easier to prove that a prevailing defendant is entitled to recover its attorneys’ fees. See Kilopass Tech., Inc. v. Sidense Corp., — F.3d —, 2013 WL 6800885, No. 2013-1193 (Dec. 26, 2013).

The issue of fee-shifting in patent litigation has received a lot of attention lately. In December, the House of Representatives passed the “Innovation Act” which would require courts to award prevailing parties reasonable fees and other expenses incurred in connection with infringement actions unless the position and conduct of the nonprevailing party was reasonably justified. See H.R. 3309, 113th Cong. (2013). Companion legislation is still working its way through the Senate. Moreover, the Supreme Court recently agreed to review a Federal Circuit decision that denied attorneys’ fees to a prevailing party. See Icon Health & Fitness, Inc. v. Octane Fitness, LLC, 496 Fed. Appx. 57 (Fed. Cir. Oct. 24, 2012), cert. granted, 134 S. Ct. 49 (U.S. Oct. 1, 2013). Also, Federal Circuit Chief Judge Rader co-authored an editorial in the New York Times suggesting that district court judges should be more willing to grant attorneys’ fees in patent cases. See Rader, Chien, and Hricik, “Make Patent Trolls Pay in Court,” N.Y. Times, A25, June 5, 2013 (“To make sure Section 285 is implemented with appropriate vigor, judges must look more closely for signs that a patent lawsuit was pursued primarily to take improper advantage of a defendant — that is, using the threat of litigation cost, rather than the merits of a claim, to bully a defendant into settling.”).

Section 285 of the Patent Act allows a court to award the prevailing party in a patent case its reasonable attorneys’ fees in “extraordinary cases.” A determination of whether to award attorneys’ fees under § 285 involves a two-step process. The prevailing party must show by clear and convincing evidence both that:

  1. The litigation was brought in subjective bad faith; and
  2. The litigation is objectively baseless.

The Federal Circuit’s decision in Kilopass clarified that a broad range of objective evidence could satisfy the subjective bad faith prong. Id. at *9.

The plaintiff Kilopass Technology, a maker of computer memory cells, alleged infringement of three of its patents by its industry rival, Sidense. Before filing suit, Kilopass determined that Sidense did not literally infringe its patents, but nonetheless asserted infringement based on the doctrine of equivalents. The district court ultimately granted Sidense summary judgment of noninfringement, reasoning that Kilopass ignored numerous differences between the patent claims and the accused products and had inappropriately shifted its theories of infringement over the course of litigation.

Nevertheless, the district court denied Sidense’s motion for attorneys’ fees under § 285, focusing on evidence of good faith on Kilopass’s part, including opinions of counsel and Kilopass’s own independent infringement analysis.  On appeal, the Federal Circuit vacated the district court’s denial of the motion for fees and remanded “for consideration of whether Kilopass acted in bad faith in light of the totality of the circumstances—with particular attention paid to the objective merits of Kilopass’s claims and other objective evidence indicative of bad faith.” Id. The Federal Circuit held that the district court erred “by taking too narrow a view of the proof that can satisfy the subjective prong of the § 285 analysis.” Id. at *8. For the bad faith prong to be satisfied, it is not necessary that the party asserting the patent have actual knowledge that its infringement claims are baseless. “[S]ubjective bad faith only requires proof that the lack of objective foundation for the claim was either known or so obvious that it should have been known by the party asserting the claim.” Id. at *7 (emphasis added). As a result, objective evidence of bad faith can satisfy this prong.

The court clarified that the proper test for satisfying subjective bad faith is “the totality of the circumstances.” Id. at *8. In particular, the court noted “[t]he primacy of objective evidence over assertions of subjective good faith or lack of knowledge is well established in our § 285 case law.” Id. Focusing only on subjective factors is inadequate because “[s]ubjective bad faith is difficult to prove directly, essentially requiring the discovery of a smoking gun, and evidence of a lack of subjective bad faith is easy to provide.” Id.

Additional circumstantial factors from which a court can draw an inference of subjective bad faith include:

  1. The failure to conduct an adequate pre-suit investigation;
  2. Vexatious or unduly burdensome litigation tactics;
  3. Misconduct in procuring the patent; or
  4. An oppressive purpose for the litigation.

Id. at *9.

The court further noted that while technically both subjective bad faith and objective baselessness must be shown under § 285, in many cases the two prongs will be combined because “[o]bjective baselessness alone can create a sufficient inference of bad faith to establish exceptionality under § 285.” Id at *11. As a result, “the retention of the subjective bad faith requirement may prove to have little effect on this case, as well as many that follow.” Id.

By clarifying that objective baselessness can satisfy the subjective bad faith prong, this decision should make it easier for prevailing parties in patent cases to recover attorneys’ fees under § 285.