CAFC Encourages Awards of Fee Shifting in Kilopass v. Sidense

In Kilopass Tech., Inc. v. Sidense Corp. (Fed. Cir. December 26, 2013), in a 2-1 decision, the majority suggested that the fee shifting provisions of 35 U.S.C. §285 have broader application and are not applicable only when subjective bad faith and objective baseless claims are found. The push for broader application for the existing fee shifting statutory provisions is particularly relevant since there has been an increase in media coverage about certain abusive litigation tactics of patent trolls. This case might signal a nod to the district courts to apply the fee shifting provisions when trolling behaviors are practiced by the patent owner.

In this case, the District Court focused on the subject of bad faith prong and the objectively baseless prong to prove that the case is exceptional as required under 35 U.S.C. §285 for the fee shifting provisions to kick in. However, the Federal Circuit reiterated that 35 U.S.C. §285 allows for fee shifting in other situations than solely in those situations where the objective and subjective prongs are proven.

The Defendant (Sidense) was granted summary judgment holding that Sidense did not infringe the patent owner’s patent (Kilopass). Thereafter, the Defendant filed a motion in the District Court seeking an award of attorney’s fees under 35 U.S.C. §285, which the District Court denied. Sidense then appealed. This case provides a litany of points argued by the defendant as to why attorney fees should be awarded.  The Federal Circuit agreed on some but rejected others.

Normally, under U.S. law, each of the parties in a lawsuit pays for their own attorney’s fees. However, under exceptional circumstances, current U.S. patent laws allow the courts to shift the payment of the winner’s attorney fees to the losing party.

Under Brooks Furniture Mfg. v. Dutailier, Inc., 393 F.3d 1378 (Fed. Cir. 2005), a case may be deemed 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, vexatious or unjustified litigation, conduct that violates Federal Rule of Civil Procedure 11, or like infractions. Absent misconduct in 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. Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49, 60 – 61 (1993).

The first argument made by Sidenese was that the District Court erred by requiring the patent owner to actually know that his or her case had no objective foundation before the case is deemed to be exceptional, relying on Marctec, LLC v. Johnson & Johnson, 664 F.3d 907 (Fed Cir. 2012). The Federal Circuit agreed that the patent owner need not have actual knowledge that the alleged patent infringement was baselessThe Federal Circuit pointed to Highmark, Inc. v. Allcare Health Management, 687 F.3d 1300 (Fed. Cir. 2012) and indicated that subjective 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.” (emphasis added).  Actual knowledge is not required. The Federal Circuit reckoned that this is similar to the standard for recovering attorney’s fees under §285 for willful infringement wherein the Defendant need only prove reckless conduct to satisfy the subjective component of the §285 analysis.

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Moreover, the Federal Circuit faulted the District Court for having too narrow of a view of the proof that can satisfy the subjective prong of the §285 analysis. The District Court only looked at evidence that indicated good faith. However, the Federal Circuit stated that subjective bad faith must be based on the totality of circumstances including, but not limited to, factors such as failure to conduct an adequate pre-suit investigation, vexatious or unduly burdensome litigation tactics, misconduct in procuring the patent, and oppressive purpose. At least in the present case, the Federal Circuit is encouraging the court to look at other factors which might show subjective bad faith, including the objective factors. The court even said that “[o]bjective baselessness alone can create a sufficient inference of bad faith to establish exceptionality under §285” if there is recklesness.  This broadening statement seems especially relevant to the discussion on how to reign in the abusive litigation tactics of patent trolls or Non Practicing Entities.

The second argument that Sidense made was that it should not even be required to prove that Kilopass acted in bad faith to show an exceptional case just to obtain an award of attorney fees. Sidense viewed the legislative history as showing that §285 was meant to prevent gross injustice to an alleged infringer and Sidense wanted gross injustice to be the standard, not the objective and subjective prongs. However, the Federal Circuit declined to alter the standard in light of the United States Supreme Court’s decision in Professional Real Estate Investors, which was viewed as consistent with the current standards.

Even though the District Court declined to shift the attorney’s fees, the Federal Circuit urged the District Court on remand to look at all the evidence and suggested that fee shifting might be appropriate in this case.  As explained above, a wide variety of proofs can provide the requisite showing of bad faith under §285, which must be assessed in light of the totality of circumstances. Objective baselessness alone can create a sufficient inference of bad faith to establish exceptionality under §285, unless the circumstances as a whole show a lack of recklessness on the patentee’s part.  In this case, the patent owner had gone through multiple patent attorneys, all giving incomplete or non-infringement opinions suggesting that the claims might be baseless, so there may well be a basis for recklessness.

The third argument Sidense made was that the clear and convincing evidentiary standard required to prove exceptionality was too high. The Federal Circuit applauded Sidense for making good-faith arguments asking for changes in the current law. However, the Federal Circuit refused to do so.

The fourth argument Sidenese made was  that court should depart from the requirement that a case be objectively baseless to support fee shifting in the absence of litigation misconduct or misconduct in securing the asserted patent. Sidenese suggested that fee shifting should be appropriate when a patentee has filed and or maintained a patent infringement suit having little likelihood of success, under circumstances where it would be “unjust” for the prevailing defendant to bear its own attorney’s fees. Put simply, Sidense argued that because of the objective prong, the fee shifting provisions have only limited application. The Federal Circuit disagreed.  Prior case law indicated that the objective and subjective prongs are not the only means by which a case can be deemed exceptional under §285. Rather, the court indicated that willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Federal Rule of Civil Procedure 11 or like infractions can also trigger §285 and make the case exceptional. Proving objective baselessness and subjective bad faith is just one avenue for seeking fee shifting under §285.  By doing so, the Federal Circuit appears to be encouraging the District Courts to allow for fee shifting in more circumstances, and not solely to circumstances where the objective and subjective prongs are met.

In footnote 6 of the opininon, the majority opinion clarified that this opinion does not overrule Brooks Furniture and give trial courts flexibility to award fees. The majority did not see the need to do so in order to give the trail courts the flexibility to award fees.  Rather, the majority stated the Brooks Furniture framework requires a showing of objective baselessness and subjective bad faith only where other grounds for an award of fees do not exist. Simply put, the Federal Circuit is indicating that the courts must find some basis for shifting fees but that the existing standard provides sufficient flexibility to award fees if necessary.

Although this was not a trolling case, the Federal Circuit appears to be encouraging District Courts to award attorney fees to the winning party in cases where the objective and subjective prongs are not present such as when trolling behavior might be identified.  This case may help  offer a basis for some politicians to argue that legislation is not needed to curb patent trolls since the “clarification” of §285 gives the district courts an adequate way to handle any abusive litigation tactics by patent trolls.   Moreover, as suggested by Todd Dickenson, Congress should allow the provisions in the America Invents Act and the existing rules and laws for discouraging abusive litigation tactics such as §285 to take effect before new legislation is undertaken. If Congress were to legislate away supposedly abusive litigation tactics, then the concern is that the legislation would be detrimental to favored non-practicing entities such as universities and solo inventors, with the net effect of throwing the baby out with the bath water.