The Patent Act authorizes discretionary awards of “reasonable attorney’s fees” to “prevailing parties” in “exceptional” patent cases. 35 U.S.C. §285. Before the Supreme Court’s ruling last year in Octane Fitness, LLC v. Icon Health & Fitness, Inc., an “exceptional” case required clear and convincing evidence of either “material inappropriate conduct” or proof that the case was both “objectively baseless” and “brought in subjective bad faith.” Octane Fitness rejected this standard as “unduly rigid” and instead held that an “exceptional” case is one where a preponderance of evidence establishes that a case “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”. The Supreme Court in Highmark Inc. v. Allcare Health Mgmt. Sys. Inc., next held that abuse of discretion and not de novo is the correct standard for appellate review of an exceptional case awards.
Since Octane Fitness, a sample of district court fee award rulings reveal conduct that most attorneys would also consider, “exceptional”:
- A patentee’s objectively baseless construction of a claim term that contradicted both the plain meaning of the term and the patentee’s use of the term in the patent. Segan LLC v. Zynga Inc. (N.D. Cal. 2015).
- A defendant and named inventor’s incorrect, inaccurate, evasive, misleading, contradictory testimony, and altering, falsifying, and back-dating documents, in an effort to defeat plaintiff’s claim of co-inventorship. Falana v. Kent State Univ. (N.D. Ohio, 2014)
- Plaintiff’s failure to acknowledge that his patented method of participating in a live casino game did not cover defendant’s casino game that was performed partly outside of the U.S. Home Gambling Network, Inc. v. Piche (D. Nev., 2014), and, his failure to adopt a claim construction position consistent with his patent file history and as required by the doctrine of prosecution history estoppel. Id.
- Plaintiff’s false declarations to swear behind prior art to obtain patents, apparent knowledge of the falsity thereof, and failure to correct the PTO record before filing suit. Intellect Wireless, Inc. v. Sharp Corp. (N.D. Ill., 2014).
- Plaintiff’s claim construction positions that contradicted (or that were “weak” in light of) the patent, testimony of plaintiff’s expert, and the prosecution history; plus additional evidence of litigation misconduct intended to increase costs to defendant, and dubious proof of an alleged pre filing analysis. Icon Health v. Octane Fitness, LLC (D. Minn., 2015)
A recent case however, Deep Sky Software, Inc. v. Southwest Airlines. Co., Case No. 3:10-cv-01234 (CASD) extends the reach of Octane Fitness to fees incurred by prevailing parties in PTO post-grant proceedings and may lead to many (more) sleepless nights for patent prosecutors. Plaintiff Deep Sky Software filed suit against Southwest Airlines and the parties stayed the action to pursue an inter partes reexamination. The examiner rejected the claims as obvious over submitted prior art. The plaintiff submitted a declaration to prove a prior date of conception and diligent reduction to practice and referenced a software product, VSFlexGrid, that plaintiff averred was “key” to the development and implementation of the claimed invention. Southwest Airlines countered, and the examiner agreed, that VSFlexGrid fully embodied the claimed invention and that plaintiff did not invent anything but rather merely implemented the VSFlexGrid as was intended. On appeal, the PTAB did not reach a conclusion based on the VSFlexGrid reference and arguments and upheld rejection of the patent as obvious over other prior art references.
The court subsequently lifted the stay and Southwest moved to have the case declared exceptional under 35 U.S.C. § 285 alleging inequitable conduct. Inequitable conduct under Therasense, Inc. v. Beckton, Dickenson and Co. requires proof of conduct that was deliberately and knowingly wrong and that prejudiced the issuance of the patent. In its ruling the Deep Sky court found inequitable conduct and declared the case exceptional. The court found plaintiff’s non-disclosure of VSFlexGrid was material to the prosecution of the patent and premised the patent grant. The district court found plaintiff’s “decision” to withhold disclosure of VSFlexGrid during the initial prosecution of the patent, and to affirmatively represent that commercially available programs did not have the claimed capability of the invention, was sufficient to find inequitable conduct. The court ultimately awarded Southwest Airlines almost $400,000 in attorney’s fees – most of which were incurred in the inter parties reexamination proceeding.
What’s particularly troubling about this case is the court’s apparent reliance on the examiner’s conclusion that the patent wholly embodied the VSFlexGrid software. The court did not separately compare the scope of the claims with the VSFlexGrid software and critical question of whether in fact the patent merely embodied the software as it was intended to be used, or whether the software was as plaintiff claimed, missing several claimed features and merely a “toolkit” that could be used to develop database programs. The outcome of the omitted inquiry weighs heavily in the determination of inequitable conduct. In other words, while there is little doubt that the VSFlexGrid was material to the prosecution of the patent, whether it embodied the claimed invention or was merely a tool impacts both determinations of plaintiff’s intent and prejudice to the issuance of the patent. The court’s ruling omits any independent analysis and fact finding.
The Deep Sky case introduces new concerns for patent plaintiffs. Patentees should be aware that courts can and will award fees under 35 U.S.C. § 285 for work performed in PTAB proceedings, and patent application pre-filing conduct will be more closely scrutinized.