Nearly six years ago, the Supreme Court in Octane Fitness v. ICON Health & Fitness promulgated a “totality of the circumstances test” for awarding reasonable attorney fees to the prevailing party in exceptional cases under 35 U.S.C. §285. As lower courts have applied this standard, it has become clear that the motivation and conduct of the losing party is a focal point of the exceptionality analysis. However, two recent decisions emphasize that bad faith arguments and litigation tactics—by both parties and in all stages of litigation—are critical to the exceptionality analysis in Section 285 attorney fee awards.
By way of background, Section 285 permits courts, in exceptional cases, to award reasonable attorney fees to the prevailing party. Using the totality of the circumstances test, courts consider factors such as frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case). However, exceptional cases are rare—reserved for circumstances where a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify an award of fees.
First, the Western District of Louisiana in Total Rebuild Inc. v. PHC Fluid Power, LLC, concluded that although the plaintiff’s patent was found unenforceable due to inequitable conduct, the case was not exceptional, due to the defendant’s “counter-productive and cost-increasing litigation tactics.” The defendant’s unscrupulous actions included: (1) not informing the court in its opening brief that the plaintiff proposed a “walkaway” settlement offer; (2) evidence suggesting that the defendant’s motive was to deny the “walkaway” settlement, seek judgment against the plaintiff, and file a motion for sanctions to hit the plaintiff—a competitor—with a large judgment; and (3) not engaging in any meaningful settlement discussions. This amounted to “objective unreasonableness.” Due these bad faith litigation tactics, the court refused to allow the defendant to “benefit from fueling an environment that increased the cost to litigate this case.”
Second, a magistrate judge in the Southern District of New York in EMED Technologies v. Repro-Med Systems, recommended finding the case exceptional and granting nearly $1 million in attorney fees due to the plaintiff’s bad faith shortly after granting a summary judgment of noninfringement. Surprisingly, the magistrate judge based its attorney fee analysis in large part on the plaintiff’s claim construction position. According to the magistrate, based on Federal Circuit precedent and the patent’s prosecution history, it was bad faith to initiate the litigation despite knowing the “conventional” construction of the claim term “consisting of” as used in the claim. And, although the court ruled in plaintiff’s favor on other claim terms, “EMED’s success in that regard does not render any less unreasonable its objectively baseless construction and application of the closed mechanical fastener element.” The court also cited additional examples of the plaintiff’s bad faith, including: (1) filing the action in the incorrect venue; (2) filing a motion for preliminary injunction; and (3) pressing on with the litigation “even after claim construction and the Court’s ruling against it.” Although the district court judge has yet to affirm this report and recommendation, the magistrate’s opinion is instructive.
Taken together, these cases illustrate that practitioners should be mindful of reasonableness and decorum. Courts are unlikely to find a case exceptional and award attorney fees if the prevailing party refuses reasonable requests for extensions of time or calls opposing counsel inappropriate names, as in Total Rebuild. Along those same lines, practitioners should also avoid counterproductive and cost-increasing litigation tactics. Tactics such as filing useless motions, taking objectively unreasonable positions, refusing to engage in meaningful settlement discussions, and excessive billing are all not only unprofessional (and potentially unethical), but may be used as fodder by an adversary to support an exceptional case fee award. It is important to also remember that the entire record is scrutinized in a Section 285 analysis. Baseless or unsupportable motions or positions, even at the start of a case, may come back to bite you and your client.