The U.S. Court of Appeals for the Federal Circuit reversed a district court decision awarding of attorneys’ fees under 35 U.S.C. §285, focusing on the “exacting standard” for enhanced damages and attorneys’ fees and finding the objective inquiry identical to the “objective recklessness” standard established in Seagate for willful infringement.  Old Reliable Wholesale Inc. v. Cornell Corp., Case No. 10-1247, 2011 WL 891560 (Fed. Cir., Mar. 16, 2011) (Mayer, J.).

The district court invalidated the asserted patent for anticipation and obviousness on summary judgment.   The summary judgment ruling came after both the named inventor and plaintiff’s expert conceded during depositions that the accused device and the anticipatory prior art did “[e]xactly the same thing.”   The invalidity ruling received a Rule 36 affirmance on appeal. 

Later the district court awarded attorneys’ fees, finding the case exceptional.   The award of attorneys’ fees was limited, however, to those fees incurred after the inventor admitted in his deposition that the anticipatory reference was basically the same as the claimed invention.   The district court observed that “it was apparent that  … [the] patent was anticipated and any further action against [the defendant] for infringement was baseless.”  Old Reliable appealed. 

In reversing the lower court, the Federal Circuit emphasized not only that exceptionality must be established by clear and convincing evidence, but also reiterated that absent litigation misconduct, it is a high burden to impose sanctions on a patentee.  Citing to recent precedent, the Court explains that sanctions are warranted only if the litigation is brought in subjective bad faith and if the litigation is “objectively baseless.”  Here, the reversal of the award of attorneys’ fees was appropriate because Old Reliable’s arguments for validity and infringement were not “so unreasonable that no reasonable litigant could believe it would succeed.”

In this case the patentee was largely able to rely upon the findings of the U.S. Patent and Trademark Office (USPTO) during ex parte re-examination to maintain that it had a reasonable basis for its infringement action.  After the Federal Circuit had affirmed the invalidity finding, the PTO issued a notice of intent to issue the reexamination certificate confirming the patentability of all claims.  It was only after learning of the Federal Circuit’s affirmance that the USPTO withdrew the notice and stated that the claims were invalid.  Taking judicial notice of the USPTO’s original intent to confirm patentability after reviewing the relevant prior art, the Federal Circuit declined to find the suit “frivolous or inherently implausible.”

Practice Note:   Under the Federal Circuit decision if there is any basis for arguing the existence of a genuine dispute, fees are not proper under the “objectively baseless” prong.   It is clear that a grant of summary judgment alone is insufficient to render the suit baseless, as is a patentee’s subjective bad faith.  Instead, there must be a clear and convincing showing that the patentee altogether lacked a reasonable foundation for its infringement allegations.  This decision comes on the heels of the decision in iLor v. Google (see IP Update, Vol. 14, No. 1), in which the plaintiff unsuccessfully sought fees against the accused infringer under §285.  It seems that going forward, whether representing a patentee seeking to establish willful infringement or a defendant seeking to establish that the suit was baseless, either side will face an increasingly uphill battle for attorneys’ fees.