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Energy Heating, LLC v. Heat On-The-Fly, LLC

District Court Must Explain Basis for Denying § 285 Fees After Finding Inequitable Conduct

Energy Heating, LLC v. Heat On-The-Fly, LLC, __ F.3d __, 2018 WL 2072122 (Fed. Cir. May 4, 2018) (Moore, Hughes, STOLL) (D.N.D.: Erickson) (3 of 5 stars)

Fed Cir affirms declaratory judgment of unenforceability for inequitable conduct, affirms judgment of tortious interference and denial of remedies, and vacates denial of § 285 attorneys’ fees. The district court did not abuse its discretion in concluding that the inventor (HOTF’s founder Mark Hefley) committed inequitable conduct in failing to disclose during prosecution 61 separate jobs, and collection of revenue for those jobs, employing the claimed invention more than one year before the earliest provisional application. The record supported the district court’s determination that the uses were not experimental, and the opinion addresses some key facts under Allen Engineering, 299 F.3d 1336 (Fed. Cir. 2002). The district court did not abuse its discretion in declining to consider a later-issued patent granted even after the disclosure of the 61 jobs. As in American Calcar, 768 F.3d 1185 (Fed. Cir. 2014), the continuation patent was post-judgment and had materially different claims. The district court also did not abuse its discretion in concluding that Mr. Hefley knew the jobs were material to patentability, and specifically intended to deceive the PTO. The evidence was sufficient for the district court to disbelieve Mr. Hefley’s testimony and find that the single most reasonable inference from the record was deceitful intent, per Therasense, 649 F.3d 1276 (Fed. Cir. 2011). The district court also did not abuse discretion in excluding testimony from Mr. Hefley’s prosecuting attorney concerning a belief that the jobs were experimental. The exclusion was because HOTF had asserted attorney-client privilege on this issue during depositions of Mr. Hefley and the attorney. “The attorney-client privilege cannot be used as both a sword and a shield.” Op. at 15.

The district court did not err in denying HOTM’s motion for JMOL of no tortious interference. The opinion rejects HOTF’s argument that the jury verdict rested on improper hearsay concerning the contents of a three-person teleconference. HOTF had objected to testimony from one teleconference participant as hearsay, but did not object to similar testimony from another participant, and so waived its objection. The opinion also rejects HOTF’s argument that the state law claim was preempted by the patent laws. While state tort claims based on patent enforcement are generally preempted, that does not apply where the enforcement was in bad faith. 800 Adept, 539 F.3d 1354 (Fed. Cir. 2008). The jury here found bad faith; that determination was supported by the evidence.

The district court did not err in determining that it lacked authority to award treble damages and attorneys’ fees under North Dakota law. Energy had not pled the proper cause of action, and the parties did not impliedly consent to trial on that issue.

The district court’s denial of § 285 attorneys’ fees was improper because the district court did not explain its basis for that denial. “Just as it is incumbent on a trial court to articulate a basis for finding a case exceptional, it is equally necessary to explain why a case is not exceptional in the face of an express finding of inequitable conduct.” Op .at 23. The opinion also raises questions about the district court’s statement that HOTF had provided a “meritorious” argument against inequitable conduct, as incompatible with Therasense’s requirement that intent to deceive must be the only reasonable inference from the record. The denial is vacated and remanded for reconsideration.

KEYWORDS: INEQUITABLE CONDUCT (YES); SECTION 285; EXCEPTIONAL CASE; ATTORNEYS’ FEES; STATE LAW