Fed. Cir. adopts more flexible standards for awarding attorneys' fees

Fed. Cir. vacates and remands denial of an award for attorneys' fees under 35 U.S.C. 285. In doing so, it held that fees could be shifted upon finding that a plaintiff's claims were objectively baseless, without necessarily requiring proof of subjective bad faith.

Kilopass Tech., Inc. v. Sidense Corp., ­­­­­­__ F.3d ­­__ (Fed. Cir. Dec. 26, 2013) (Rader, O'MALLEY, Lourie) (N.D. Cal.: Illston) (4 of 5 stars)

Under 285, a case may be exceptional if, “absent misconduct in the litigation or in securing the patent,” “(1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Slip op. at 11.

The Fed. Cir. ruled that the district court should not have required proof of actual knowledge that the claims are baseless. “[S]ubjective 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. Thus, actual knowledge of baseleness is not required.” Id. at 14 (emphasis in original) (internal citations omitted). The subjective prong only requires proof of reckless conduct when viewed under a totality of circumstances. Precedent “did nothing to discourage courts from drawing an inference of bad faith from circumstantial evidence thereof when a patentee pursues claims that are devoid of merit." Id. at 17. Because the district court had applied too rigorous a test, the Fed. Cir. vacated the denial of fees and remanded.

The Fed. Cir. rejected requests to change the current law. First, although the statute, legislative history and Supreme Court law could be interpreted to require only an objective inquiry, the court refused to remove the subjective prong entirely because its binding precedent requires a subjective inquiry. The Fed. Cir., however, recognized that "a subjective bad faith requirement is not the obstacle to fee shifting that the district court in this case appears to have believed." Id. at 22. Second, the court also adhered to precedent in refusing to lower the level of proof from clear and convincing evidence to preponderance, although it recognized that there are arguments supporting the lower standard. Third, the Fed. Cir. declined to allow fee-shifting if a patent owner brings suit despite an objectively low likelihood that it would prevail, because the court was bound by its precedent. The court, however, stated that “trial courts retain broad discretion to make findings of exceptionality under 285 in a wide variety of circumstances. Proving objective baselessness and subjective bad faith is just one avenue for seeking fee shifting under 285.” Id. at 28.

Concurrence: Chief Judge Rader endorsed the changes that the majority declined to adopt (i.e., that objective baselessness alone should be sufficient for awarding attorneys' fees and that proof should be by preponderant evidence). He believed that the Fed. Cir. should allow a district court to shift fees when, based on the totality of the circumstances, it is necessary to prevent a gross injustice.