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Award of Attorneys’ Fees Improper Where Proposed Claim Construction Is Not Objectively Baseless

January 11, 2011

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Last Month at the Federal Circuit - February 2011

Judges: Rader, Linn, Dyk (author)

[Appealed from: E.D. Ky., Senior Judge Hood]

In iLOR, LLC v. Google, Inc., Nos. 10-1117, -1172 (Fed. Cir. Jan. 11, 2011), the Federal Circuit reversed the district court’s determination that the case was exceptional under 35 U.S.C. § 285, concluding that the plaintiff’s proposed claim construction was not objectively baseless.  The Court reversed the district court’s award of attorneys’ fees and expert fees, but noted that certain other costs and expenses may be allowed on remand.

iLOR, LLC (“iLOR”) is an Internet company and assignee of U.S. Patent No. 7,206,839 (“the ’839 patent”), which is directed to, inter alia, a method for enhancing hyperlinks using a toolbar, “the toolbar being displayable based on a location of a cursor in relation to a hyperlink.”  iLOR sued Google, Inc. (“Google”) for infringement of the ’839 patent, alleging that Google’s Notebook product infringed because its online application allowed users to right click on a hyperlink, causing a toolbar to be displayed.

The district court construed “being displayable” to mean that “the toolbar is ‘automatically displayed’ upon the placement of the cursor in proximity to a hyperlink with no further action on the part of a user.”  Slip op. at 4 (citation omitted).  Because it was undisputed that the Google Notebook did not automatically display its toolbar, but instead required the user to right click on the hyperlink, the district court granted SJ on noninfringement and dismissed the suit with prejudice.  On appeal, the Federal Circuit upheld the district court’s claim construction, noting that it was supported by the claim language, specification, and prosecution history.

Following the appeal, the district court granted Google’s motion to recover its attorneys’ fees, costs, and expenses, finding the case exceptional under § 285.  iLOR appealed to the Federal Circuit.

The Federal Circuit began its analysis of whether the case was exceptional by evaluating the language of § 285 and its proper interpretation in light of Federal Circuit and Supreme Court precedent.  In Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), the Federal Circuit held that absent misconduct during patent prosecution or litigation, sanctions under § 285 may be imposed against a patent plaintiff only if (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.  Both the objective and subjective prongs must be established by clear and convincing evidence.

The Court noted that the objective baselessness standard of Brooks Furniture is identical to the objective recklessness standard for awarding enhanced damages and attorneys’ fees for willful infringement under In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc).  The Court stated that under both Brooks Furniture and Seagate, objective baselessness does not depend on the plaintiff’s state of mind at the time the action was commenced, but rather requires an objective assessment of the merits.

Applying this standard, the Federal Circuit found that Google had not shown by clear and convincing evidence that iLOR had brought the suit frivolously or that iLOR’s proposed claim construction was objectively baseless.  The Court noted that “[t]he question is whether iLOR’s broader claim construction was so unreasonable that no reasonable litigant could believe it would succeed.”  Slip op. at 10.  Although the Court had previously accepted Google’s proposed claim construction, the Court noted that iLOR’s proposed construction found support in the claim language, the specification, and the prosecution history.  The Court concluded that iLOR could reasonably argue for its proposed claim construction and, thus, reasonably argue that Google infringed its claims.  Accordingly, the Federal Circuit held that the district court committed clear error in finding the case exceptional under § 285, and vacated the award of attorneys’ fees.

The Federal Circuit also set aside the district court’s award of expert fees.  The Court stated that a district court could award such fees under § 285 in exceptional cases based upon a finding of bad faith, but that there was no basis for finding bad faith in this case.  The Court noted, though, that other costs and expenses may be allowed on remand.