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Finding of “Exceptional Case” Under § 285 Vacated for Lack of Factual Basis in District Court’s Opinion

07-1424
June 16, 2008

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Last Month at the Federal Circuit - July 2008

Judges: Mayer, Friedman (author), Moore 

[Appealed from: N.D. Ga., Judge Thrash, Jr.]

In Innovation Technologies, Inc. v. Splash! Medical Devices, LLC, No. 07-1424 (Fed. Cir. June 16, 2008), the Federal Circuit held that the district court failed to make adequate findings to support its “exceptional case” determination under 35 U.S.C. § 285, and vacated and remanded the district court’s order awarding attorneys’ fees.

Innovation Technologies, Inc. (“Innovation”) sued Splash! Medical Devices, LLC (“Splash”) for infringement of U.S. Patent No. 5,830,197 (“the ’197 patent”), which covers a method for irrigating wounds. The parties conducted extensive discovery and filed claim construction briefs. But, over a year after filing suit and before the Markman hearing, Innovation executed a covenant not to sue Splash for infringement of the ’197 patent and moved to dismiss its suit with prejudice. After the district court granted the motion, Splash moved for attorneys’ fees under § 285. The district court granted the motion and awarded Splash attorneys’ fees and expenses. The substantive portion of the district court’s order consisted of a single paragraph with seven sentences.

The only explanation the district court gave to support its finding that this was an “exceptional case” was that Innovation knew or should have known that its claims of infringement were baseless. The Federal Circuit found that “[t]he court gave no explanation of, or factual basis for, that conclusion.” Slip op. at 3. The Court stated that a district court’s finding of an “exceptional case” must include particular factual findings and reasoning for its determination for the Court to provide meaningful review. An exceptional case finding must not be based on “speculation or conjecture” but upon clear and convincing evidence. Id. at 4.

The Court noted that the parties had raised before the district court five issues relevant to the “exceptional case” question, including the sufficiency of Innovation’s prefiling investigation, its reasons for filing suit, any litigation improprieties by Innovation, whether Innovation’s proposed claim construction was “sufficiently plausible” to justify filing suit, and whether Innovation’s covenant not to sue indicated that its infringement claims were baseless. As the district court made no findings on any of these issues, proper appellate review was impossible.

The Court noted that although it could comb the record to answer the questions, the responsibility for making initial findings lies with the district court. The Court therefore vacated the district court’s order and ordered that, on remand, the district court make additional findings to justify its ultimate holding.