January 2014
Totality of Circumstances, Including Objective Baselessness, Should Be Considered When Determining Subjective Bad Faith Under 35 U.S.C. § 285
| Judges: Rader (concurring), Lourie, O’Malley (author) |
| [Appealed from N.D. Cal., Judge Illston] |
In Kilopass Technology, Inc. v. Sidense Corp., No. 13-1193 (Fed. Cir. Dec. 26, 2013), the Federal Circuit vacated the district court’s denial of a motion seeking an award of attorneys’ fees and remanded.
Plaintiff Kilopass Technology, Inc. (“Kilopass”) sued Defendant Sidense Corporation (“Sidense”) for both literal infringement and infringement under the DOE of U.S. Patent Nos. 6,940,751 (“the ’751 patent”); 6,777,757; and 6,856,540. The ’751 patent is directed to a programmable memory cell utilizing a transistor at the intersection of a column bitline and a row wordline. Claim 1 of the ’751 patent claims first and second doped semiconductor regions, where the second doped region is connected to one of the row wordlines. Kilopass alleged that Sidense’s memory cell—which utilizes a shallow trench isolation (“STI”) region for the transistor drain, and also connects the second doped region to a column bitline, infringe the ’751 patent.
Kilopass decided to sue Sidense after consulting two law firms and performing its own independent analysis. The first law firm advised Kilopass that Sidense did not infringe Kilopass’s patents literally, based on the information that Sidense had replaced the first doped region of its memory cell with an STI. Kilopass then retained a second law firm to perform infringement analysis, but eight days later instructed the firm to stop all work on the project. The second law firm provided Kilopass with a preliminary infringement chart that concluded that Kilopass might have a viable claim under the DOE, but there was no evidence that the infringement chart was complete or that Kilopass considered the chart. Rather, the Court noted that it appeared that Kilopass officials had already decided that Sidense infringed its patents prior to learning of the second law firm’s infringement analysis. After Kilopass hired a third party to reverse-engineer Sidense’s products and received the result, Kilopass retained a third law firm to investigate potential infringement under the belief that, “‘[f]rom an engineer’s perspective,’ Sidense infringed under the doctrine of equivalents.” Slip op. at 9 (alteration in original) (citation omitted). Kilopass subsequently sued Sidense, alleging both literal infringement and infringement under the DOE.
During the district court proceedings, the district court granted SJ of noninfringement for Sidense, and Kilopass appealed the district court’s decision. The Federal Circuit summarily affirmed the district court’s decision under Federal Circuit Rule 36. While the appeal to the Federal Circuit was pending, Sidense filed a motion in the district court for an award of attorneys’ fees pursuant to 35 U.S.C. § 285. The district court denied the motion, holding that Sidense had not met its burden of establishing with clear and convincing evidence that Kilopass brought the suit in bad faith, given that Kilopass had performed a substantial prefiling investigation and analysis, and that Kilopass obtained opinions from two different law firms that Kilopass had a nonbaseless claim against Sidense. Sidense appealed.
“Our case law has long held that, ‘in considering a party’s subjective state of mind, we are to take into account the totality of the circumstances.’” Slip op. at 15 (internal quotation marks omitted) (quoting Highmark, Inc. v. Allcare Health Mgmt., 687 F.3d 1300, 1311 (Fed. Cir. 2012)).
On appeal, the Court vacated the district court’s denial of Sidense’s motion for § 285 attorneys’ fees and remanded. First, the Court noted that § 285 requires, absent misconduct in the litigation or in securing the patent, a showing both that “(1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Id. at 11 (citing Brooks Furniture Mfg. v. Dutailier, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005)). The Court noted that the subjective bad-faith prong does not require a showing that the plaintiff actually knows the case lacks objective foundation. The Court explained that subjective 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.” Id. at 14 (quoting Highmark, Inc. v. Allcare Health Mgt., 687 F.3d 1300, 1309 (Fed. Cir. 2012)). The Court held that the district court erred in requiring actual knowledge of objective baselessness.
Second, the Court also noted that “in considering a party’s subjective state of mind, [the district court must] ‘. . . take into account the totality of the circumstances.’” Id. at 15 (quoting Highmark, 687 F.3d at 1311). The Court suggested that bad faith can be inferred from a totality of the circumstances, which includes the objective merits of the claims, as well as other objective evidences, such as failure to conduct adequate presuit investigation, or vexatious or unduly burdensome litigation tactics, among other factors. Because the district court did not address the objective merits of Kilopass’s case in its denial of Sidense’s § 285 motion, the Court held that the district court’s analysis was incomplete. The Court instructed the district court to consider whether Kilopass acted in bad faith in light of the totality of the circumstances, with particular attention paid to the objective merits of Kilopass’s claims and other objective evidence indicative of bad faith.
Sidense also argued that proof of objective baselessness alone should be enough to demonstrate exceptionality under § 285 and permit the district court to shift fees in its discretion in light of the totality of circumstances. The Court agreed that the plaintiff’s state of mind is not necessarily related to the central aim of 35 U.S.C. § 285, which is to prevent the alleged infringer from suffering a gross injustice. The Court also cited to Fed. R. Civ. P. 11, where subjective bad faith is not a required showing for a violation of the rule. But while the Court found that Sidense’s arguments may constitute good-faith assertions that the law should be something other than what it is, because the Court was not sitting en banc, it could not change its § 285 jurisprudence, and could only apply current law, which required proof of objective baselessness and subjective bad faith as a prerequisite to a finding of exceptionality.
Sidense also contended that it should not be required to prove exceptionality by clear and convincing evidence, as currently required by the law. The Court explained that such standard of proof had been justified by the “presumption that an assertion of infringement of a duly granted patent is made in
good-faith.” Slip op. at 23 (quoting Highmark, 687 F.3d at 1310). But the Court expressed doubt about such presumption and even suggested that such presumption may not justify the “clear and convincing evidence” standard. The Court also noted that in a civil case, a “preponderance of the evidence” standard is generally applicable except for fraud, and it is not necessary to prove exceptionality by clear and convincing evidence when fraud is not at issue. And while finding that Sidense again made
good-faith arguments for changing the current law, because the Court was not sitting en banc, it could not change its § 285 jurisprudence.
Sidense lastly proposed that the Court should adopt an “objectively low likelihood” standard in place of the current “objectively baseless” standard for § 285. The Court disagreed, noting that the property right conveyed by a patent has constitutional underpinnings, and that patentees have a First Amendment right to petition the government to enforce those property rights. The Court held that patentees should be allowed to bring claims that have an objectively reasonable basis, even if such basis is not firm. The Court also noted that the “objectively baseless” standard does not prejudice the alleged infringer, since there are many other circumstances under which a case can be considered exceptional, such as fraud, which give the trial court broad discretion to make findings of exceptionality under § 285.
Accordingly, the Court vacated the district court’s decision denying Sidense’s motion for attorneys’ fees, and remanded for consideration of whether Kilopass’s DOE theory was objectively baseless and whether the totality of the circumstances demonstrated that Kilopass acted with subjective bad faith.
Judge Rader concurred, stating that the Court should return to its § 285 jurisprudence before Brooks Furniture, represented by Eltech Systems Corp. v. PPG Industries, Inc., 903 F.2d 805 (Fed. Cir. 1990), where the Court held that “district court may shift fees when, based on the totality of the circumstances, it is necessary to prevent a gross injustice.” Rader Concurrence at 2 (citing Eltech, 903 F.2d at 810-11). Citing case law prior to Brooks Furniture, Judge Rader noted that the Court should have remained true to its original reading of § 285 in Eltech, and not to require both subjective bad faith and objective baselessness to find a case exceptional.
