ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC

Before Moore, Prost, and Stoll.  Appeal from the U.S. District Court for the District of North Dakota.

Summary: Enforcing a patent with knowledge that it is invalid can sustain a finding of exceptionality under 35 U.S.C. § 285 to support an award of attorneys’ fees.

Energy Heating (Energy) sought declaratory judgment that Heat On-The-Fly’s (HOTF) fracking technology patent was unenforceable due to inequitable conduct, invalid as obvious, and not infringed.  Energy additionally pled state-law tort claims.  HOTF filed counterclaims that Energy infringed the patent.  Before trial, the district court granted summary judgment that all claims of HOTF’s patent were invalid as obvious.  After concurrent bench and jury trials, the district court further concluded that HOTF’s patent was unenforceable due to inequitable conduct; it found HOTF deliberately withheld information from the U.S. Patent and Trademark Office relating to substantial on-sale and public use of the claimed invention before the critical date. The jury found HOTF tortiously interfered with Energy’s business and represented in bad faith that it held a valid patent. 

The district court subsequently denied attorneys’ fees to Energy under § 285.  But the Federal Circuit vacated that denial in a first appeal.  On remand, the district court found that the case was exceptional under § 285 and awarded attorneys’ fees. It cited the nature and extent of HOTF’s inequitable conduct and the jury’s findings of bad faith.  The district court also found that HOTF had pursued claims of infringement without attempt to minimize litigation costs despite knowing its patent was invalid.  HOTF filed a second appeal.

In the second appeal, the Federal Circuit affirmed the district court’s finding of exceptionality. It held the district court did not abuse its discretion in finding that HOTF made representations in bad faith that it held a valid patent, that the district court provided ample support for concluding that HOTF’s case was substantively weak, and that the absence of a finding that HOTF engaged in litigation misconduct does not preclude a finding of exceptionality.