Federal Circuit Review - Attorney's Fees, FRAND-encumbered Patents, and IPRs (May 2014)

by Knobbe Martens

Standard For Obtaining Attorney’s Fees Too High

In OCTANE FITNESS, LLC v. ICON HEALTH & FITNESS, INC., Appeal No. 12-1184, the Supreme Court reversed and remanded the Federal Circuit’s affirmance of the district court’s denial of attorney’s fees under 35 U.S.C. § 285.

Icon sued Octane for patent infringement.  After the District Court granted summary judgment of non-infringement to Octane, Octane moved for attorney’s fees under § 285.  Octane’s motion was denied under the Federal Circuit’s framework of Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005).  Under Brooks, a case may be deemed “exceptional” under § 285 in only two circumstances: when there has been some material inappropriate conduct, or when the litigation is brought in subjective bad faith and is objectively baseless.  Additionally, Brooks required that entitlement to fees under § 285 be proved by clear and convincing evidence. The Federal Circuit affirmed the district court’s holding and declined to revisit its settled standard for exceptionality from Brooks.

The Court held that the text of § 285 is clear and that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  In reversing the Federal Circuit, the Court found the Federal Circuit’s Brooks framework to be “overly rigid.”  First, the Court found Brooks’s first category of sanctionable conduct to be an inappropriate benchmark—conduct that is exceptional (and deserving of fees) need not rise to the level of material inappropriate conduct that is independently sanctionable.  Second, the Court found that Brooks’s second category’s dual requirement of subjective bad faith and objective baselessness had been improperly imported into § 285 by the Federal Circuit (from Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993) (“PRE”)).  The Court noted that the concerns justifying that dual requirement in antitrust cases (as in PRE) do not justify its application to “the mere shifting of attorney’s fees.”  Third, the Court rejected Brooks because it renders § 285 largely superfluous.  Finally, the Court held that preponderance of the evidence is the proper standard for establishing exceptionality under § 285, not clear and convincing evidence as required by the Federal Circuit.

In HIGHMARK INC. v. ALLCARE HEALTH MANAGEMENT SYSTEM, INC., Appeal No. 12-1163, the Supreme Court vacated and remanded the Federal Circuit’s partial reversal.

Highmark sued Allcare seeking a declaratory judgment of invalidity, unenforceability, and non-infringement.  After the District Court granted summary judgment of non-infringement to Highmark, Highmark moved for fees under § 285.  The district court found the case to be “exceptional” and granted Highmark’s motion.  On appeal, the Federal Circuit reviewed the district court’s determination de novo and reversed in part.  The Federal Circuit held that its de novo review was justified because whether a claim is “objectively baseless” under Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), is a mixed question of law and fact.  

The Supreme Court considered Highmark alongside Octane Fitness, LLC v. Icon Health & Fitness, Inc. and applied its reasoning in Octane to vacate and remand Highmark.  The main issue considered by the Court in Highmark was the appropriate standard of review for a determination of exceptionality under § 285.  The Court held that § 285 commits the determination of exceptionality to the discretion of the district court and that the district court is better positioned to decide whether a case is exceptional because it lives with the case over a prolonged time period.  Therefore, all aspects of a district court’s § 285 determination must be reviewed on appeal only for abuse of discretion.

FRAND-encumbered Patents Not Eligible for Permanent Injunction

In APPLE INC. v. MOTOROLA, INC., Appeal No. 12-1548, the Federal Circuit reversed a means-plus-function claim construction; reversed exclusion of expert testimony regarding damages; reversed summary judgment that Apple was not entitled to damages; and affirmed summary judgment that Motorola was not entitled to an injunction.

Apple and Motorola sued one another on a number of patents.  The district court, based on its claim constructions, granted summary judgment of non-infringement on a number of claims and excluded most of the testimony of the parties’ expert witnesses on damages.  The district court also granted summary judgment that neither party was entitled to damages or an injunction.

The Federal Circuit reviewed the claim constructions of the district court.  For one of Apple’s patents, the Federal Circuit reversed the district court’s construction of limitations containing the term “heuristic for” as means-plus-function limitations.  Claim construction, including the determination that a limitation is written in means-plus-function format, is reviewed de novo.  The Federal Circuit held that Motorola did not rebut the strong presumption that the heuristic-for limitations were not means-plus-function limitations because, taken as a whole, the limitations have sufficiently definite structure in light of the specification.  Specifically, Apple’s patent describes the limitations’ operation in the specification with corresponding inputs and outputs, thereby providing sufficient structure.

The Federal Circuit also reviewed the exclusion of expert evidence related to damages.  Applying Seventh Circuit law, the Federal Circuit reviewed the legal framework the district court applied de novo and the decision to exclude expert testimony for abuse of discretion.  With respect to the exclusion of the expert testimony proffered by Apple, the Federal Circuit reversed, stating that the district court improperly judged the weight of the evidence rather than its admissibility because the district court disagreed with the experts’ conclusions or believed the experts could have used alternative, superior methods.  Apple’s damages expert started with an existing product with features similar to the claimed invention and attempted to isolate the value of these features.  The damages expert also relied on Apple’s own technical experts to assess the value of the features in the existing product.  The damages expert also estimated consumer demand for the claimed features by evaluating what consumers have paid for comparable features.  Although there may be alternative methods for obtaining damage calculations, their existence does not render reliable expert testimony inadmissible.  With respect to the exclusion of Motorola’s expert testimony on damages, the Federal Circuit affirmed-in-part and reversed-in-part.  The Federal Circuit affirmed the exclusion of the portion of the expert’s testimony which relied on a theory presented by a licensing expert because the theory was not tied to the claimed invention.  The Federal Circuit reversed the exclusion of the remainder of the expert’s testimony on damages because the testimony was based on sufficiently comparable licenses in the field, which is a reliable method for determining a reasonably royalty.

The Federal Circuit also reviewed de novo the grant of summary judgment of no damages to Apple for Motorola’s assumed infringement.  The statute requires that a court award damages of no less than a reasonable royalty.  The Federal Circuit reversed the summary judgment of no damages because Apple presented evidence that the reasonably royalty was greater than zero, establishing a genuine issue of material fact that damages should be awarded.

The Federal Circuit also reviewed de novo the grant of summary judgment that Motorola was not entitled to an injunction for Apple’s infringement of a Motorola patent.  The grant or denial of an injunction is reviewed for abuse of discretion.  Motorola had agreed to license the patent at issue on fair, reasonable, and non-discriminatory (“FRAND”) licensing terms.  Analyzing the terms set forth by the Supreme Court in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), the Federal Circuit affirmed the district court and concluded that Motorola had failed to establish irreparable harm because, as is often the case with a patentee subject to FRAND commitments, Motorola’s many license agreements under these commitments indicated that money damages would be adequate to compensate for infringement.

Judge Rader filed an opinion dissenting in part, stating that he would have denied summary judgment to Apple with respect to the denial of an injunction because of Motorola’s evidence that Apple is an unwilling licensee.  Judge Prost also filed an opinion dissenting in part, stating that the majority decision erred in its means-plus-function analysis by looking for structure outside of the claim language.

Decision to Institute or Deny IPR Not Immediately Reviewable

In IN RE PROCTER & GAMBLE CO., Appeal No. 14-121, ST. JUDE MEDICAL, CARDIOLOGY DIVISION, INC. v. VOLCANO CORP., Appeal No. 14-1183, and IN RE DOMINION DEALER SOLUTIONS, LLC, Appeal No. 14-109, the Federal Circuit held that decisions to institute or deny inter partes review are not immediately reviewable.

St. Jude appealed the PTO’s decision not to institute an inter partes review (IPR).  St. Jude argued that the Federal Circuit had jurisdiction to hear the appeal pursuant to 28 U.S.C. § 1295(a)(4)(A), which authorizes the Federal Circuit to hear “an appeal from a decision” of the Patent Trial and Appeal Board (PTAB) with respect to an IPR.  The patentee, Volcano, and the PTO, an intervenor in the appeal, filed motions to dismiss based on lack of jurisdiction, relying on 35 U.S.C. § 314(d), which states the PTO’s decision whether to institute an IPR “shall be final and nonappealable.”  The Federal Circuit granted the motion, interpreting the statutes as precluding the Federal Circuit from hearing an appeal of a PTO decision whether to institute an IPR. 

Dominion and Procter & Gamble each involves a petition to the Federal Circuit seeking the issuance of a writ of mandamus directing the PTO to change a decision regarding the institution of IPR petitions.  In Dominion, the PTAB denied five IPR petitions, and Dominion, the accused infringer, sought a writ directing the PTO to institute the five IPRs.  In Procter & Gamble, the PTAB granted three IPR petitions, and Procter & Gamble, the patentee, sought a writ directing the PTO to withdraw the orders instituting the IPRs.  In both Dominion and Proctor & Gamble, the Federal Circuit denied the writ petitions.  The Federal Circuit applied the same reasoning it used to grant the motion to dismiss in the St. Jude case, namely that the statutory framework does not allow the Federal Circuit to review PTO decisions whether to institute IPRs.  At a minimum, under the statutory framework neither Dominion nor Procter & Gamble could show a “clear and indisputable” right to relief, as is required for the remedy of mandamus.

In VAILLANCOURT v. BECTON DICKINSON & CO., Appeal No. 13-1408, the Federal Circuit dismissed the appeal due to lack of a cause of action, holding that a patent owner alone can appeal a final decision in an inter partes reexamination.

Appellee Becton Dickinson requested an inter partes reexamination of Vaillancourt’s patent. The Examiner rejected all claims and Vaillancourt appealed to the Board.  While the appeal was pending, Vaillancourt assigned the entire right, title, and interest in the patent to a third party, VLV.  The Board affirmed the examiner’s decision.  Vaillancourt appealed to the Federal Circuit under 35 U.S.C. § 141.

The Federal Circuit found that the unambiguous language of 35 U.S.C. § 141 provides that a patent owner alone can appeal a final decision in an inter partes reexamination to the Federal Circuit.  Vaillancourt did not dispute that he is not the owner of the patent.  Instead, he argued that he was entitled to appeal because (1) he was allegedly authorized by VLV to continue with all related proceedings regarding the patent, and (2) that he was the sole owner of VLV.  The Federal Circuit rejected Vaillancourt’s arguments.  The statute gives no indication that a patent owner can delegate its authority to bring an appeal to a third party.  Accordingly, Vaillancourt had no cause of action and the appeal was dismissed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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