Federal Circuit's Last Word on Attorney Fees - Actual Knowledge of Baseless Claim Not Required - Kilopass Tech., Inc. v. Sidenese Corp.

by McDermott Will & Emery

Addressing the proof required to show a bad faith assertion of a baseless claim to establish an exceptional patent case for attorneys’ fees. the U.S. Court of Appeals for the Federal Circuit vacated and remanded a lower court’s decision denying an award of attorneys’ fees, deciding what very well may be its last ruling on the “exceptionality” requirement for an award of attorney fees under 35 U.S.C.A. § 285 before the Supreme Court takes up the matter this term.  Kilopass Tech., Inc. v. Sidense Corp., Case No. 13-1193 (Fed. Cir., Dec. 26, 2013) (O’Malley, J.) (Rader, C.J., concurring).

Defendant Sidense was granted summary judgment of non-infringement but was denied an award of attorneys’ fees by the district court.  Evidence at trial tended to show that Kilopass, a direct competitor, instigated patent litigation against Sidense despite opinion of counsel that a claim for literal infringement was untenable.  While there was some analysis by counsel that pursuing a claim of infringement under the doctrine of equivalence was plausible, it appeared that Kilopass’ decision to pursue litigation was uninformed by counsel’s analysis. 

Kilopass subsequently filed suit against Sidense, alleging both literal infringement and infringement under the doctrine of equivalents.  Despite granting summary judgment of non-infringement, the district court denied Sidense an award of attorneys’ fees, finding that Sidense had failed to prove by clear and convincing evidence that Kilopass acted in bad faith by asserting baseless infringement claims. 

Sidense argued that a showing of bad faith requiring actual knowledge of a baseless claim sets too high a bar for establishing an exceptional case for an award of attorneys’ fees.  The Federal Circuit clarified that 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.” 

The Federal Circuit further stressed that an analysis of § 285 focusing only on the subjective bad faith of the party asserting patent infringement, as the district court did, is inadequate to achieve justice intended under § 285.  What is required is consideration of the “totality of the circumstances,” which includes objective evidence of the baselessness of the claims.  The Court found that “one’s misguided belief, based on zealousness rather than reason, is simply not sufficient by itself to show that a case is not exceptional in light of objective evidence that a patentee has pressed meritless claims.”  Objective evidence that a claim is baseless is therefore sufficient to create an inference of bad faith establishing an exceptional case for an award of attorneys’ fees. 

Finding that the district court had only considered subjective elements of bad faith and not objective evidence that Kilopass’ claim was baseless, the Federal Circuit vacated and remanded the district court’s judgment denying fees.

In a concurring opinion, Chief Judge Rader joined the majority’s analysis and conclusion.  Chief Judge Rader further endorsed the changes proposed by Sidense that objective baselessness alone should be sufficient for an award of attorneys’ fees, and that proof by a preponderance of the evidence should suffice, finding that these approaches to the fee-shifting statute are consistent with the language of the statute, the legislative intent in adopting this language, the Court’s precedent and Supreme Court precedent.

Practice Note:  The Federal Circuit’s ruling in Kilopass comes before the Supreme Court addresses the standard for determining when a patent case is “exceptional” under sec. 285 and to clarify the standard appellate courts should use for reviewing such fee awards.  See Octane Fitness, LLC v. Icon Health & Fitness, Inc., (IP Update, Vol. 16, No. 10), and Highmark Inc. v. Allcare Health Management Systems, Inc. (IP Update, Vol. 16, No. 10).

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