The Supreme Court changed the calculus on what conduct satisfies the "exceptional case" criteria for awarding attorney's fees under 35 U.S.C. § 285 in its Octane Fitness, LLC v. ICON Health & Fitness Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. decisions.  Under this clarifying precedent, the standard for finding an exceptional case in patent law was based on judicial discretion:  district courts should exercise this discretion considering the totality of the circumstances and "in light of the considerations' underlying the grant of that discretion."  Since these decisions, prevailing parties have increasingly sought and district courts have increasingly granted motions for finding a case exceptional and awarded attorneys' fees and other sanctions on this basis.  Last Friday, December 14, 2018, the Federal Circuit rendered an opinion, in Spineology, Inc. v. Wright Medical Technology, Inc. seeking to rein in the more vigorous assertions of the exceptional case doctrine under these Supreme Court precedents.

The case arose in litigation over Reissue Patent No. RE42,757, arising from U.S. Patent No. 6,383,188, and directed to an "expandable reamer" used, according to the opinion, in orthopedic surgical procedures.  During claim construction, each party proposed a meaning for the claim term "body" as used in asserted claim 15:

15.  An expandable reamer for use in bone and related tissue in a mammal comprising:
    an elongated hollow body having a proximal end and a distal end, sized and configured to engage bone and related tissue in the mammal;
    an elongated blade carrier having a proximal end and a distal end, the blade carrier disposed within the body;
    a set of blades pivotally attached proximate the distal end of the blade carriers; the set of blades having at least a first retracted position relative to the body, the body having a maximum cross-sectional diameter transverse to a longitudinal axis of the body that is substantially at least as large as a maximum cross-sectional diameter of the blades in the first retracted position, and a second fully expanded position having a diameter greater than the maximum cross-sectional diameter of the body; and
    an manually actuated activation mechanism that moves the set of blades from the first retracted position to the second fully expanded position and any expanded position therebetween.

The District Court did not adopt either party's proposed meaning in its claim construction order.  Thereafter, the parties filed cross-motions for summary judgment on infringement and the District Court ruled in defendant Wright Technology's favor (a decision affirmed by the Federal Circuit in an earlier appeal).  In granting Wright's motion, the District Court adopted Wright's definition of the term "body" in the claims.  This decision prompted Wright to seek attorneys' fees, contending that the case was exceptional based on plaintiff's construction of the term "body," damages theories asserted (but never pursued because the case was decided on summary judgment) and "litigation conduct."  The District Court did not grant the motion, holding that Spineology's claim construction and its damages theories were "not so meritless" as to warrant a finding that this was an exceptional case, and that "[n]othing about this case stands out from others with respect to the substantive strength of Spineology's litigating position or the manner in which the case was litigated."

The Federal Circuit affirmed, in an opinion by Judge Moore joined by Chief Judge Prost and Judge Dyk.  In citing the standard of review, abuse of discretion, the Court acknowledged the high bar Wright was required to clear to convince an appellate court to overturn the decision below.  With regard to Wright's first argument, that its proposed definition for the term "body" was so unreasonable as to be meritless and thus pursuing it after the District Court declined to adopt it, the opinion punctures it with three words: "[w]e are unpersuaded."  The panel cites to SFA Sys., LLC v. Newegg Inc., 793 F.3d 1344, 1348 (Fed. Cir. 2015), for the principle that "[a] party's position . . . ultimately need not be correct for them not to 'stand[] out'," and states that "Wright cannot fairly criticize Spineology for continuing to pursue a construction not adopted by the district court in the claim construction order, since the district court declined to adopt Wright's proposed construction as well."

Turning to Spineology's damages assertions, the panel notes that this ground is brought even though there was no trial and thus no "consideration of or rulings on damages."  The bases for Wright's contentions were Spineology's expert report on damages, its "lost profits analysis offered by Spineology's expert" (which allegedly "improperly calculate[d] the sales Wright would have made "but for" Spineology's infringement"), and the expert's reasonable royalties analysis for "improperly relying on the entire market value rule ("EMVR") and employing a flawed royalty rate."  Once again, the panel was not persuaded.  First, the opinion notes that "[t]his court has affirmed lost profit awards based on a wide variety of reconstruction theories," citing Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1263–64 (Fed. Cir. 2013), and characterizes Spineology's damages arguments as "colorable" with regard to their expert's reliance on the EMVR, citing Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1384–86 (Fed. Cir. 2001).  While recognizing that these arguments might not have prevailed at trial, the opinion first states that "a strong or even correct litigating position is not the standard by which we assess exceptionality," citing Stone Basket Innovs., LLC v. Cook Med. LLC, 892 F.3d 1175, 1180 (Fed. Cir. 2018), and that the District Court stated that it would not have found Spineology's damages arguments to be "so meritless as to render the case exceptional" even if it had excluded their expert's testimony.  "On this record," the Federal Circuit states, "where the district court never reached the parties' damages arguments, we are in no position to upend its determination that [the expert's] analysis was not meritless" (emphasis in opinion).  The panel goes on to say that:

Wright asks this court to basically decide the damages issues mooted by summary judgment in order to determine whether it ought to obtain attorney fees for the entire litigation.  This we will not do.  We will not force the district court, on a motion for attorney fees, to conduct the trial it never had . . . and we—an appellate court—will certainly not conduct that trial in the first instance.

Then the opinion issues a pointed warning against this sort of appeal:

A district court need not, as Wright seems to urge, litigate to resolution every issue mooted by summary judgment to rule on a motion for attorney fees.  And we need not, as Wright requests, get into the weeds on issues the district court never reached. . . .  We see no error in the district court's determination that, on this record, the case was not exceptional, and we caution future litigants to tread carefully in their complaints about district courts not doing enough.

Finally, with regard to the litigation (mis)conduct basis for Wright's appeal, in addition to being unpersuaded the Federal Circuit takes its own admonition against "get[ting] into the weeds" by relying on the District Court's better understanding of the issues, saying that the District Court is in a better position to make these determinations (citing similar language in the Highmark case).  The panel also rejected Wright's request to remand for further argument on the "totality of the circumstances," saying that it sees no evidence of abuse of discretion by the District Court, and that "[t]he district court 'had no obligation to write an opinion that reveals [its] assessment of every consideration,' and remand is unnecessary to obtain one," citing Univ. of Utah v. Max-Planck-Gesellschaft, 851 F.3d 1317, 1323 (Fed. Cir. 2017).

The opinion put the rhetorical cherry on top of its holding by awarding costs to Spineology.  Whether this case remains an outlier or warning for trial counsel to take heed of the need to plead carefully regarding an award of attorneys' fees and determination of exceptional case status remains to be seen, but district courts will certainly appreciate the extent to which the prudent exercise of their discretion remains tantamount before the Federal Circuit on these questions.

Spineology, Inc. v. Wright Medical Technology, Inc. (Fed. Cir. 2018)
Panel: Chief Judge Prost and Circuit Judges Dyk and Moore
Opinion by Circuit Judge Moore