More than six years ago, the U.S. Supreme Court handed down Highmark Inc. v. Allcare Health Management System, Inc., 572 U.S. 559 (2014), and Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014), clarifying the analysis district courts could use when determining whether a patent case is “exceptional” so as to merit fee shifting under 35 U.S.C. § 285. This article examines how judges within the U.S. District Court for the District of Delaware have addressed some of the recurring arguments they have confronted in adjudicating section 285 motions—specifically regarding whether, under the Supreme Court’s standard set forth in Octane, a case “stands out from others with respect to the substantive strength of a party’s litigating position. . . .” Octane, 572 U.S. at 554.
Octane and Highmark under Section 285
Under 35 U.S.C. § 285, the court may award attorney fees to the prevailing party in “exceptional” patent cases. In Octane, the Supreme Court held that an exceptional case “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.” Octane, 572 U.S. at 554. Octane vested district courts with discretion to evaluate on a case-by-case basis whether a particular action rises to the requisite exceptionality under the totality of the circumstances. Importantly, this discretion includes authority both to award and to deny fees. The party seeking fees must show that a case is exceptional by a preponderance of the evidence. Id. at 557–58. Because appellate review of a district court’s determination is circumscribed to abuse of discretion, district courts have substantial leeway to determine whether a case gives rise to the type of exceptionality that would merit a fee award. Highmark, 572 U.S. at 563.
Factors Used to Evaluate the Strength or Weakness of a Party’s Litigating Position
Litigants have pointed to a number of factors to urge courts to infer that a party’s litigating position is weak:
- The court has found weakness when a party’s case “lacked substantive strength, as its trial defenses were weak, all of its summary judgment defenses were denied, and every line of defense post-trial has been denied.” SRI Int’l, Inc. v. Cisco Sys., Inc., C.A. No. 13-1534-RGA, 2020 WL 1285915, at *4 (D. Del. Mar. 18, 2020) (internal quotation marks and alterations omitted), appeal docketed, No. 20-1704 (Fed. Cir. Apr. 14, 2020). For example, when a party is on notice that invalidating prior art would render a case “objectively baseless,” the court will conclude that a party’s litigation position stands out from others and find exceptionality. Vehicle Interface Techs., LLC v. Jaguar Land Rover N. Am., LLC, C.A. No. 12-1285-RGA, 2016 WL 3436396, at *1 (D. Del. June 15, 2016).
- The court has also inferred weakness when a defendant prevails on a Rule 52(c) motion after a plaintiff presents its case in chief at trial. Under that circumstance, the court explained that such a “truly rare occurrence” contributes to finding a case exceptional under section 285. Cosmo Techs. Ltd. v. Actavis Labs. FL, Inc., C.A. No. 15-164-LPS, 2019 WL 1417459, at *2 (D. Del. Mar. 27, 2019).
- The court has also inferred weakness when “[a]ny reasonable patent attorney with an understanding of [s]ection 101 law could have predicted the outcome” of a section 101 motion. Finnavations LLC v. Payoneer, Inc., C.A. No. 1:18-CV-00444-RGA, 2019 WL 1236358, at *2 (D. Del. Mar. 18, 2019).
But the court has not found the requisite weakness in many other circumstances:
- The court will not find weakness if the outcome of an issue was not a foregone conclusion or otherwise was “at least somewhat ‘close.’” Nox Med. ehf v. Natus Neurology Inc., C.A. No. 15-709-RGA, 2018 WL 4062626, at *7 (D. Del. Aug. 27, 2018); see also Vectura Ltd. v. GlaxoSmithKline LLC, C.A. No. 16-638-RGA, 2019 WL 4346502, at *6 (D. Del. Sept. 12, 2019), appeal docketed, No. 20-1054 (Fed. Cir. Oct. 16, 2019); Green Mountain Glass LLC v. Saint-Gobain Containers, Inc., 300 F. Supp. 3d 610, 631 (D. Del. 2018), aff’d, 773 F. App’x 619 (Fed. Cir. 2019) (mem.); Idenix Pharm. LLC v. Gilead Scis., Inc., 271 F. Supp. 3d 694, 704 (D. Del. 2017); Parallel Networks Licensing, LLC v. Int’l Bus. Machs. Corp., C.A. No. 13-72 (KAJ), 2017 WL 3232422, at *2 (D. Del. July 31, 2017).
- Adverse claim construction rulings typically do not render a case exceptionally weak. See Sarif Biomedical LLC v. Brainlab, Inc., C.A. No. 13-846-LPS, 2016 WL 5422479, at *2 (D. Del. Sept. 27, 2016) (“It is not unusual for a party to refine and revise its claim construction positions over the course of litigation.”), aff’d, 725 F. App’x 996 (Fed. Cir. 2018).
- An order of default judgment in favor of a plaintiff and against a defendant does not, by itself, give rise to an inference that the case was sufficiently weak to merit fee shifting on a failure-to-defend theory. Levitation Arts, Inc. v. Plox, Inc., C.A. No. 17-1476-MN, 2020 WL 2730905, at *5 (D. Del. May 26, 2020), report and recommendation adopted, C.A. No. 17-1476 (MN), 2020 WL 3103894 (D. Del. June 11, 2020).
- Although the court has explained that resolving an abbreviated new drug application (ANDA) case on summary judgment is “a rare occurrence,” that a dispute’s narrow nature “turned out to be amenable to summary judgment does not inevitably correlate to an exceptionally weak substantive position or an unreasonable manner of litigation.” Reckitt Benckiser LLC v. Aurobindo Pharma Ltd., C.A. No. 14-1203-LPS, 2017 WL 4613643, at *2 (D. Del. Oct. 16, 2017), aff’d, 737 F. App’x 537 (Fed. Cir. 2018) (mem.).
- And the court has opined that a case is not “so conspicuously deficient as to justify the award of attorney’s fees” when a party appeals a district court ruling on a meritorious issue to the Federal Circuit because “[t]he fact that [plaintiff] is currently appealing this Court’s ruling at the Federal Circuit . . . suggests that [plaintiff] maintains faith in the strength of its position.” EON Corp. IP Holdings, LLC v. FLO TV Inc., C.A. No. 10-812-RGA, 2014 WL 2196418, at *2 (D. Del. May 27, 2014). But the court has also stated that, when a party relies “on the same arguments on appeal that [the court has] found so lacking in merit,” then the case is “exceptional within the meaning of § 285.” Jaguar Land Rover, 2016 WL 3436396, at *3.
The court has also explained that the tenuous credibility of an expert witness does not, alone, give rise to an inference that a party had a weak litigating position. In Indivior, the defendant argued that when the court discounted certain expert testimony and the plaintiff nevertheless proceeded to trial “without a theory for how to prove infringement” of a certain limitation, the plaintiff had a weak litigating position. Indivior Inc. v. Alvogen Pine Brook Inc., C.A. No. 15-cv-1016-RGA, 2020 WL 1955435, at *2 (D. Del. Apr. 23, 2020). The court disagreed, explaining that “[d]iscounting an expert’s testimony is not an exceptional situation as many ANDA cases hinge on the credibility of the expert witnesses.” Id. at *3 (internal quotation marks omitted). This is in contrast to a party who “took positions contrary to its own evidence or prior statements,” which the court has found contributes to a finding of exceptionality. See, e.g., BroadSoft, Inc. v. CallWave Commc’ns, LLC, C.A. No. 13-711-RGA, 2019 WL 3750817, at *6 (D. Del. Aug. 8, 2019).
Impact of Claim Construction and Early Case Rulings on Later Arguments
Although litigants have frequently pointed to favorable claim construction rulings as indicia of the strength of their positions, Delaware courts have repeatedly stated that continuing to litigate patent claims after receiving an adverse claim construction ruling does not, alone, merit an award of fees against that party. “One side always loses, and, in my experience, it is routine (though frustrating) that arguments generally, and claim construction arguments in particular, shift and are recycled in different guises during litigation.” Roche Diagnostics Operations Inc. v. LifeScan Inc., C.A. No. 07-753-RGA, 2018 WL 1583050, at *1 (D. Del. Mar. 31, 2018); see also, e.g., Indivior, 2020 WL 1955435, at *2 & n.1 (disagreeing with assertion that date of the related claim construction opinion issuing adverse construction to plaintiff was the “‘bright line’ at least after which the case became exceptional”); Indivior Inc. v. Dr. Reddy’s Labs. S.A., C.A. No. 14-cv-1451-RGA, 2020 WL 1955433, at *3 (D. Del. Apr. 23, 2020) (concluding defendant failed to show that plaintiff’s litigating position was one of exceptional weakness after court issued claim construction order); Horatio Washington Depot Techs. LLC v. Tolmar, Inc., C.A. No. 17-1086-LPS-CJB, 2019 WL 4038557, at *3 (D. Del. Aug. 27, 2019) (“As with most claim construction disputes, the ones presented here included arguments from both sides that were within a broad range of reasonableness.”); Bayer Healthcare LLC v. Baxalta Inc., No. 16-cv-1122-RGA, 2019 WL 4016235, at *2 (D. Del. Aug. 26, 2019) (“I did not clearly reject [defendant’s] interpretation of my claim construction until resolving the motions for summary judgment. Therefore, the fact that [defendant] continued to raise the ‘[a]ny conjugation’ argument after claim construction does not make this an exceptional case.” (citation omitted)), appeal docketed, No. 20-1017 (Fed. Cir. Oct. 7, 2019).
In Quest, for example, although Chief Judge Stark acknowledged that when the court issued its claim construction order, “[p]laintiff’s likelihood of prevailing on infringement was reduced quite substantially,” as demonstrated by “[d]efendants’ success in persuading [the court] to permit them to file a motion for summary judgment of non-infringement,” the case was not exceptional because the court did not find the plaintiff’s “‘interpretation’ and application of the Court’s claim construction to be unreasonable or indicative of bad faith.” Quest Licensing Corp. v. Bloomberg L.P., C.A. No. 14-561-LPS, 2019 WL 1376035, at *2, *3 (D. Del. Mar. 27, 2019).
As another example, in Blizzard, the defendant argued that the case was exceptional because “[p]laintiff did not dismiss its case quickly enough following [the court’s] adverse claim construction ruling,” instead choosing to “adjust its infringement theory” and supplement its infringement contentions. Parallel Networks, LLC v. Blizzard Entm’t, Inc., C.A. No. 13-826-RGA, 2018 WL 2744975, at *3 (D. Del. June 7, 2018). The court nevertheless found reasonable the plaintiff’s “desire to update its infringement contentions in light of new information provided by [the court’s] claim construction order and by the completion of [p]laintiff’s source code review.” Id.
Knowledge of Patent-Ineligible Subject Matter
Defendants have argued that, when a plaintiff predicates an infringement claim on patent-ineligible subject matter and consequently loses a section 101 motion, the plaintiff should be deemed to have acted unreasonably in bringing the case.
The court decisions have been mixed on this issue. On the one hand, some courts have found exceptionality where certain patent claims were “plainly directed at a patent ineligible concept,” rendering the outcome of litigation arising therefrom—that is, the plaintiff’s loss—predictable. Finnavations, 2019 WL 1236358, at *2 (internal quotation marks omitted); see also Inventor Holdings, LLC v. Bed Bath & Beyond Inc., C.A. No. 14-448-GMS, 2016 WL 3090633, at *2, *3 (D. Del. May 31, 2016) (awarding fees where “infringement claims rested on patents whose validity are objectively invalid” under 35 U.S.C. § 101 and noting that “regardless of whether [plaintiff] initially felt that it had a plausible claim, [plaintiff] had an obligation to reevaluate its case in light of subsequent decisions”), aff’d, 876 F.3d 1372 (Fed. Cir. 2017).
On the other hand, other courts have acknowledged that the analysis required by Alice Corp. Pty. Ltd. v. CLS Bank International, 573 U.S. 208 (2014), is “not straightforward” and does not automatically suggest fee shifting against a patentee. BroadSoft, 2019 WL 3750817, at *2 (quoting Jedi Techs., Inc. v. Spark Networks, Inc., C.A. No. 1:16-1055-GMS, 2017 WL 3315279, at *11 (D. Del. Aug. 3, 2017)); see also Baggage Airline Guest Servs., Inc. v. Roadie, Inc., C.A. No. 18-707-RGA, 2020 WL 757891, at *2 (D. Del. Feb. 14, 2020) (distinguishing Finnavations and concluding that case at issue was not “exceptionally meritless”), appeal docketed, No. 20-1540 (Fed. Cir. Mar. 6, 2020); Tangelo IP, LLC v. Tupperware Brands Corp., No. 18-cv-692-RGA, 2019 WL 2270439, at *1 (D. Del. May 28, 2019) (declining to award fees after finding patent invalid under section 101 because such finding “does not mean Plaintiff’s contrary position was unreasonable”).
The Entire Case Must Be Exceptional
Litigants may be tempted to point to the other side’s actions on a discrete issue to substantiate a fee award. But, as the Federal Circuit recently made clear, the entire case must possess the requisite exceptionality to warrant fee shifting, even if exceptionality is predicated on a single bad act. Intellectual Ventures I LLC v. Trend Micro Inc., 944 F.3d 1380, 1383–84 (Fed. Cir. 2019); SRI International, 2020 WL 1285915, at *4.
In Intellectual Ventures, the court awarded the defendant fees when the plaintiff’s expert expressed one opinion throughout claim construction and pretrial proceedings but expressed a different opinion at trial. Intellectual Ventures, 944 F.3d at 1383–84; see also Intellectual Ventures I LLC v. Trend Micro Inc., C.A. No. 12-1581-LPS, 2018 U.S. Dist. LEXIS 162795 (D. Del. Sept. 24, 2018). The court did not, however, find that the case in its entirety was exceptional or that the plaintiff’s case was objectively unreasonable. Id. at 1382. The Federal Circuit reversed, holding that, although “a district court has discretion, in an appropriate case, to find a case exceptional based on a single, isolated act,” fees may not be awarded simply to compensate for the isolated act absent a finding that the entire case contains the requisite exceptionality. Id. at 1384; see id. (“The district court must determine whether the conduct, isolated or otherwise, is such that when considered as part of and along with the totality of circumstances, the case is exceptional. . . .”).
Section 285 and the exceptionality standards make it imperative for attorneys and their clients to rigorously examine their cases pre-litigation and as a case proceeds. The reasoning of one court explains why:
This case presents a good example of why patentees—and their attorneys—should expend more than a barebones effort to investigate suspected infringement, and it also demonstrates why parties should attempt to resolve disputes prior to filing motions with the courts. Plaintiff could have avoided the problems raised with a more fulsome and careful pre-suit analysis, but the motion practice brought on by Defendant in this case no doubt prolonged litigation and raised the associated costs for both sides. That is, both sides contributed in their own way to this unnecessary litigation (and its price tag).
Altair Logix LLC v. Caterpillar Inc., C.A. No. 18-2057 (MN), 2019 WL 3219485, at *4 (D. Del. July 17, 2019).
Katharine Lester Mowery and Valerie Caras are associates of Richards, Layton & Finger, P.A. The views expressed herein are those of the authors and are not necessarily the views of the firm or its clients.
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