The Patent Act’s fee shifting provision provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. Earlier this year, we reported on the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 188 L. Ed. 2d 816 (2014), which revised the standard on fee shifting in patent cases, and held:
[A]n “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. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances. Id. at 1756.
For in an in depth analysis of the Supreme Court’s decision in Octane Fitness, click here to read an Arent Fox alert about it. Aside from defining an exceptional case, the Octane Fitness Court articulated a more flexible totality of the circumstances inquiry and replaced the “clear and convincing” evidence standard with a “preponderance of the evidence” standard. Octane Fitness, 134 S.Ct. at 1758.1
Second, in Highmark Inc. v. Allcare Health Management System Inc., 134 S.Ct. 1744 (2014), the Supreme Court overturned the previous de novo standard of review for the exceptional-case determination under Section 285. The Court held that “[b]ecause § 285 commits the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion.” Id. at 1748.
Two recent decisions and an early decision applying Octane Fitness show how courts have treated awarding attorneys’ fees in light of the new standard.
Inadequate Pre-Filing Investigation, Coupled with Boilerplate Complaint, Leads to Finding of Exceptionality
Approximately one month after the Supreme Court’s decision, the court in Lumen View Tech., LLC v. Findthebest.com, Inc., found the case was “exceptional” under the totality of circumstances test articulated in Octane Fitness. No. 13 CIV. 3599 DLC, 2014 WL 2440867, at *2 (S.D.N.Y. May 30, 2014).
By way of background, plaintiff Lumen View Technology, LLC (Lumen View) filed its complaint (Complaint) against defendant Findthebest.com, Inc. (FTB), alleging that FTB infringed the ‘073 Patent. The Complaint was one of at least 20 substantially similar patent infringement complaints filed by Lumen against various companies in 2012 and 2013. The Complaint against FTB alleged a single claim of infringement of the ‘073 Patent’s independent claim, and consisted of conclusory allegations that mirror the language of the ‘073 Patent.
Lumen alleged in the Complaint that FTB’s website’s “AssistMe” feature utilized a computer implemented method to match the preference data inputted by at least two parties who input preference data into the website. Despite these allegations, it was undisputed that FTB’s website does not match preference data inputted on its website by multiple parties.
Following the dismissal of Lumen’s patent infringement lawsuit against FTB, the court granted FTB’s motion seeking a declaration that the case was an “exceptional case” under Section 285, noting that the case was a “prototypical exceptional case.” Id. at *1. Citing Octane Fitness, the court provided a “nonexclusive” list of factors, including “‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.’” Id. at *5.
The court found that Lumen’s action against FTB was “frivolous” and “objectively unreasonable” because no reasonable litigant could reasonably have expected success on the merits in Lumen’s infringement action against FTB, where FTB’s allegedly infringing feature did not read on the allegedly infringed claim. Id. More importantly, the court found that “the most basic pre-suit investigation would have revealed this fact.” Id.
Next, the court found that Lumen’s motivation in this litigation was to extract a nuisance settlement from FTB on the theory that FTB would rather pay an unjustified license fee than bear the costs of the threatened expensive litigation. Id.
Lastly, with respect to the need for deterrence, the court found that:
The boilerplate nature of Lumen’s complaint, the absence of any reasonable pre-suit investigation, and the number of substantially similar lawsuits filed within a short time frame, suggests that Lumen’s instigation of baseless litigation is not isolated to this instance, but is instead part of a predatory strategy aimed at reaping financial advantage from the inability or unwillingness of defendants to engage in litigation against even frivolous patent lawsuits.
Id. at *7.
In the end, the court added that “[t]he question of whether this case is exceptional is not close, and fee shifting in this case will ‘serve as an instrument of justice.’” Id.
After finding the case was “exceptional,” the court in Lumen View awarded FTB not only attorneys’ fees and costs, but also an enhancement of doubling the fee award “to deter similar misconduct in the future.” Lumen View Tech., LLC v. Findthebest.com, Inc., No. 13CV3599 DLC, 2014 WL 5389215, at *1, 5 (S.D.N.Y. Oct. 23, 2014).
The court found that an enhancement to the “lodestar” amount was appropriate based on the Octane Fitness factors, including “the need to deter the plaintiff’s predatory strategy, the plaintiff’s desire to extract a nuisance settlement, the plaintiff’s threats to make the litigation expensive, and the frivolous nature of the plaintiff’s claims.” Id. The court proceeded to recite the specific conduct supporting its finding of frivolousness, motivation to extract a nuisance settlement, objective unreasonableness, and the need to deter. See id.
Court Awards Fees to the Prevailing Defendant in Light of a “Litany of Instances”
In TNS Media Research, LLC v. TRA Global, Inc., No. 11 CIV. 4039 SAS, slip op. (S.D.N.Y. November 4, 2014), the District Court awarded attorneys’ fees and costs based on the “totality of the circumstances.”
Plaintiff TNS Media Research, LLC (d/b/a Kantar Media Audiences) and Cavendish Square Holding, B.V. (collectively Kantar) commenced an action against TiVo Research and Analytics, Inc. (TRA), seeking a declaratory judgment of non-infringement of one of TRA’s patents. TRA, in turn, asserted four counterclaims for patent infringement, misappropriation of trade secrets, aiding and abetting breach of fiduciary duty, and breach of contract. At the close of discovery, Kantar moved for summary judgment on TRA’s patent infringement and trade secret misappropriation claims, as well as for no damages on TRA’s fiduciary duty, trade secrets, and breach of contract counterclaims.
The court granted summary judgment as to non-infringement, trade secrets, and non-patent damages, and the parties stipulated to nominal damages of $1 for TRA’s breach of contract and fiduciary duty claims. Id. at 3.
Kantar subsequently moved for attorneys’ fees and non-taxable expenses pursuant to Federal Rule of Civil Procedure 54(b), Section 285 of Title 35 of the United States Code, and the court’s inherent power, which the court granted. Id.
In its decision, the court enumerated the various examples of frivolous and unreasonable arguments asserted by TRA in the litigation, warranting an award of attorneys’ fees:
- TRA pressed a proposed construction that lacked merit, reasoning that “no correct application of the rules of grammar could have supported TRA’s proposed construction.” Id. at 26. It was of no moment that TRA could offer a reasonable basis for its proposed construction: “belated reasonable arguments do not compensate for earlier frivolous ones.” Id. at 27.
- TRA proposed a construction that the court later held rendered meaningless the amendments TRA added after the Patent and Trademark Office rejected the original versions of the claim language, effectively undoing the prosecution history. Id. at 29.
- TRA advanced a contorted construction inconsistent with a meaning stipulated to and adopted by the court despite the court’s warning not to ignore previously construed terms. Id. at 29.
- TRA pressed a baseless argument that, had TRA read the preliminary injunction decision, it would have been apparent to TRA that the argument lacked merit. Id. at 34.
- TRA untimely raised a doctrine of equivalents theory that lacked merit. Id. at 35.
- TRA, in attempting to avoid summary judgment, only advanced a “broad, conclusory attack” on Kantar’s witness’ credibility. Id. at 35-36.
- TRA asserted twenty four trade secret claims which it narrowed to five claims, which the court found lacked “any colorable basis and were brought in bad faith.” Id. at 36-37. Specifically, the court found that bad faith could be inferred because TRA’s claims were “so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose.” Id. at 39. Notably, the court held that Kantar was entitled to attorneys’ fees for defending against these claims under the court’s inherent power rather than Section 285. Id. at 40.
These decisions show that courts are embracing the greater latitude found under Octane Fitness to grant attorneys’ fees awards in order to deter frivolous and/or unreasonable actions motivated by bad faith with not only an attorneys’ fees award but, in rare instances, also an enhancement, and to curb repeated, frivolous and/or unreasonable arguments raised during litigation.
Arent Fox will continue to monitor these cases carefully. If you have any questions, please contact Jeff Leung or the Arent Fox professional who regularly handles your matters.
1 Arent Fox presciently noted in May 2014 that, as a result of the Octane Fitness decision, courts “will render more fee awards to curb abusive or frivolous litigation.” “More Leniency in Fee Awards to Prevailing Parties — Arent Fox Analysis on the Supreme Court’s Octane Fitness Decision” (May 1, 2014).