In my last article I addressed a U.S. Congressional bill which would significantly change fee-shifting when a party brings a lawsuit for patent infringement. In partpiciular this legislation would broaden the circumstances under which a judge could award attorney fees to a party exonerated of patent infringement.
There are currently court rules and statutes for awarding attorney fees and/or costs in patent infringement cases to the accused infringer thereafter exonerated. For example there are potential financial sanctions for (i) bringing a frivolous lawsuit (ii) vexatious conduct during the litigation and (iii) willful infringement and/or fraud in obtaining the patent. Moreover, recently in Kilopass Technology Inc. v. Sidense Corporation [hereinafter Kilopass and Sidense], the federal appeals court broadened the circumstances under which a judge may award attorney fees for an ‘exceptional case’ involving patent infringement.
Kilopass and Sidense are competitors in the memory markets, i.e., a market in which devices retain information after power to the device is removed. After Kilopass observed a Sidense patent application on-line, it retained a law firm to determine whether Sidense’s disclosed invention infringed Kilopass’ patented memory device. The first law firm required additional time for a final determination, as did the second firm Kilopass subsequently contacted. Kilopass then retained a third firm which determined that Sidense may infringe but it had not yet completed the investigation. Nevertheless, Kilopass immediately filed the patent infringement lawsuit against Sidense prior to this final determination. Sidense was subsequently exonerated and thereby became the prevailing party. However, the trial court did not award fees to Sidense, apparently because there was no evidence that Kilopass actually knew that its infringement claims were baseless.
To obtain fees under the patent statute, there must be both subjective and objective bad faith by the party that filed the patent infringement lawsuit (generally the patent owner). On appeal Sidense contended that the trial judge should have awarded attorney fees because the case was (i) brought in subjective bad faith and (ii) objectively baseless. The appeals court agreed that the trial judge did not permit a sufficiently wide scope of evidence to establish these two requirements. The court further concluded that contrary to the trial court’s position, subjective bad faith can be established by evidence of (i) reckless conduct (ii) under a totality of the circumstances. Furthermore, a patent owner’s misguided belief is not sufficient by itself to overcome a conclusion of subjective bad faith in view of objective evidence.
The appeals court then ordered the trial court to re-evaluate whether fees from Kilopass to Sidense are appropriate (i) using the correct legal standards under the totality of circumstances criterion and (ii) to include objective evidence of merits of the litigation to establish subjective bad faith of the patent owner. The court emphasized that there was no intent to (i) discourage filing of meritorious patent infringement lawsuits and (ii) even if a patent owner had a weak case, then attorney fees on that basis alone are inappropriate. However, the court did question whether the subjective bad faith requirement was necessary under the patent statute attorney fee award provision.
On a final note, one may query whether the pending Congressional bill is necessary when judicial remedies, such as those of this appellate decision, increase the possibility of financial sanctions.
©2014 Adrienne B. Naumann
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