Attorney Fees Available for Successful Defendant

As discussed back in September, district courts look to PTAB developments in assessing fee awards under 35 U.S.C. § 285. Recently the Eastern District of Michigan suggested that it could even find “exceptional” conduct at the PTAB as the sole basis for attorney fees.

Last week, the Southern District of California found that conduct substantially before the PTAB entitled a successful petitioner to attorney fees. In Flowrider Surf, LTD. v. Pacific Surf Designs, Inc., (here) the defendant (Pacific Surf Designs, Inc.) was awarded attorney fees pursuant to § 285.  Defendant filed an IPR challenging all claims asserted by plaintiffs (Flowrider Surf, LTD. and Surf Waves, LTD.).  The PTAB found all challenged claims unpatentable, including both 102 and 103 grounds. Based on that decision, the district court entered judgment for defendant.  After the district court entered its judgment, defendant moved for attorney fees.

The court found that fees were appropriate under § 285 because the case was “exceptional”: it stood out with respect to both (1) the substantive strength of plaintiffs’ litigating position and (2) plaintiffs’ unreasonable litigation manner.  Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).  First, the court found plaintiffs’ litigating position exceptionally weak. “Plaintiffs knew or should have known that the [patent-at-issue] was objectively unreasonable and frivolous” because plaintiffs were aware of the invalidating prior art—patents purportedly licensed to one plaintiff—and plaintiffs raised overly broad infringement theories.

Second, the court found that plaintiffs litigated in an unreasonable manner because plaintiffs “brought the lawsuit without conducting sufficient due diligence to determine the validity of the [patent-at-issue].”  The court found that at the very least, plaintiffs were “willfully blind in choosing to go forward with the suit against the Defendant” due to the licensed patents.  The court summarized by finding that:

Plaintiffs initiated this suit without adequately investigating the validity of the [patent-at-issue] (and despite warning signs to the contrary), insisted on maintaining this suit despite mounting evidence regarding the validity of the [patent-at-issue], and obfuscated the fact that the [patent-at-issue] had validity issues, the manner in which it litigated this case also makes this case stand out as “exceptional.

The Court therefore found that the “case stands out both with respect to the substantive strength of Plaintiffs’ litigating position and the manner in which Plaintiffs litigated it” and granted defendant’s motion for attorney fees pursuant to § 285.  While the Court did not explicitly state that it found plaintiffs’ conduct at the PTAB “exceptional,” the Court based many of its findings on plaintiffs’ knowledge of the prior art asserted at the PTAB, and it found that plaintiffs’ refusal to drop its case despite such knowledge “left Defendant little choice but to seek IPR.”

The court has yet to rule on whether to grant attorney fees for the PTAB litigation, but it may given last year’s ruling by the Central District of California that PTAB fees may be recoverable.