Today, when served with a complaint for patent infringement, the accused routinely petition the PTAB to review the patentability of the asserted claims. Often enough, the accused first identifies its invalidity positions and prior art to the Patent Owner through litigation pleadings and discovery. Indeed, many even seek to settle the litigation before either party expends additional resources litigating the matter. But, often enough, the accused are spurned.When the accused-turned-petitioner ultimately prevails before the PTAB in having the asserted claims canceled, the accused is now the prevailing party before the court. And, in view of recent sea-changes in our patent laws, prevailing parties—once accused of infringement—are now successfully moving courts to award reasonable attorney fees incurred as a result of the accusation. Prevailing PTAB petitioners may enjoy similar success.
The fee-shifting statute of the Patent Act states that a “court in exceptional cases may award reasonable attorney fees to the prevailing party” in a patent infringement suit. 35 U.S.C. § 285. The Supreme Court recently interpreted this statute, stating that “an ‘exceptional’ case is simply one that stands out from others with respect to 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 Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014). Continuing, the Court stated that the district court has discretion to determine whether the case is “exceptional” based on the totality of the circumstances. The statute does not prohibit a district court from awarding fees for the entire case, including its appeals and arguably issues resolved by the PTAB that otherwise bind the court.
Because AIA post-grant PTAB proceedings today offer an alternative to federal court validity determinations, those proceedings should be considered among the totality of circumstances a court in a parallel case considers in determining whether the entire case is exceptional. The mere fact that validity was decided against the Patent Owner—not by the court but—by the PTAB should not matter. Under the governing law, the Petitioner bears a lower burden of proving invalidity before the PTAB. However, if an accused infringer identifies prior art and invalidity arguments to the Patent Owner before filing a PTAB petition, the Patent Owner may be on notice that its litigation position is much weaker than originally thought when the Patent Owner filed its infringement complaint. These facts may sufficiently distinguish the matter from others, compelling a court to declare the case “exceptional” consistent with the Supreme Court’s directions in Octane Fitness. As long as the attorney fees the accused expended in obtaining a PTAB judgment canceling the claims were reasonable, those fees should be recoverable in the parallel civil action that prompted the PTAB proceeding.
[I]n circumstances where the Petitioner offers its reasoned invalidity positions to the Patent Owner before challenging the patent’s validity at the PTAB, and the PTAB ultimately adopts those positions as the basis for cancelling the patent, district courts should exercise discretion in declaring the entire case exceptional and awarding attorney fees—even those incurred in parallel PTAB proceedings.
Recently, a federal court in California declared an infringement action “exceptional” and awarded the accused infringer its attorney fees (over $380,000) incurred in successfully prosecuting an inter partes reexamination before the Patent Office examiner and the PTAB. Deep Sky Software, Inc. v. Southwest Airlines Co., No. 10-cv1234-CAB (S.D. Cal. June 1 and Aug. 19, 2015) (orders granting motion to find case “exceptional” and awarding fees). In this case, the accused denied infringement and counterclaimed the patent was invalid. The accused provided the Patent Owner with a number of invalidating prior art publications. The Patent Owner refused, however, to dismiss its complaint and withdraw its infringement accusations. In turn, the accused successfully requested reexamination. The court stayed the action pending resolution of the reexamination. In concluding the reexamination, the PTAB issued a judgment cancelling all of the asserted claims in view of prior art the accused advanced in its request. Further, during reexamination, the examiner alternatively rejected the claims as being unpatentable over a material prior art reference the Patent Owner failed to disclose to the Patent Office when it issued the patent.
This last fact appears to have been a primary basis for the court’s order declaring the case exceptional. However, the case arguably was exceptional simply based on the other facts recounted above. Not every petitioner victory before the PTAB will warrant a determination that the entire case was exceptional and an award of fees via the parallel civil action. But, in circumstances where the Petitioner offers its reasoned invalidity positions to the Patent Owner before challenging the patent’s validity at the PTAB, and the PTAB ultimately adopts those positions as the basis for cancelling the patent, district courts should exercise discretion in declaring the entire case exceptional and awarding attorney fees—even those incurred in PTAB proceedings.