KILOPASS TECHNOLOGY, INC. v. SIDENSE CORPORATION

The court may award reasonable attorney fees in patent infringement cases with exceptional circumstances; a clear and convincing evidence standard applies to the inquiry of whether fees will be awarded.

Opinion (O’Malley): The district court granted summary judgment for Sidense Corporation (“Sidense”), holding that it did not infringe Kilopass Technology, Inc.'s (“Kilopass's”) ‘751 patent. Sidense appealed and filed a motion seeking award of attorneys’ fees. The Court affirmed, the district court denied Sidense’s motion for fees, and Sidense appealed the denial. A determination of whether to award attorneys' fees under 35 U.S.C. §285 involves a two-step process. First, the prevailing party must prove by clear and convincing evidence that the case is “exceptional.” Second, if the case is exceptional, the court must determine if an award of fees is appropriate. Examples of exceptional cases are willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, or vexatious or unjustified litigation. An exceptional case also exists where: 1) the litigation is brought in subjective bad faith, and 2) the litigation is objectively baseless. Sidense alleged objective baselessness, but did not prove subjective bad faith because it could not show Kilopass had actual knowledge of baselessness. However, the Court found actual knowledge of baselessness was not required and that recklessness was the proper standard. The Court found that recklessness, and thereby subjective bad faith, must be determined by weighing the totality of the circumstances. The Court stressed that objective baselessness alone could be sufficient to infer bad faith and establish exceptionality, unless circumstances as a whole show a lack of recklessness. Because the district court's decision relied on an incorrect legal standard, the decision was VACATED and REMANDED.