Federal Circuit To Allow More Fee Shifting

, The Litigation Daily

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Scott Graham writes for The Recorder in San Francisco.

In a move that's sure to please advocates for patent litigation reform, the Federal Circuit has sent a strong message to district judges: Make more attorney fee awards in abusive cases.

The court on Thursday overhauled its standard for fee shifting in "exceptional cases" under Section 285 of the Patent Act, ruling among other things that it isn't necessary to show that a patent holder actually knew its claims were bogus.

The U.S. Court of Appeals for the Federal Circuit stopped just short of overruling a controversial 2005 opinion that required a showing of subjective bad faith. But the court substantially watered down the standard and provided a roadmap for the U.S. Supreme Court to go further as it gears up to overhaul the Federal Circuit's jurisprudence in the area next year. Judge Kathleen O'Malley's opinion in Kilopass v. Sidense also could remove some of the impetus from Congress to enact legislation to rein in patent "troll" litigation.

"The Federal Circuit is being responsive to the general sense in the community that fee shifting needs to be more liberally granted," said Weil, Gotshal & Manges partner Edward Reines, who is not involved in the case. "The same currents that are pushing the legislators and the Supreme Court toward reconsideration of fee-shifting dynamics" are being felt at the Federal Circuit.

Kilopass directs trial judges to put more weight on the objective merits of a case when considering whether to award attorney fees. A "smoking gun" showing that the patent holder actually knew its claims were baseless isn't needed to show bad faith, O'Malley wrote. Mere recklessness will suffice.

Her decision will require U.S. District Judge Susan Illston to reconsider fees against Kilopass Technology Inc., a Santa Clara semiconductor designer that pressed ahead with litigation against a competitor even after its co-founder and an outside attorney acknowledged potential problems with their claims.

"The primacy of objective evidence over assertions of subjective good faith or lack of knowledge is well established in our Section 285 case law," O'Malley wrote. "One's misguided belief, based on zealousness rather than reason, is simply not sufficient by itself to show that a case is not exceptional in light of objective evidence that a patentee has pressed meritless claims."

Judge Alan Lourie concurred in O'Malley's ruling, while Chief Judge Randall Rader called on the court to overrule Brooks Furniture Manufacturing v. Dutailier International, the 2005 ruling that requires a claim be objectively baseless and brought in bad faith for an exceptional case award.

"Brooks Furniture, to my eyes, does not fully account for Supreme Court precedent and does not align with decisions of other circuit courts of appeals," Rader wrote.

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