The US Court of Appeals for the Federal Circuit remanded a district court's decision denying attorneys' fees, finding that a district court must articulate a basis for denying attorneys' fees. Energy Heating, LLC v. Heat On-The-Fly, LLC, Case Nos. 16-1559; -1893; -1894 (Fed. Cir., May 4, 2018) (Stoll, J).
A sole named inventor who founded Heat On-The-Fly obtained a patent directed to a method of performing hydraulic fracturing, or "fracking," and filed a patent infringement lawsuit against Energy Heating. On summary judgment, the district court found that the sole inventor and his company used the claimed fracking process at least 61 times and collected more than $1.8 million from performing these processes before the critical date. The district court also found that the sole inventor knew that the patent process required him to file a patent application within one year of the first offer for sale or public use of his fracking process. Nevertheless, the inventor and his company never disclosed these offers for sale or public uses to the US Patent and Trademark Office (PTO) during prosecution of the patent at issue. The district court thus found the patent unenforceable due to inequitable conduct, but declined to award attorneys' fees. Heat-On-The-Fly appealed the inequitable conduct finding, and Energy Heating appealed the denial of attorneys' fees.
On appeal, Heat-On-The-Fly argued that the inequitable conduct finding was incorrect because 1) the prior uses of the claimed method were experimental, 2) the PTO issued a continuation application issued after the inventor disclosed all 61 prior sales to the PTO, which disproves both materiality and intent, and 3) the district court improperly found that there was clear and convincing evidence that the inventor knew that the prior jobs were material and specifically intended to deceive the PTO.
The Federal Circuit rejected each of these arguments. The Court found that the prior uses were not experimental because they were not done in secret, there were no confidentially agreements, and there were no notebooks or later analysis of the processes. The Court also rejected the plaintiff's second argument, finding that since the claims in the continuation application were materially different from the claims in the asserted patent, the issuance of the continuation application did not disprove both materiality and intent. The Court also rejected Heat-On-The-Fly's third argument, finding that the district court did not abuse its discretion in holding that there was clear and convincing evidence that the inventor knew that the prior fracking jobs were material and specifically intended to deceive the PTO by not disclosing these jobs.
The Federal Circuit also reversed and remanded the district court's denial of attorneys' fees. Applying an abuse of discretion standard of review, the Court was unsure whether the district court's basis for denying attorneys' fees rested on a misunderstanding of the law or an erroneous fact finding. The district court had explained its denial of attorneys' fees on the grounds that the plaintiff "provided a meritorious argument against the finding of inequitable conduct." However, a finding of inequitable conduct requires clear and convincing evidence of a specific intent to deceive. To meet that standard, the specific intent must be the "single most reasonable inference able to be drawn from the evidence." Therefore, the district court's finding that Heat On-The-Fly's arguments were "meritorious" was unclear and possibly at odds with the inequitable conduct finding. While noting that attorneys' fees should not always be awarded in inequitable conduct cases, the Court found that a district court still must articulate a reasonable basis for denying attorneys' fees in such cases.
Finding Fault Because Basis For Denying Attorneys' Fees Was Not Provided
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