The federal patent laws provide for an award of attorneys' fees to the prevailing party in exceptional patent infringement cases. 35 U.S.C. §285. An exceptional case is determined based on the totality of the circumstances. A case can be exceptional due to a substantive legal position taken by a party or a party's unreasonable litigation tactics. Courts can and will award attorneys' fees to a prevailing defendant if the plaintiff was not justified in filing a patent infringement suit in the first place by failing to conduct a proper investigation of infringement before filing suit.
ThermoLife International LLC v. GNC Corp., 922 F.3d 1347 (Fed.Cir. 2019) is a recent example of this. The District Court for the Southern District of California awarded the defendants their attorneys' fees because the plaintiffs did not adequately investigate the issue of defendants' infringement before suing them.
Stanford University licensed four patents to ThermoLife. The patents covered compositions of amino acids and a method of use to promote vascular function and performance in humans. In 2013, ThermoLife and Stanford filed 81 lawsuits for patent infringement against multiple defendants, including Hi-Tech Pharmaceuticals, Inc., Vital Pharmaceuticals, Inc., and several GNC entities. The plaintiffs alleged that the defendants infringed the patents by making and selling the patented compositions and by performing the patented methods by treating humans directly, and by inducement through their labeling and advertising.
The cases were consolidated for pretrial procedures. The parties agreed to conduct discovery in phases, with claim construction, invalidity, and unenforceability to be done before infringement and damages. Many of the defendants settled with plaintiffs for small amounts of money.
In 2016, the cases against Hi-Tech, Vital, and the three GNC entities were consolidated for a bench trial on invalidity. At trial, the district court held that all of the claims of the patents were invalid as either anticipated or obvious. Because of the holding of invalidity, the issue of infringement was never addressed – there was no trial on infringement and there had been no discovery on infringement.
After trial, Hi-Tech and Vital filed motions for their attorneys' fees under 35 U.C.S. §285. The defendants argued that their products did not infringe because they had less than the claimed amounts of the amino acids and because studies (published before the plaintiffs filed suit) showed that the amounts contained in the defendants' products were not enough to provide the claimed vascular benefits. The defendants pointed out that the plaintiffs' own expert had acknowledged the conclusions of the published studies. The defendants contended that had the plaintiffs read the labels on the defendants' products and performed simple tests, they would have known that there was no infringement.
The plaintiffs did not disagree with the defendants' points, but only argued that they did not file the suits just to force the defendants to settle for nuisance value.
The district court granted defendants' motions for attorneys' fees. The court found that plaintiffs "had conducted an inadequate pre-filing investigation, resulting in objectively unreasonable infringement contentions." Id. at 1355. The plaintiffs had not read the defendants' product labels and had not conducted basic testing. The court also found that the plaintiffs had exhibited a pattern of filing many lawsuits "without carefully reviewing their claims as a calculated risk that might yield nuisance-value settlements" and settling with a lot of defendants for small, nuisance-value amounts. Id. The court stated: "plaintiffs' pre-filing investigation was severely lacking, thus resulting in frivolous claims and the objective unreasonableness of certain infringement contentions; [plaintiffs'] motivation was seemingly to extract nuisance-value settlements from a large number of defendants; [and] awarding fees here will advance compensation – and deterrence-oriented goals." Id. The court awarded Hi-Tech $903,890 and Vital $406,131 in attorneys' fees.
On appeal, the Federal Circuit Court of Appeals affirmed the district court's judgement. The appellate court held that the district court had not abused its discretion in finding the case exceptional, and in awarding fees based on plaintiffs' lack of inadequate investigations of infringement before filing suit and on the plaintiffs' pattern of filing suits without a full investigation of infringement. Id. at 1362.
The appellate court held that the fact that the district court based its exceptional case finding on the infringement issue, which had not been fully investigated, was unusual, but was within the discretion of the district court. Id. at 1357.
The appellate court explained that while a plaintiff is not required to test an accused product to determine infringement in order to perform an adequate pre-suit investigation, testing may be necessary depending on factors such as the availability of the products, cost of the testing, and existence of other information. Id. at 1360. According to the court, the defendants' products were publicly available and the testing was simple; the plaintiffs should have read the defendants' product labels and conducted testing of those products whose labels were not clear. Id. at 1361.
The appellate court found that the district court had done a thorough analysis of the exceptional case issue. "The district court, however, did not draw a bottom-line exceptionality conclusion after finishing its discussion of the Hi-Tech and Vital cases. It continued with its analysis, addressing the full range of cases filed by plaintiffs and finding a 'pattern of action' – specifically, a pattern of misconduct – that, together with the discussion tied to the Hi-Tech and Vital cases, supported the ultimate exceptional-case determination." Id. at 1362. Emphasizing the deterrence policy of awarding attorneys' fees in exceptional cases, the court stated that "the 'pattern' part of the district court's opinion thus rests on a finding, which we accept, that plaintiffs' irresponsible filing of infringement allegations extended widely beyond the two cases before us." Id. at 1364.
The holding could not be more clear: always conduct a pre-filing investigation of infringement in a patent infringement case. Of course, all cases should be thoroughly investigated before filing suit. It is especially important in patent infringement cases, however, because plaintiffs often want to proceed quickly to stop the infringement. Infringement must always be analyzed first, even though it may be expensive or time-consuming.
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