The U.S. Court of Appeals for the Federal Circuit found there was no abuse of discretion in awarding attorneys’ fees to a defendant where the case was exceptional due to inequitable conduct, the frivolous nature of the lawsuit and litigation misconduct. Nilssen, et al. v. Osram Sylvania, Inc., et al., Case Nos. 07-1198, -1348 (Fed. Cir., June 17, 2008) (Lourie, J.; Newman, J., dissenting).

Nilssen sued Osram for patent infringement, originally asserting 26 patents for compact fluorescent light bulbs and ballasts for traditional fluorescent bulbs. Throughout the case, Nilssen added then withdrew several asserted patents. After a bench trial, the district court held the asserted patents unenforceable for improprieties that included misclaiming small entity status and improperly paying small entity maintenance fees, failing to disclose related litigation, misclaiming the priority of earlier filing dates, withholding material prior art and submitting misleading affidavits to the Patent and Trademark Office. Nilssen appealed.

In a split decision, the Court found the district court’s determination that this case was exceptional “supported by evidence, and not unreasonable,” emphasizing the standard of proof — “abuse of discretion.” The Court agreed with Nilssen that “there is no per se rule of exceptionality in cases involving inequitable conduct.” However, the Court disagreed that the inequitable conduct in this case was “benign.” The Court found that inequitable conduct alone can provide the basis for the award due to the intent requirement of the underlying offense, and that inequitable conduct is “per se not benign.” The Court indicated it was neither inclined nor obligated to reconsider the merits of Nilssen’s conduct. Absent evidence of error, the Court deferred to the district court’s determination that Nilssen’s litigation misconduct of providing incorrect and unsigned interrogatory responses, then objecting to their use at trial; failing to formally withdraw 16 patents from the suit until shortly before trial; failing to provide notice to Osram that it was going to waive privilege to defend the allegations of mispayment of fees; and producing documents for the first time at trial were more than simply, “[h]armless oversight of legal formalities or permissibly rough litigation tactics.” Finally, with regard to the grant of fees in this exceptional case, the Court found the “multiplicity [of the patentee’s flaws] indicates why the district judge ruled as he did,” and credited the finding that Nilssen’s testimony about his conduct was ultimately not credible.

In dissent, Judge Newman stated that, “the nature of ‘inequitable conduct’ is not a factor to be weighed in the attorney fee determination.” Given that the Court, in its prior opinion, stated that Nilssen’s conduct was, “not per se unreasonable,” Newman could not agree that the fee-shifting of 35 U.S.C. §285 should be applied.