The Federal Circuit vacated an award of $444,000 in attorney fees to Trend Micro Inc., following a failed patent infringement suit brought by patent licensing company Intellectual Ventures to pay Trend Micro Inc. finding that it was unclear whether the district court applied the proper legal standard in awarding fees.

In Intellectual Ventures I LLC v. Trend Micro Inc., case number 2019-1122, Intellectual Ventures I LLC sued Trend Micro, Inc., Symantec Corp., and two other defendants for infringement of claims of four U.S. patents. The district court severed the actions against Trend Micro and Symantec, setting separate trials for each.

During claim construction in the Symantec action, the parties disputed the meanings of several terms containing the word “characteristic.” Throughout claim construction and pretrial proceedings, Intellectual Ventures’ expert consistently opined that a “characteristic” is “an attribute of the document such as whether it contains a virus or is SPAM or bulk email or includes copyrighted content.” The district court adopted Intellectual Ventures’ proposed constructions for the “characteristic” claim terms in the Symantec action. The district court also adopted its claim construction order from the Symantec action in the Trend Micro action.

However, during cross-examination at trial in the Symantec trial, Intellectual Ventures’ expert changed his opinion, testifying that bulk email was not a characteristic for purposes of claim construction. He further testified that he “changed [his] opinion after [he] had a chance to prepare for trial working with Intellectual Ventures’[s] lawyers.”

Following the completion of trial in the Symantec action, Trend Micro moved for clarification of the district court’s claim constructions in light of the expert’s changed opinion. Intellectual Ventures’ counsel maintained that the expert had not changed his opinion, despite the expert’s clear trial testimony to the contrary. Intellectual Ventures further argued that bulk email “never was” within the claim scope under the court’s claim construction. The district court granted Trend Micro’s motion for clarification and included “bulk email” as an example of a “characteristic” in its revised constructions for the “characteristic” terms in three claims. The court reasoned that it “learn[ed] only at the last minute” that Intellectual Ventures understood the claim construction to mean “that bulk email was excluded from claim 9 when it was clearly in the other claims.” This “was a surprise inconsistent with the representations from” Intellectual Ventures, and “not what [the court] had intended” by its original claim construction.

After the Symantec trial, the district court also granted leave for Symantec and Trend Micro to move for judgment as a matter of law that the asserted claims were invalid under 35 U.S.C. § 101. The court granted Trend Micro’s motion in part, affirmed by the Federal Circuit. The court then canceled the trial in the Trend Micro action.

Trend Micro then moved for attorney fees under § 285, requesting that the court declare the case exceptional due to the circumstances surrounding Intellectual Ventures’ expert’s changed opinion. Granting the motion, the district court concluded that Intellectual Ventures’ conduct was exceptional “solely with respect to this collection of circumstances regarding [its expert’s] changed testimony.” However, the court expressly found that the overall case was not exceptional, saying that “it would be wrong to say that [Intellectual Ventures’] case was objectively unreasonable.” After reviewing the parties’ briefing regarding accounting, the district court awarded Trend Micro $444,051.14 in attorney fees.

On appeal, the Federal Circuit expressed concern that the district court awarded fees under § 285, while at the same time expressly stating that the case as a whole was not exceptional. Per the Court, “Instead of determining whether the case was exceptional, it appears that the district court may have focused on whether one discrete portion of the case stood out ‘from all the other portions of this case[,] in terms of either the substantive strength of a position [Intellectual Ventures] was advocating or the manner with which [Intellectual Ventures] was litigating.’ This is not the appropriate analysis."

The Court rejected Intellectual Ventures’ argument that fees can be awarded only for a pattern of "bad faith, sharp tactics, and unreasonable litigation positions," and not for a single act. Instead, the Court held that a district court has discretion, in an appropriate case, to find a case exceptional based on a single, isolated act, citing the Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014). The Court continued, saying:

Whether the conduct is a single, isolated act or otherwise, the relevant question for the district court is the same. The district court must determine whether the conduct, isolated or otherwise, is such that when considered as part of and along with the totality of circumstances, the case is exceptional, i.e., the case stands out among others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.

The Court recognized that it has held that a fees award under § 285 fees can be related to particular conduct and circumstances that stood out and made the case exceptional, "but in all such cases we have required a finding of an exceptional case — not a finding of an exceptional portion of a case — to support an award of partial fees."

The Court remanded the case so that the district court can consider whether the specific circumstances render the case as a whole exceptional and deserving of attorney fees.