Absent litigation misconduct, an award of costs under 35 U.S.C. § 285 is appropriate only where the litigation is subjectively brought in bad faith, and is objectively baseless. Failure to engage in settlement negotiations does not constitute litigation misconduct.

The assignee of a patent related to insulated roof board sued for infringement. The alleged infringer brought a motion for summary judgment on invalidity, which the district court granted and the Federal Circuit affirmed. Subsequently, the alleged infringer filed a motion under 35 U.S.C. § 285 that the case be deemed "exceptional" and that it be awarded attorney fees.

The district court determined that the assignee initially "had some basis" for its contention that the patent was valid, but held that the assignee's decision to maintain the suit, in light of deposition testimony from the named inventor that the accused product, the product alleged to anticipate and the patented product did "exactly the same thing," warranted a finding of an exceptional case.

The Federal Circuit reversed, holding that although the assignee was unsuccessful in proving validity, the case did not meet the "exacting standard" required for an "exceptional" case. Absent misconduct in the litigation, an award of costs is only appropriate where the litigation is (1) brought in subjective bad faith and (2) objectively baseless. The "objectively baseless" inquiry is identical to the objective recklessness standard set forth in In re Seagate regarding willful infringement, and requires an "objective assessment of the merits" of the challenged claims and defenses, without consideration of the state of mind of the party against whom fees are sought. Here, even in light of the inventor's deposition testimony, the Federal Circuit was unwilling to conclude that the assignee lacked a reasonable foundation for arguing that its patent was not anticipated.

The Federal Circuit also rejected the assertion that the assignee's failure to engage in settlement negotiations constituted litigation misconduct, holding that where the assignee had a reasonable basis for a cause of action, the refusal to make or accept a settlement offer does not support a finding of litigation misconduct.

A copy of the opinion can be found here.