In Intellectual Ventures I LLC v. Trend Micro Inc., [2019-1122] (December 19, 2019), the Federal Circuit vacated and remanded a finding of exceptionality under 35 USC 285, because it was unclear whether the district court applied the proper legal standard.

During cross-examination at trial, Intellectual Ventures’ expert changed his opinion about the meaning of the term “characteristic.” 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. During the hearing on Trend Micro’s motion, Intellectual Ventures’s counsel maintained that the expert had not changed his opinion, despite the expert’s clear trial testimony to the contrary. The district court granted Trend Micro’s motion for clarification. The district court also granted leave for Symantec and Trend Micro to file motions for judgment as a matter of law that the asserted patent claims were invalid under 35 U.S.C. § 101.

Trend Micro 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. The district court granted Trend Micro’s motion, concluding that Intellectual Ventures’ conduct was exceptional solely with respect to this collection of circumstances regarding its expert’s changed testimony, and awarded $444,051.14 in attorneys’ fees.

The Federal Circuit, however, found that the overall case was not exceptional and concluded that it would be wrong to say that Intellectual Ventures’ case was objectively unreasonable.

Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. An exceptional case “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.

Applying an abuse of discretion standard, the Federal Circuit said it was not clear that the district court applied the proper legal standard when it considered whether the case was exceptional under §285. The Federal Circuit said that 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 other cases, from all the other portions of this case, in terms of either the substantive strength of a position was advocating or the manner with which Intellectual Ventures was litigating.

The Federal Circuit said that Section 285 gives the district court discretion to depart from the American Rule and award attorney fees “in exceptional cases.” Accordingly, under the statute, the district court in this case should have determined whether the circumstances surrounding the expert’s changed opinion were such that, when considered as part of the totality of circumstances in the case, the case stands out as exceptional.

On the one hand, the Federal Circuit rejected Intellectual Venture’s argument that a case cannot be found exceptional based on a single, isolated act, holding that a district court has discretion, in an appropriate case, to find a case exceptional based on a single, isolated act.

On the other hand, the Court held that the relevant question for the district court was 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. In other words, does the case stand 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?

Since there must be a finding of an exceptional case — not a finding of an exceptional portion of a case — to support an award of partial fees, the Federal Circuit vacated and remanded the district court judge’s decision.