In reversing a district court ruling finding a case “exceptional” and awarding fees to a successful defendant, the U.S. Court of Appeals for the Federal Circuit held that infringement action was not objectively baseless and, thus, not “exceptional” under 35 U.S.C. §285. iLOR LLC v. Google, Inc., Case Nos. 10-1117; 1172 (Fed. Cir., Jan. 11, 2011) (Dyk, J.).

iLOR filed suit against Google, alleging that a Google notebook product infringed its U.S. patent. The asserted claim required, inter alia, a “toolbar being displayable based on a location of a cursor in relation to a hyperlink.” iLOR argued to the district court that this limitation was found in the accused products, which required the user to “right-click” on a hyperlink before the toolbar was displayed. Google argued that the “being displayable” limitation only covered methods in which the toolbar is automatically displayed based on the proximity of the cursor to a hyperlink. The district court agreed with Google and construed the limitation to require a toolbar display that was automatic based on the location of the cursor in relation to the hyperlink. iLOR appealed and, in an earlier decision, the Federal Circuit affirmed the district court’s claim construction. See iLOR, LLC v. Google, Inc. (IP Update, Vol. 12, No. 1).

After its successful Federal Circuit appeal, Google moved to recover its attorneys’ fees, costs and expenses under 35 U.S.C. §285. The district court granted Google’s motion, holding that the case was “not close” on the merits and that iLOR had acted in subjective bad faith in bringing the case against Google. The district court awarded Google more than $660,000 in attorneys’ fees, costs and expenses. iLOR appealed the district court’s award of fees and its finding that the case was exceptional.

The Federal Circuit reversed, explaining that the case was not exceptional under §285. The Court explained that sanctions may be imposed only if “both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Under this standard “a patentee’s ultimately incorrect view of how a court will find does not of itself establish bad faith.” Instead the “plaintiff’s case must have no objective foundation, and the plaintiff must actually know this.” The Court went on to explain that the objective prong under §285 “is identical to the objective recklessness standard for enhanced damages and attorneys’ fees against an accused infringer for §284 willful infringement actions under In re Seagate.” Both standards require an objective assessment of the merits based on the “record ultimately made in the infringement proceedings.”

In analyzing the record and iLOR’s unsuccessful claim construction arguments, the Court found that the broader claim construction proposed by iLOR was not “so unreasonable that no reasonable litigant could believe it would succeed. … Simply being wrong about claim construction should not subject a party to sanctions where the construction is not objectively baseless.” Because iLOR’s claim construction argument could be reasonably argued in light of the claim terms, specification and prosecution history, the Federal Circuit held that the district court committed clear error in holding that the case was exceptional under §285 and vacated the award of attorneys’ fees.