CAFC Says Weakness of Patent Owner’s Litigation Position Warrants Attorney Fee Award

The U.S. Court of Appeals for the Federal Circuit on Friday affirmed a district court’s award of attorney’s fees to an accused infringer due to the “substantive weakness” of the patent owner’s litigation position. The opinion was authored by Judge Reyna.

Hawk Technology Systems LLC sued Castle Retail LLC in the U.S. District Court for the Western District of Tennessee, claiming infringement of its U.S. Patent No. 10,499,091, titled “High-quality, Reduced Data Rate Streaming Video Production and Monitoring System.” The district court ruled that the patent is directed to the abstract idea of “video storage display” under Alice Step one and that nothing transformed the abstract idea into patent eligible subject matter at step two and granted Castle’s request for dismissal under Federal Rule of Civil Procedure 12(b)(6).

Castle also moved for attorney fees and the district court granted this as well, explaining that “while the ’091 patent was presumptively valid, it was ‘demonstrably weak on its face.’” The court also found that Hawk should have known its case was exceptionally weak and that its “boilerplate complaint” demonstrated that it failed to “to engage in reasonable pre-suit investigation.” According to the district court, Hawk “had filed and settled hundreds of patent suits, including numerous suits involving the same patent, and…Hawk’s settlement negotiation conduct was ‘impolite and unprofessional.’” The court therefore found the case exceptional and awarded attorney fees from the time Castle filed its motion to dismiss onwards.

On appeal, Hawk argued that the district court abused its discretion in awarding fees because it “sealed ‘nearly the entirety of the briefing and exhibits related to’ the fees motion, thereby prejudicing Hawk’s ability to defend against Castle’s motion,” and in finding the case exceptional under 35 U.S.C. § 285.

As to the first argument, the CAFC said that Hawk forfeited it by failing to raise it to the district court. Hawk never opposed Castle’s motions to seal the filings and did not otherwise raise the issue. Hawk in fact consented to the motion to seal documents in the district court and failed to explain on appeal why it never asserted its opposition in the district court.

Regarding the district court’s finding that the case was exceptional under Section 285, the CAFC first noted that courts have broad discretion to find cases exceptional depending on the totality of the circumstances. While Hawk argued that the court’s finding that it engaged in a pattern of frivolous lawsuits was erroneous and not based on evidence, the CAFC pointed out that Hawk spent “twelve pages rebutting the evidence the district court relied on in reaching its finding.” The district court included considerations like the brief nature of the complaint, the lack of “particularized allegations” and the “vast number of patent suits” it had filed.

While the CAFC said in a footnote that if the district court had relied on a generalization it made about non-practicing entities having little business risk in patent litigation to find the case exceptional, that would have been erroneous, it “read the district court’s opinion…as relying on specific evidence of Hawk’s filing of prior suits for the purpose of obtaining settlements as opposed to relying on Hawk’s status as a practicing or non-practicing entity.”

Secondly, Hawk argued that it relied on the presumption of validity afforded to all granted patents and that the district court’s finding that its patent was weak on its face was therefore erroneous. But the CAFC said the district court found “the ’091 patent was ‘demonstrably weak on its face, despite the initial presumptions created when the patent was issued by the PTO.’” It also agreed with the district court’s analysis of “specific ‘untenable’ positions Hawk took after Castle filed its motion to dismiss the ’091 patent as being invalid under 35 U.S.C. § 101” and noted that the Supreme Court’s ruling in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014) held that “the ‘substantive strength of the party’s litigating position’ is relevant to the exceptional case determination.”

Lastly, Hawk argued that the district court abused its discretion in finding that its lawyers engaged in “impolite and unprofessional” litigation conduct and attributing that conduct to Hawk, but the CAFC once again said the district court did not clearly err here. Its finding was based on emails between Hawk’s counsel and Castle’s counsel evidencing “unreasonable litigation conduct” and justified the district court’s finding that the case was exceptional.

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Author: nbvf89