Inequitable Conduct Leads to a Finding of Exceptional Case and Award of Attorney Fees and Costs

Taltech Ltd. v. Esquel Enters. Ltd., No. 2009-1344 (Fed. Cir. May. 12, 2010).

Holding:

District courts may award reasonable attorney fees to a prevailing party “in exceptional cases” under 35 U.S.C. § 285 for conducts such as inequitable conduct before the PTO and misconduct during litigation. Slip op. at 3.

Regarding materiality, as long as a patent applicant was asserting an argument of patentability, it is irrelevant whether these arguments were the ultimate reasons for the patent’s allowance. Id. at 14.

Relevant Facts:

Taltech owns United States Patent No. 5,568,779 (“’779 patent”) drawn to seams including thermal adhesive to reduce pucker, and TAL Apparel Limited is a licensee of the ’779 patent. Esquel filed a DJ action. After trial, the district court found that the inventor engaged in inequitable conduct before the PTO for nondisclosure of prior art URS and misrepresentation. Based on these findings, and a finding of litigation misconduct, the district court declared the case exceptional under 35 U.S.C. § 285. The July 13, 2007, final judgment awarded Esquel attorney fees and costs based on the exceptional case finding. TAL appealed. The Federal Circuit vacated the inequitable conduct determination and remanded the case for the district court to determine whether the prior art URS was cumulative to another reference. On remand, the district court reached the same determinations and entered a supplemental final judgment which also imposed interest from the date of the earlier July 13, 2007, judgment. In this present appeal, the Federal Circuit affirmed the award of attorney fees and costs, but reversed the post-judgment interest rate because the interest should run from the supplemental judgment date.

Comments:

This case illustrates the grave consequences of inequitable conduct before the PTO. Although the courts generally are reluctant to find inequitable conduct because of the high standard, a finding of inequitable conduct could lead to a finding of “exceptional cases” under 35 U.S.C. § 285 and award of attorney fees and costs to the prevailing party.

Moreover, the Federal Circuit reviews the district court’s determination of inequitable conduct for an abuse of discretion, and a finding that a case is exceptional within the meaning of 35 U.S.C. § 285 for clear error.. Slip op. at 4. Once a case is determined to be exceptional, the Federal Circuit reviews a district court’s decision to award attorney fees under an abuse of discretion standard. Id. at 4-5. Because of these standards of review, it is an uphill battle for the appellant to challenge a district court’s findings on appeal.