What Makes a Case Exceptional?

Panel: Chief Judge Moore and Judges Lourie and Albright,[1] with Judge Albright authoring the opinion.

You should read this case if: you are seeking or opposing an award of attorneys’ fees under 35 U.S.C. § 285.

In district court, plaintiff Realtime Adaptive Streaming L.L.C. (“Realtime”) sued several defendants (collectively, “DISH”) for infringing U.S. Patent Nos. 8,934,535 and 8,867,610.[2] These patents concern digital data compression. They are from the same patent family and share virtually identical specifications and claims. Both patents, as well as similar additional patents, were also the subjects of several contemporaneous district court and PTO proceedings. Ultimately, Realtime dropped its allegations for the ’535 patent, and the district court held the asserted ’610 patent claims ineligible. The Federal Circuit affirmed on appeal. DISH then sought and was awarded attorneys’ fees.

On appeal, the Federal Circuit determined the district court abused its discretion by finding the case exceptional under Section 285 to warrant attorneys’ fees in light of six so-called “red flags” that occurred while the case was pending. The Federal Circuit held that the district court abused its discretion because it failed to explain the weight for each flag and because it gave weight to some flags that should not have been accorded any weight at all. As a result, the Federal Circuit vacated the award of attorneys’ fees and remanded for the district court to reconsider.

Red Flag #1: Other district courts determined some claims in the ’535 patent ineligible. The district court treated those decisions as a red flag, and the Federal Circuit agreed. Although Realtime had dropped the ’535 patent from the case, the Federal Circuit observed that the district court expressly found claim 15 of the ’535 patent was “essentially the same in substance” as claim 1 of the ’610 patent. That was sufficient for the district court to treat those decisions as a red flag.

Red Flag #2: The Federal Circuit issued an opinion in Adaptive Streaming Inc. v. Netflix, Inc., 836 F. App’x 900 (Fed. Cir. 2000), affirming certain claims in a different patent were ineligible. That patent was directed to receiving a video signal in one format and broadcasting it in a different format. While the district court treated that opinion as a red flag, the Federal Circuit disagreed. The patent in Adaptive Streaming was unrelated to Realtime’s patent and concerned a different technology. The Federal Circuit noted that DISH needed something more to show exceptionality, like a side-by-side analysis of the ’610 patent claim limitations and those in Adaptive Streaming.

Red Flag #3: The PTAB issued two inter partes review decisions finding claims 1-14 of the ’535 patent would have been obvious and anticipated. Although the district court relied on these as a red flag, the Federal Circuit concluded the district court failed to adequately explain why these decisions were relevant. The PTAB’s decisions concerned anticipation and obviousness—not eligibility.

(Possible) Red Flag #4: The PTO issued non-final office actions rejecting some claims of the ’610 patent as invalid during ex parte reexamination. However, it was unclear whether the district court actually considered those office actions to be red flags, because the court only stated they could have served as red flags. The Federal Circuit faulted the district court for that failure and for failing to explain how the office actions, which concerned obviousness under the broadest reasonable interpretation, supported exceptionality in a case governed by the Phillips standard of claim construction.

Red Flag #5: DISH sent Realtime a letter expressing its belief the ’610 patent was invalid and its intention to seek attorneys’ fees if Realtime continued suit. In the letter, DISH referenced the Google, Netflix, and Adaptive Streaming decisions but failed to include sufficient analysis to justify exceptionality. The Federal Circuit generally noted the dangers of allowing such letters to justify exceptionality but the Court left open the possibility that a more detailed letter might suffice.

Red Flag #6: DISH submitted an expert declaration on validity that the district court believed merited “serious consideration.” But the Federal Circuit stated that this was not a red flag because the district court never explained why Realtime failed to show serious consideration of that declaration, particularly when Realtime submitted its own expert declaration on validity.

Ultimately, the parties get a do-over before the district court, guided by the Federal Circuit’s opinion. We’ll have to wait to see whether the district court again awards fees and how the Federal Circuit handles the matter if appealed.

[1] Judge Albright, a district court judge in the Western District of Texas, sat by designation.

[2] Realtime also alleged infringement of U.S. Patent No. 8,275,897 in its initial complaint before dropping those allegations in subsequent complaints.

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