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Courts may deny fees after finding inequitable conduct but must explain

Courts may deny fees after finding inequitable conduct but must explain

Energy Heating v. Heat On-The-Fly was decided on May 4, 2018 on appeal from the District of North Dakota. Before trial, the district court granted summary judgment in declaratory plaintiff Energy’s favor, dismissing some of declaratory defendant Heat’s infringement claims, and finding Heat’s asserted patent obvious. The jury found liability under state law. Following the jury trial, the district court found inequitable conduct against the patent owner Heat, finding that Heat failed to disclose prior sales and public uses of the claimed invention. The district court then denied Energy’s motions for attorney fees and costs under § 285. Both parties appealed.

The Federal Circuit affirmed the judgment of inequitable conduct, affirmed the judgment of tortious interference and denial of remedies under state law, vacated the denial of attorney fees, and remanded.

The district court did not err in finding inequitable conduct. “The inequitable conduct issue here relate[d] to whether the applicant failed to disclose information that would have implicated the on-sale bar under 35 U.S.C. § 102(b).” The district court “found clear and convincing evidence of substantial on-sale and public uses of the claimed invention” prior to the critical date. Moreover, it was “undisputed that [the patent holder] did not report prior sales to the PTO during prosecution of the … patent application.” And the district court also found that the prior sales “were not experimental and that any alleged experimentation was not related to the claims.”

The district court did not “abuse its discretion in finding that there was clear and convincing evidence that the inventor knew that the prior [sales] were material and specifically intended to deceive the PTO by not disclosing these [sales] to it.” “[S]pecific intent to deceive the PTO must be the single most reasonable inference that can be drawn from the evidence.” Here, there was an absence of contemporaneous evidence of experimentation. The 61 commercial sales thus provided the district court with sufficient evidence to find deceitful intent as the single most reasonable inference.

Eight months after the district court’s inequitable conduct judgment, the PTO issued a continuation patent related to the same invention, even after the pre-critical date commercial sales were disclosed. “The district court did not abuse its discretion in not considering the PTO’s issuance of the continuation patent because (1) the continuation patent was issued after the district court’s judgment; and (2) the claims of the continuation patent materially differ from the [asserted] patent claims.” The Federal Circuit thus affirmed the inequitable conduct finding.
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The Federal Circuit vacated the district court’s denial of attorney fees. “District courts have often awarded attorneys’ fees under § 285 following a finding of inequitable conduct, and [the Federal Circuit] has upheld such awards.” This, however, does not mean “that a district court must always award attorneys’ fees following a finding of inequitable conduct.” Nonetheless, given the strict materiality and intent standard for inequitable conduct, “a district court must articulate a basis for denying attorneys’ fees following a finding of inequitable conduct.” Here, the district court did not sufficiently reconcile its finding of inequitable conduct with its denial of attorney fees. The Federal Circuit thus vacated and remanded for a more reasoned explanation regarding attorney fees.

 

Energy Heating, Ltd. Liab. Co. v. Heat On-The-Fly, Ltd. Liab. Co., 889 F.3d 1291 (Fed. Cir. 2018)