Addressing the proper test for shifting fees under 35 U.S.C. § 285, the US Court of Appeals for the Federal Circuit held that a district court erred when it shifted fees to the accused infringer because the district court found that only a series of events was exceptional but did not determine that the “case ” was exceptional. Intellectual Ventures LLC v. Trend Micro Inc., Case No. 19-1122 (Fed. Cir. Dec. 19, 2019) (Stoll, J.). Because it was unclear what standard the district court used when making its “exceptional case” determination, the Federal Circuit vacated and remanded for an analysis under the proper legal standard.

Intellectual Ventures owns a patent directed to filtering data files (such as email messages) based on their content. Intellectual Ventures asserted the patent against Trend Micro. Early in the case, the district court adopted Intellectual Venture’s proposed construction of the claim term “characteristic” to mean “an attribute of the document” that includes “whether it contains . . . bulk email.” For the first time at trial, however, Intellectual Venture’s expert changed his opinion, testifying that bulk email was not within the scope of a “characteristic.” He further testified that he “changed [his] opinion after [he] had a chance to prepare for trial working with Intellectual Venture[‘s] lawyers.” After trial, Trend Micro moved for clarification of the claim construction in light of the expert’s changed opinion. The district court maintained its construction, including “bulk email” as being within the scope of the claimed “characteristic.” Under this construction, Trend Micro prevailed on its invalidity defense. The district court’s invalidity judgment was affirmed in a previous appeal.

Following the first appeal, Trend Micro moved for fees under § 285, citing Intellectual Ventures’ last-minute and surprising change of course on the construction of “characteristic.” The district court granted Trend Micro’s motion, concluding that Intellectual Ventures’ conduct was exceptional “solely with respect to this collection of circumstances regarding [its expert’s] changed testimony.” However, considering “whether the case overall is exceptional,” the district court expressly found that “it was not” and that “it would be wrong to say that [Intellectual Ventures’s] case was objectively unreasonable.” Intellectual Ventures appealed.

The Federal Circuit found that a district court has discretion to find a case exceptional based on a single, isolated act. However, in this case, the district court failed to make that determination at a case level, and instead focused on the exceptional nature of the last-minute change in Intellectual Ventures’ claim construction position. The Court stated that proper legal standard is whether the conduct, isolated or otherwise, is such that the case is exceptional when considered as along with the totality of circumstances. As such, the Court vacated and remanded with instructions for the district court to make a finding under the proper standard: whether there was an exceptional case—not whether a portion of the case was exceptional.