While an adverse claim construction generally cannot, alone, form the basis for an exceptional case finding, [a] party cannot assert baseless infringement claims and must continually assess the soundness of pending infringement claims, especially after an adverse claim construction.

On August 9, 2013, in Taurus IP, LLC v. DaimlerChrysler Corp., the U.S. Court of Appeals for the Federal Circuit (Prost, Schall,* Reyna) affirmed-in-part and reversed-in-part the district court’s judgment, inter alia, that certain claims of U.S. Patent No. 6,141,658, which related to a computer system for managing product knowledge related to products offered for sale by a selling entity, were invalid for anticipation and not infringed, and that the case was exceptional under 35 U.S.C. § 285. The Federal Circuit stated:

When assessing whether to award attorney fees under35 U.S.C. § 285, a district court engages in a two-step inquiry. The court must first determine whether the prevailing party has proved, by clear and convincing evidence, that the case is exceptional. If the court finds the case exceptional, it must determine whether an award of attorney fees is appropriate, and, if so, the amount of that award. Absent misconduct in litigation or in securing the pa¬tent, a case may be found exceptional under § 285 only if (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. Subjective bad faith by the offending partycan be upheld on review if, despite the lack of an explicit finding by the district court, other findings of fact are compatible with, and only with, that view. There exists a “presumption that the assertion of infringement of a duly granted patent is made in good faith.” Factual findings regarding subjective bad faith are reviewed for clear error. To be objectively baseless, the patentee’s assertions — whether manifested in its infringement allegations or its claim construction positions — “must be such that no reasonable litigant could reasonably expect success on the merits.” As a question of law, this court reviews a district court’s determination of whether a party’s claim or de-fense in a patent case is objectively baseless without deference. Because of the reputational and economic impact of sanctions, this court must carefully examine the record when reviewing an exceptional case finding. We are, however, also mindful of the fact that the district court, with its first-hand knowledge of the parties and their positions, should not be unduly second-guessed.

Having carefully considered the record before us, we conclude that the district court properly found the DaimlerChrysler Patent Suit to be exceptional. In reaching this conclusion, we find sufficient basis in the district court’s findings that Taurus improperly asserted and maintained its positions in the litigation. We need not rely on the findings related to vexatious litigation or witness tampering. Rather, no reasonable litigant in Taurus’s position could have expected a finding that a web surfer accessing the accused external websites satisfied the requirement for a “user,” as recited in claim 16. Although reasonable minds can differ on claim construction positions, Taurus’s proposed constructions of “user,” and the related terms discussed above, fall below the threshold required to avoid a finding of objective baselessness. Taurus proposed that “user” either not be construed at all, or effectively not construed, as “a person who uses the claimed computer system.” [H]owever, the written description provides no support for Taurus’s unreasonably broad construction and instead limits the term to those with sufficient internal access to the data model to allow the creation and editing of relationship information. When patentees have sought unreasonable claim constructions divorced from the written description, this court has found infringement claims objectively baseless.

We are not persuaded by Taurus’s argument that the claim construction of “user” was vague until issuance of the Summary Judgment Decision. When read in light of the specification, the district court’s construction provided clear limitations on the scope of “user.” Indeed, as the briefing to this court demonstrates, Taurus appears to have understood, but merely disagreed with the court’s construction. Taurus is correct that this court reversed two district court decisions relied on in the Post-Trial Decision for the proposition that “Taurus’s decision to proceed in the face of this court’s constructions prolonged the litigation in bad faith.” Those reversals did not, however, disturb the rule that a case can be found exceptional when a party prolongs litigation in bad faith. While an adverse claim construction generally cannot, alone, form the basis for an exceptional case finding, [a] party cannot assert baseless infringement claims and must continually assess the soundness of pending infringement claims, especially after an adverse claim construction. . . .

We also conclude that the district court did not clearly err in implicitly finding subjective bad faith. Although the district court did not explicitly state the facts supporting a finding of subjective bad faith, it did make sufficient factual findings for this court to uphold the implicit finding. . . . Taurus subjectively knew that the DaimlerChrysler Patent Suit lacked a reasonable basis and was, therefore, pursued and maintained in bad faith. We are not persuaded by Taurus’s argument that it lacked bad faith because it dropped its infringement claims against the internal websites. Although Taurus was correct (and required) to abandon any infringement claims that had no basis in fact or law, that abandonment does not permit Taurus to maintain other infringement claims that fail to meet or exceed a reasonable threshold. In other words, doing something required of it does not grant Taurus leave to do something not permitted. In addition, although counsel for Taurus is generally correct that it can and should represent its client “zealously,” attorneys are always charged with the “obligation to file cases reasonably based in law and fact and to litigate those cases in good faith.” Because the findings of the district court support the conclusion that this case was exceptional under 35 U.S.C. § 285, we affirm that ruling. As Taurus does not assert that the amount of attorney fees was improper, we do not address that issue.

If you have questions about the material presented above, please contact Dr. Lawrence M. Sung (lsung@bakerlaw.com or 202.861.1537) or any member of our Intellectual Property Team.

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