An "Unexceptional" Decision of the Federal Circuit

In Stephens v. Tech Int'l, Inc. (Fed. Cir., December 29, 2004), the U.S. Court of Appeals for the Federal Circuit agreed with Spectrum that the district court erred in finding this case exceptional. Section 285 of the patent statute provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party." Such "exceptional" cases involve inequitable conduct before the PTO, litigation misconduct, vexatious and otherwise bad faith litigation, frivolous suit or willful infringement. None of those circumstances was present in this case.

Spectrum argued that the district court found this case "exceptional" based upon three erroneous factual findings:

1. that Spectrum had engaged in bad faith litigation by suing Tech for infringement;
2. that Spectrum had committed litigation misconduct by giving Tech section 154 notice of potential infringement regarding an unrelated patent application; and
3. that Spectrum’s background investigation and credit check on Haddad constituted vexatious behavior and evidence of litigation misconduct.

On the first point, the question is whether a person experienced in the field of urinalysis and familiar with the prior art, reading the patent specification, would know that for the removal of unwanted substances from urine samples, the use of chromium trioxide to remove said unwanted substances encompasses the administration of the salt form. For example, in concluding that the would, the court noted that "The examiner relied upon experiments using sodium dichromate to allow Spectrum’s claim of the use of chromium trioxide: 'It is the examiner’s position that sodium bichromate is sufficiently chemically similar to chromium trioxide that a showing with respect to sodium bichromate is indicative of the performance of chromium trioxide.'"

On the second point, the district court also erred in finding that Spectrum’s otherwise valid section 154 notice amounted to misconduct. First, Spectrum operated within its rights under section 154 when it notified Tech of potential infringement. The letter represented Spectrum's adherence to section 154's requirement that Tech be placed on notice of Spectrum's future right to obtain royalties if a patent issued in a form substantially identical to the published '222 application. Second, Spectrum did not harass Tech by sending the section 154 notice while the '222 application was being amended. The application was actually amended after the section 154 notice was sent to Tech. Further, Spectrum was not required to withdraw its section 154 notice; it believed Tech still infringed the amended claims, and had a right to await possible patent issuance to see if its infringement allegations were correct. Third, the fact that no Information Disclosure Statement ("IDS") accompanied the '222 application is not, standing alone, evidence of wrongdoing. Spectrum was permitted to file an IDS, if deemed material, at any point during the prosecution of the application. Nothing in Section 154 required that Spectrum file an IDS prior to delivering notification of potential infringement. Finally, the mere timing of Spectrum's section 154 notice to Tech (during settlement negotiations after the trial court’s noninfringement finding) did not raise Spectrum's actions to the level of litigation misconduct.

On the third basis for its exceptional, the district court relied heavily on the fact that these activities occurred after its summary judgment order of noninfringement when it said that it could "imagine no legitimate litigation interest" served by the investigations. However, the facts cited in Order did not provide clear and convincing evidence that Spectrum’s investigation and credit check constituted vexatious behavior. The district court’s "open speculation" about the purpose of Spectrum’s investigations added no support to its finding.