Boring Down on Unexceptional Arguments for Exceptionality

Last week, the Federal Circuit issued a precedential decision affirming a Southern District of Texas denial of FMC Technologies, Inc.’s attorneys’ fees motion. The panel here (comprised of Moore, Clevenger, and Dyk) seems almost as disdainful of FMC’s arguments for exceptionality as a completely different panel did when it affirmed the denial of Pure Hemp’s motion for attorneys’ fees in United Cannabis, Corp. v. Pure Hemp Collective Inc., No. 22-1363 (Fed. Cir. May 8, 2023). As a quick recap from a previous post on Pure Hemp’s loss at the Federal Circuit earlier this month, the panel (made up of Lourie, Cunningham, and Stark) referred to Pure Hemp’s arguments as “extremely weak” and inclusive of “unsupported attacks” on UCANN’s prosecution counsel. In short, the Federal Circuit found “much on which to fault Pure Hemp.” Here, FMC’s primary argument for exceptionality under 35 U.S.C. § 285 was described to “wholly lack merit.” Let’s drill down a bit to find out why.

In 2015, FMC, who sells oil drilling equipment, was sued by competitor OneSubsea for patent infringement in the Eastern District of Texas. More specifically, OneSubsea alleged that FMC infringed 95 claims across 10 U.S. patents owned by OneSubsea. FMC, who also owned patents covering various structures for subsea drilling, countersued for patent infringement of two of those patents. FMC also successfully moved to transfer the case to the Southern District of Texas. The infringement dispute related to OneSubsea’s patents condensed down to whether fluid flows through FMC’s accused device as required by the patents. Based on the lower court’s construction of the term “divert” in a Markman ruling, FMC filed a motion for summary judgment of non-infringement, but the case was stayed (for three years due to IPRs) before the court ruled on FMC’s motion. In fact, while FMC tried to convince the district court to rule on its summary judgment motion instead of staying the case arguing that “ordinarily a stay of district court proceedings would be agreeable but was unnecessary in the light of the pending summary judgment  motion . . . [because] no reasonable jury could find infringement by FMC,” the district court declined to do as requested by FMC explaining that “it is unclear from the current record whether FMC’s dispositive motion would be granted.” When the case resumed in 2020, FMC renewed its summary judgment motion, which was granted by the court.

Shortly thereafter, FMC filed a motion for attorneys’ fees under 35 U.S.C. § 285, which argued that the case should be declared exceptional based on OneSubsea’s litigation misconduct and “the substantively weak infringement claims.” In support of these arguments, FMC contended that OneSubsea’s expert witness disregarded the district court’s claim constructions, OneSubsea’s choice of venue for the lawsuit was unreasonable, OneSubsea failed to timely provide final infringement contentions of infringement and made late-stage changes to its infringement theory, and OneSubsea ignored the significance of PTAB rulings (invalidating 76 claims of OneSubsea’s patents, none of which were asserted in the court case). The district court denied FMC’s motion explaining that “industry competitors zealously advocating their positions often results in resource- and time-intensive litigation. But that alone is insufficient to make a case ‘exceptional,’ and the prevailing competitor is not entitled to fees simply because it won the hard-fought case.”

On appeal, the Federal Circuit panel found no abuse in discretion by the district court in finding the case to be unexceptional and denying FMC’s fees motion. In fact, the appellate panel rejected FMC’s argument that OneSubsea’s case became entirely objectively baseless as soon as the Markman ruling was issued and that OneSubsea’s continued pursuit from that point on was litigation misconduct. Indeed, the panel described FMC’s primary argument to

wholly lack[] merit, because it fails to come to grips with the district court’s observation that FMC’s demand for a prompt favorable noninfringement judgment based only on the Markman Order was ‘unpersuasive’ because it was ‘unclear from the current record whether FMC’s dispositive motion would be granted.’

In short, an aggressive litigation strategy does not necessarily equate to the type of litigation misconduct typically required for a finding of exceptionality under § 285. Between this and the Pure Hemp decision, the Federal Circuit seems to be consistently making a clear distinction between persistent, but not unreasonable, lawyering and bad behavior. Moreover, we know from this latest decision that the type of “stand out,” objectively baseless case discussed in Octane Fitness and required for exceptionality under 35 U.S.C. § 285 is not a case where the court is “fully aware of the competing contentions of the parties, [but] declines to end the case on summary judgment and allows a plaintiff’s case to proceed.” Indeed, in that scenario,

the district court may have effectively determined that the position of the party opposing summary judgment is not objectively baseless, making it nearly impossible for the plaintiff’s case (on the issue that was the subject of the summary judgment motion) to “stand out” as lacking substance at that time.