The precedential opinion is the latest in a series of cases in which the U.S. Court of Appeals for the Federal Circuit is outlining the contours of what it means for a case to be “exceptional,” thus allowing the winning side to collect attorneys’ fees under the Patent Act. The U.S. Supreme Court held in 2014’s Octane Fitness v. ICON Health & Fitness that an “exceptional” case is one that stands out from others.
The U.S. District Court for the District of North Dakota originally found that fees weren’t warranted in the case, but later awarded them after the Federal Circuit asked for more explanation.
Patent owner Heat On-the-Fly LLC appealed that perceived flip-flop, arguing that the trial court hadn’t found it committed any litigation misconduct. The Federal Circuit was unswayed.
“Here, the district court properly considered the totality of the circumstances, including the manner of HOTF’s litigation, finding that ‘HOTF litigated the case in an unreasonable manner by persisting in its positions,’” the court said in a precedential opinion. “We see no abuse of discretion in the district court’s apparent refusal to credit HOTF for not further engaging in litigation misconduct.”
The lead attorney for the defendants, Ross Boundy of Davis Wright Tremaine LLP, hailed the opinion.
“This decision caps almost nine years of needless litigation brought on by Heat On-The-Fly’s principals and parents, based on a flimsy patent procured by fraud and asserted in bad faith,” Boundy said in an email.
HOTF declined to comment.
HOTF started selling its technology that avoids the need to store large quantities of preheated water on a fracking site in November 2006, making $1.8 million.
The company later received U.S. Patent No. 8,171,993 without disclosing its prior transactions. Technology isn’t protected by the Patent Act if it’s been available to the public for more than a year before the filing date.
When HOTF clashed with rival Energy Heating LLC and its client Marathon, Energy Heating went to court arguing that the patent was unenforceable. Energy Heating won at the trial level, and HOTF appealed.
The Federal Circuit affirmed the trial court’s finding that HOTF’s inequitable conduct before the patent office invalided the patent. But it vacated the trial court’s ruling that the case wasn’t exceptional enough to warrant attorneys’ fees, ordering the court to explain its decision.
On remand, the trial court decided the case was exceptional and awarded attorneys’ fees and costs of $1.8 million to Marathon and $3.5 million to Energy Heating.
HOTF appealed again, but the appeals court rejected all of its arguments that the fee award was inappropriate.
“The district court provided ample support for its conclusion that HOTF’s case was ‘substantively weak'—for example, HOTF knew ‘that its patent was invalid’ and that ‘no reasonable person could expect to prevail on claims of the patent’s validity,’” the Federal Circuit said. “Indeed, here, HOTF mainly regurgitates its (losing) argument that the district court’s previous order denying fees should control.”
Judge Sharon Prost wrote the opinion, joined by Chief Judge Kimberly A. Moore and Judge Kara F. Stoll.
Davis Wright Tremaine LLP represented Energy Heating. Holland & Hart LLP represented Marathon. Padmanabhan & Dawson PLLC represented HOTF.
The case is Energy Heating, LLC v. Heat On-The-Fly, LLC, Fed. Cir., No. 20-2038, 10/14/21.