Innovation Technologies v. Splash! Medical Devices (CAFC 2007-1424)

Appealed from Northern District of Georgia, Judge Thomas W. Thrash, Jr.

The appellant, Innovation Technologies, Inc. ("Innovation"), sued Splash for infringement of its U.S. Patent No. 5,830,197 ("'197 patent") covering a method for irrigating wounds. There followed various motions, extensive discovery, and the filing of briefs on the construction of several patent claims, but the district court had not held a Markman hearing or construed those claims. More than a year after filing suit, Innovation (1) executed a covenant not to sue Splash for infringement of the '197 patent by the Splash device involved in this case and (2) moved to dismiss its suit with prejudice, which motion the district court granted.

Splash then moved for attorney fees pursuant to 35 U.S.C. § 285. The district court granted the motion and awarded Splash attorney fees of $140,232 and expenses of $4,118.78. The court's order consisted of a single paragraph with seven sentences.

The substantive portion of the order was the following three sentences:

This case qualifies as an "exceptional" case under 35 U.S.C. § 285 justifying an award of attorney's fees to Splash as the prevailing party. Splash has shown by clear and convincing evidence that Innovation knew or, on reasonable investigation, should have known, that its claims of infringement were baseless. It appears to me that the lawsuit was filed solely for the purpose of harassing a small competitor.

Order Granting Splash's Motion for Attorney's Fees, March 22, 2007.

Section 285 provides: "The court in exceptional cases may award reasonable attorney fees to the prevailing party." Under that section, the court first must determine whether the particular case is "exceptional." If the court finds that it is, it must then determine whether to award an attorney fee - a decision that lies primarily within the district court's discretion. See Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1329 (Fed. Cir. 2003).

The only finding of the district court that explains its reasons for concluding that this was an "exceptional case" is the second of the three sentences quoted above. All it found was that Splash had shown that "Innovation knew or, on reasonable investigation, should have known, that its claims of infringement were baseless." The court gave no explanation of, or factual basis for, that conclusion.

"In order to provide a basis for meaningful review, it is incumbent on the trial court not only to make the ultimate finding that the case is exceptional, but also to articulate the more particular factual findings from which the finding of 'exceptional circumstances' follows." Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1582 (Fed. Cir. 1985). "A district court must provide reasoning for its determination that a case is exceptional for us to provide meaningful review. Further, an exceptional case finding is not to be based on speculation or conjecture but upon clear and convincing evidence." Stephens v. Tech Int'l, Inc., 393 F.3d 1269, 1276 (Fed. Cir. 2004) (citations omitted).

The issues raised were not covered in the district court judge's ruling.

The district court made no findings on any of these issues. Without such findings, we cannot properly perform our review function. Indeed, the district court did not even indicate, and we cannot tell, upon which of these bases the district court relied in finding this case "exceptional." The three conclusory statements quoted above--which merely stated that this is an exceptional case, that Innovation knew or should have known that its claims of infringement were "baseless," and that it "appear[ed]" that the suit was filed "solely" to "harass" a small competitor--are inadequate to fill that void.

Accordingly, the district court's determination that this is an exceptional case and its award of attorneys fees are vacated, and the case is remanded to that court to make additional findings in accordance with this opinion. In doing so, the court may receive any additional evidence it deems appropriate.

Of course, the district court need not necessarily make findings on all of these points. Findings on those issues upon which the court bases its new determination of the "exceptional case" issue are all that is required. The detail necessary in such findings is a matter largely within the district court's discretion. See Lowder v. Dep't of Homeland Sec., 504 F.3d 1378, 1383 (Fed. Cir. 2007) ("The author of an opinion has broad discretion to determine what the opinion should contain and in what detail."). If the court again concludes that this is an exceptional case and that it should award attorneys fees, it should also explain the reasons for the latter conclusion.

Vacated and remanded.