Old Reliable Wholesale, Inc. v. Cornell Corp. - 635 F.3d 539 (Fed. Cir. 2011)

Rule:

Absent misconduct in conduct of patent litigation or in securing the patent, sanctions may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. The standard for establishing that a claim is objectively baseless under 35 U.S.C.S. § 285 is identical to the objective recklessness standard for enhanced damages and attorneys' fees against an accused infringer for 35 U.S.C.S. § 284 willful infringement actions. Thus, objective baselessness depends not on the state of mind of the party against whom fees are sought, but instead on an objective assessment of the merits of the challenged claims and defenses. Unless an argument or claim asserted in the course of litigation is so unreasonable that no reasonable litigant could believe it would succeed, it cannot be deemed objectively baseless for purposes of awarding attorney fees under § 285.

Facts:

Old Reliable Wholesale, Inc. ("Old Reliable") is the assignee of U.S. Patent No. 5,069,950 (the "'950 patent"), which is directed toward insulated roof board. Cornell Corporation ("Cornell"), a Wisconsin roof manufacturer, produces several different insulated roofing products. Its Vent-Top ThermaCal 1 ("VT-1") consists of a bottom layer of polyisocyanurate insulation, a layer of paper felt facing bonded to the insulation, spaced blocks on top of the felt facing, and a top layer of oriented strand board ("OSB"). Its Vent-Top ThermaCal 2 ("VT-2") consists of a bottom layer of polyisocyanurate insulation, a layer of OSB, spaced blocks on top of the layer of OSB, and an additional layer of OSB on top of the blocks. In 2006, Old Reliable filed an infringement action against Cornell, asserting that the VT-1 product infringed claims 1, 2, 3, 6 and 7 of the '950 patent. In response, Cornell argued that the '950 patent was invalid because it was anticipated by its VT-2 product, which was sold before the critical date for the '950 patent. Cornell further asserted that the '950 patent was anticipated, or rendered obvious, by several other prior art references, including the Air-Flo insulated roofing panel manufactured by Branch River Foam Plastics, Inc. ("Branch River"). Old Reliable, however, argued that the VT-2 did not anticipate the '950 patent because it did not teach all of the structural elements required by the asserted claims. Specifically, Old Reliable asserted that because the VT-2 contained a layer of OSB between the insulation and the spaced blocks, the blocks were not "integral" with the "main portion" of insulating material. Old Reliable further contended that the Air-Flo product was not anticipatory prior art because it did "not disclose blocks that define interconnected channels" as required by the asserted claims and did not allow for cross-venting. In December 2007, the district court issued a claim construction order, construing the term "integral" to mean "formed with or joined to" and the term "adhered" to mean "attached." In March 2009, the trial court granted Cornell's motion for summary judgment of patent invalidity, concluding that the VT-2 product was anticipatory prior art. Although the court acknowledged that the VT-2 contained a layer of OSB between the insulation and the spaced blocks, it determined that the spaced blocks were nonetheless "integral" with the main portion of insulating material as required by the asserted claims.  The trial court also determined that the '950 patent was anticipated by the Branch River Air-Flo product. Rejecting Old Reliable's argument that the Air-Flo product did not contain the cross-ventilation feature required by the asserted claims, and relying of the deposition testimony of Dauphinais, the district court held that an Air-Flo product with cross-ventilation was sold prior to the '950 patent's critical date.  In addition, the court concluded that the '950 patent was invalid as obvious under 35 U.S.C. § 103(a). Noting that "[a]nticipation is the epitome of obviousness," the court determined that since the VT-2 and the Air-Flo products anticipated the '950 patent, they also rendered the asserted claims obvious.  Old Reliable appealed.

Issue:

Did Old Reliable have an objectively reasonable basis for the infringement action, thus making the fee award erroneous?

Answer:

Yes.

Conclusion:

The appellate court held that Old Reliable had an objectively reasonable basis for the infringement action, and thus the case was not exceptional to justify the fee award. Testimony of the inventor that Cornell’s product was functionally equivalent to the patented product did not establish, either expressly or inherently, that all the structural limitations in the patent claims were present in Cornell’s product as required to establish anticipation. Further, because there was a genuine dispute whether prior art allowed for the cross-ventilation disclosed in the patent, Cornell had a legitimate basis to contend that the prior product was not anticipatory prior art. Also, the U.S. Patent and Trademark Office intended to issue a reexamination certificate confirming the patentability of all claims of the patent before learning of the judicial determination of anticipation.