Section 285 of U.S. Patent Laws provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." In the past, exceptional case awards have been rarely awarded, first requiring the party seeking fees to prove by clear and convincing evidence that the case is "exceptional", and if so, then requiring the court to consider whether an award is warranted. See Interspiro USA v. Figgie Int'l, 18 F.3d 927, 933 (Fed. Cir. 1994).
Under Brooks Furniture Manufacturing v. Dutailier, Inc., 393 F.3d 1378 (Fed. Cir. 2005), a case may be "exceptional" when there has been some "material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjuustified litigation, conduct that violates FRCP 11, or like infractions." Absent any misconduct in the litigation or securing the patent, sanctions may be imposed against the patentee "only if both (1) the litigiation is brought in subjective bad faith, and (2) the litigation is objectively baseless."
Recently, in Kilopass Tech v. Sidense Corp., defendant Sidense argued that the case should be found exceptional under Brooks Furniture, because the lawsuit was brought in bad faith and objectively baseless. The district court rejected the argument, which the Federal Circuit later vacated.
Specifically, the Federal Circuit found that a case can still be brought in bad faith even if the plaintiff-patentee did not have actual knowledge of its baselessness, so long as the there exists an objective foundation that claim was either known or obvious. Thus, a misguided plaintiff can nonetheless be found to have brought a case in bad faith if the baselessness would have been obvious to a reasonable person.
Further, subjective knowledge of bad faith can be proved through direct and circumstantial evidence to be considered under the "totality of the circumstances." As such, courts may make an "inference of bad faith" assessing all evidence in light of the totality of the circumstances. In some instances, "[o]bjective baselessness alone can create a sufficient inference of bad faith to establish exceptionality under 285, unless the circumstances as a whole show a lack of recklessness on the patentee's part." For example, a "smoking gun" that reveals "that a patentee knew that he had no chance of winning a lawsuit" alone may be sufficient to show subjective bad faith, and "[f]actors such as the failure to conduct an adequate pre-suit investigation, vexatious or unduly burdensome iltigation tactics" may also be indicative of bad faith.
The opinion echos the sentiment of Congress, which is currently considering several bills that would, in part, make it easier for a prevailing party to collect fees.
For the full opinion -- http://www.cafc.uscourts.gov/images/stories/opinions-orders/13-1193.Opinion.12-20-2013.1.PDF.