In a previous post I wrote about Ole K. Nilssen, who played fast and loose with the U.S. Patent & Trademark Office (PTO) disclosure rules while prosecuting and maintaining some of his 200+ patents directed to compact fluorescent lighting (CFL) technology. Nilssen’s shenanigans included incorrectly claiming the right to pay reduced fees reserved for small entities, submitting misleading affidavits, and failing to disclose to the PTO then-pending litigation with Motorola on related subject matter.
The inventor’s conduct before the PTO was later deemed inequitable conduct by the district court and the Federal Circuit Court of Appeals (Federal Circuit) (Patent rule 1.56 imposes a duty of candor on the applicant, and patent case law deems such deception and incomplete disclosure of material information during the patent application process “inequitable conduct” that renders any resulting patents unenforceable).
It turns out that Nilssen’s sloppiness before the PTO spilled over to the courtroom and has cost him about $6 million. Last month the Federal Circuit affirmed a district court decision that Nilssen should pay Osram Sylvania, Inc.’s (Sylvania) attorney fees to cover the cost of the patent infringement suit Nilssen brought against Sylvania.Â
Section 285 of the patent laws gives courts the discretion to award reasonable attorney fees to a prevailing party in “exceptional” cases. Cases may be deemed exceptional based on a number of factors. Here, the trial court found the case exceptional because of Nilssen’s inequitable conduct, the frivolous nature of the lawsuit, and Nilssen’s litigation misconduct.Â
The litigation misconduct before the district court included waiting until very late in the proceedings to withdraw fifteen of the asserted patents from the case, belatedly producing requested documents, listing incorrect patent priority dates in responses to Sylvania’s interrogatories, and waiting until trial to announce that he was waiving the attorney-client privilege to assert reliance on advice of his tax attorney that he was eligible for the reduced small entity maintenance fees.
On appeal, the most important factor was not legal or factual, but simply the way that the appeals court reviews the district court’s findings – the “standard of review.”  The Federal Circuit must uphold a district court’s finding that a case is exceptional unless that finding is “clearly erroneous.” Similarly, the district court’s decision to award attorney fees must be affirmed unless the lower court abused its discretion in making the award. Â
These standards of review, which require the appeals court to be very deferential to the district court’s findings, ultimately sealed Nilssen’s fate. The Federal Circuit majority stated:Â
 Finally, and most importantly, the key to affirmance of the district court in this case is the standard of review – abuse of discretion. Much is said by this court, and directed to it, concerning the importance of deferring to district court judges on matters assigned to their discretion. In reviewing such matters, when we find them to be supported by evidence, and not unreasonable, we must, and do, respect their choices.
The Federal Circuit rejected Nilssen’s argument that the inequitable conduct was “benign,” finding no such qualitative distinction among different types of inequitable conduct. The appeals court also rejected his contention that the various instances of litigation misconduct merely constituted vigorous litigation tactics and harmless oversight of legal formalities.Â
The district court was in the best position to decide these issues because it had held a trial on inequitable conduct and had found that, in context, Nilssen’s multiplicity of transgressions amounted to litigation misconduct, and that granting attorney fees was appropriate under the circumstances. The Federal Circuit concluded there was no clear error in the district court’s decision that the case was exceptional and no abuse of discretion in awarding attorney fees.
Interestingly, Judge Pauline Newman dissented from the majority opinion, stating that precedent compelled the appeals court to examine the egregiousness of the inequitable conduct in reviewing an award of attorney fees. She noted that, under Federal Circuit precedent not all inequitable conduct warrants such a finding, so there must be a distinction among different types or levels of inequitable conduct:
The panel majority departs from precedent in holding that the nature of ‘inequitable conduct’ is not a factor to be weighed in the attorney fee determination. The court today enlarges the scope of ‘exceptional case’ to include less than egregious aspects of patent prosecution and litigation practice, with no evidence or charge of bad faith or prejudice . . . It is appropriate and necessary to consider the nature of the conduct, in reviewing an attorney fee award, and to limit such award to major infractions, as statute and precedent require.
But the Federal Circuit’s lesson for Nilssen is clear:Â observe the rules of the game both in the PTO and the courts if you want to enforce your patents.