Highmark, Inc. v. Allcare Health Management Systems, Inc. , 687 F.3d 1300 ( 2012 )

United States Court of Appeals
for the Federal Circuit
__________________________
HIGHMARK, INC.,
Plaintiff-Appellee,
v.
ALLCARE HEALTH MANAGEMENT SYSTEMS,
INC.,
Defendant-Appellant.
__________________________
2011-1219
__________________________
Appeal from the United States District Court for the
Northern District of Texas in case no. 03-CV-1384, Judge
Terry Means.
___________________________
Decided: August 7, 2012
___________________________
CYNTHIA E. KERNICK, Reed Smith, LLP, of Pittsburgh,
Pennsylvania, argued for plaintiff-appellee. With her on
the brief were JAMES C. MARTIN, KEVIN S. KATONA and
THOMAS M. POHL.
DONALD R. DUNNER, Finnegan, Henderson, Farabow,
Garrett & Dunnerr, LLP, of Washington, DC, argued for
defendant-appellant. With him on the brief were ERIK R.
PUKNYS, of Palo Alto, California. Of counsel on the brief
HIGHMARK v. ALLCARE HEALTH 2
was DAN S. BOYD, The Boyd Law Firm, P.C., of Dallas,
Texas.
__________________________
Before NEWMAN, MAYER, and DYK, Circuit Judges.
Opinion for the court filed by Circuit Judge DYK. Dissent-
ing in part opinion filed by Circuit Judge Mayer.
DYK, Circuit Judge.
Allcare Health Management Systems, Inc. (“Allcare”)
appeals from an order of the United States District Court
for the Northern District of Texas finding this case excep-
tional under 35 U.S.C. § 285 and awarding attorneys’ fees
and costs to Highmark, Inc. (“Highmark”). See High-
mark, Inc. v. Allcare Health Mgmt. Sys. Inc. (“Exceptional
Case Order”), 706 F. Supp. 2d 713, 738 (N.D. Tex. 2010).
The district court found the case exceptional because it
concluded that Allcare had pursued frivolous infringe-
ment claims, asserted meritless legal positions during the
course of the litigation, shifted its claim construction
positions, and made misrepresentations in connection
with a motion to transfer venue. We affirm in part,
reverse in part, and remand.
BACKGROUND
I
Allcare owns U.S. Patent No. 5,301,105 (“the ’105 pat-
ent”), which is directed to “managed health care systems”
used to interconnect and integrate physicians, medical
care facilities, patients, insurance companies, and finan-
cial institutions, ’105 Patent col. 1 ll. 4-11, particularly
with respect to utilization review. In health care, “utiliza-
tion review” is the process of determining whether a
health insurer should approve a particular treatment for
a patient. In general, the patent’s claims cover a method
3 HIGHMARK v. ALLCARE HEALTH
of determining whether utilization review is necessary in
a particular instance, and whether a recommended
treatment is appropriate. If utilization review is required,
the method prevents authorization and payment until the
appropriateness of the treatment has been determined
and the treatment has been approved.
At issue in this case are claims 52, 53, and 102. Inde-
pendent claim 52 recites:
A method of managing a comprehensive health
care management system utilizing a data proces-
sor, data bank memories, input means and pay-
ment means comprising:
(a) entering into said data processor data
identifying each of a predetermined plurality
or persons;
(b) entering into one of said data bank memo-
ries an identification of predetermined proce-
dures requiring utilization review;
(c) entering through said input means into
said data processor data symbolic of patient
symptoms for tentatively identifying a pro-
posed mode of treatment and, when said pro-
posed mode of treatment includes one of said
predetermined procedures requiring utiliza-
tion review, producing indicia indicative
thereof; and
(d) preventing payment therefor by said pay-
ment means until said utilization review has
been obtained and data indicative thereof has
been entered into said system.
’105 patent col. 21 ll. 22-41. Claim 53 depends from claim
52 and claims the additional step of producing some sort
of indicia when the proposed mode of treatment includes
HIGHMARK v. ALLCARE HEALTH 4
ancillary services, such as by pharmacists, prosthesis
providers, dentists, and the like. ’105 patent col. 21 ll. 43-
49, col. 14 ll. 35-38. Independent claim 102 recites:
A method of managing an integrated health care
management system having input means, pay-
ment means and memory storage comprising:
(a) storing through said input means into said
memory storage personal health profile data
for each of a predetermined plurality of per-
sons;
(b) storing into said memory storage symp-
toms and treatment data for each of a prede-
termined plurality of health profiles and
problems;
(c) storing in said memory storage criteria for
identifying treatments requiring utilization
review;
(d) storing in said memory storage criteria for
identifying treatments requiring second opin-
ions;
(e) entering into said system information iden-
tifying a proposed medical treatment for one
of said plurality of persons;
(f) identifying whether or not said pro-
posed medical treatment requires utiliza-
tion review; and
(g) preventing said system from approving
payment for said proposed medical treat-
ment if said proposed medical treatment
requires utilization review until such
utilization review has been conducted.
’105 patent col. 28 ll. 8-30.
5 HIGHMARK v. ALLCARE HEALTH
II
Highmark, a Pennsylvania insurance company, filed
suit against Allcare in the Western District of Pennsyl-
vania seeking a declaratory judgment of non-
infringement, invalidity, and unenforceability of all
claims of the ’105 patent. After the case was transferred
to the Northern District of Texas, Allcare counterclaimed
for infringement, asserting infringement of claims 52, 53,
and 102. During the course of the case, the district court
appointed a special master to resolve issues of claim
construction, including various limitations in claims 52
and 102. These claim construction disputes are described
below. The special master issued a claim construction
report, Special Master’s Report and Recommended Deci-
sions on Claim Construction (“Claim Construction Re-
port”), Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc.,
No. 4:03-CV-1384-Y (N.D. Tex. Dec. 20, 2006), which the
district court adopted, Highmark, Inc. v. Allcare Health
Mgmt. Sys., Inc., No. 4:03-CV-1384-Y (N.D. Tex. Mar. 23,
2007).
Highmark moved for summary judgment of non-
infringement. While Allcare opposed Highmark’s motion
with respect to claims 52 and 53, it did not oppose the
motion with regard to claim 102 and formally withdrew
the infringement allegations with respect to that claim.
The district court reappointed the special master, who
recommended that summary judgment of non-
infringement of claims 52 and 53 be granted. Special
Master’s Report and Recommended Decisions on Sum-
mary Judgment Motions (“Summary Judgment Report”),
Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., No.
4:03-CV-1384-Y, slip op. at 15 (N.D. Tex. Apr. 25, 2008).
The district court adopted the special master’s recom-
mendations, Amended Order Adopting Findings and
Recommendations of Special Master, Highmark, Inc. v.
HIGHMARK v. ALLCARE HEALTH 6
Allcare Health Mgmt. Sys., Inc., No. 4:03-CV-1384-Y (N.D.
Tex. Sept. 2, 2008), and entered final judgment of non-
infringement in favor of Highmark, Amended Final
Judgment, Highmark, Inc. v. Allcare Health Mgmt. Sys.,
Inc., No. 4:03-CV-1384-Y (N.D. Tex. Oct. 15, 2008).
Allcare appealed. On July 13, 2009, this court affirmed
the district court’s judgment under Federal Circuit Rule
36 without a written opinion. Highmark, Inc. v. Allcare
Health Mgmt. Sys., Inc., 329 F. App’x 280 (Fed. Cir. 2009).
While the previous appeal was pending before this
court, Highmark moved for an exceptional case finding
with respect to Allcare and an award of attorneys’ fees
and expenses under section 285 and for sanctions against
Allcare’s attorneys under Rule 11 of the Federal Rules of
Civil Procedure.
After reviewing the record, the district court found the
case exceptional and that Allcare’s attorneys had violated
Rule 11. Exceptional Case Order, 706 F. Supp. 2d at 738-
39. The court based both its exceptional case finding and
the Rule 11 sanctions on the same conduct. The court
found that Allcare’s claims for infringement of claims 52
and 102 were frivolous. The court also found that Allcare
engaged in litigation misconduct by asserting a frivolous
position based on res judicata and collateral estoppel,
shifting its claim construction position throughout the
course of the proceedings before the district court, and
making misrepresentations to the Western District of
Pennsylvania in connection with a motion to transfer
venue. After finding the case exceptional under section
285, the district court entered judgment awarding High-
mark $4,694,727.40 in attorneys’ fees and $209,626.56 in
expenses, and it also invoked its inherent power to impose
sanctions and awarded $375,400.05 in expert fees and
expenses. The district court did not determine how much
of the monetary awards were attributable to each issue.
7 HIGHMARK v. ALLCARE HEALTH
Shortly after the district court’s exceptional case find-
ing and judgment awarding fees and expenses, Allcare’s
attorneys withdrew from the case based on conflicts of
interest and separately moved for reconsideration of the
Rule 11 sanctions. To support the motions for reconsid-
eration, the attorneys provided additional evidence con-
cerning their representation of Allcare. Based on these
filings, the district court vacated the Rule 11 sanctions
against the attorneys. After the court vacated the attor-
ney sanctions, Allcare moved to reconsider the exceptional
case finding and the judgment awarding attorneys’ fees,
or in the alternative to grant a new trial or hold an evi-
dentiary hearing. This motion was denied. Allcare timely
appealed. We have jurisdiction pursuant to 28 U.S.C.
§ 1295(a).
DISCUSSION
Under 35 U.S.C. § 285, a “court in exceptional cases
may award reasonable attorney fees to the prevailing
party.” Once it is determined that the party seeking fees
is a prevailing party, determining whether to award
attorneys’ fees under 35 U.S.C. § 285 is a two-step proc-
ess. Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324,
1327-28 (Fed. Cir. 2003). First, a prevailing party must
establish by clear and convincing evidence that the case is
“exceptional.” Id. at 1327. An award of fees against a
patentee can be made for a frivolous claim, inequitable
conduct before the Patent and Trademark Office, or
misconduct during litigation. Beckman Instruments, Inc.
v. LKB Produkter AB, 892 F.2d 1547, 1551 (Fed. Cir.
1989). Second, if the case is deemed exceptional, a court
must determine whether an award of attorneys’ fees is
appropriate and, if so, the amount of the award. Forest
Labs., 339 F.3d at 1328. “[T]he amount of the attorney
fees [awarded] depends on the extent to which the case is
HIGHMARK v. ALLCARE HEALTH 8
exceptional.” Special Devices, Inc. v. OEA, Inc., 269 F.3d
1340, 1344 (Fed. Cir. 2001).
There is no dispute that Highmark is the prevailing
party in this litigation. We consider the various grounds
relied on by the district court for finding this case excep-
tional.
I
The central issue is whether Allcare’s infringement
counterclaims against Highmark were frivolous. It is
established law under section 285 that absent misconduct
in the course of the litigation or in securing the patent,
sanctions may be imposed against the patentee only if two
separate criteria are satisfied: (1) the litigation is brought
in subjective bad faith, and (2) the litigation is objectively
baseless. Brooks Furniture Mfg., Inc. v. Dutailier Int’l,
Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). The require-
ment that the litigation be objectively baseless “does not
depend on the state of mind of the [party] at the time the
action was commenced, but rather requires an objective
assessment of the merits.” Id. at 1382. “To be objectively
baseless, the infringement allegations must be such that
no reasonable litigant could reasonably expect success on
the merits.” Dominant Semiconductors Sdn. Bhd. v.
OSRAM GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008)
(internal quotation marks omitted).
Furthermore, even if the claim is objectively baseless,
it must be shown that lack of objective foundation for the
claim “was either known or so obvious that it should have
been known” by the party asserting the claim. In re
Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007);
see also iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377
(Fed. Cir. 2011). This is known as the subjective prong of
the inquiry. This same objective/subjective standard
applies for both patentees asserting claims of infringe-
9 HIGHMARK v. ALLCARE HEALTH
ment and alleged infringers defending against claims of
infringement. See iLOR, 631 F.3d at 1377.
We have recently clarified that “the threshold objec-
tive prong . . . is a question of law based on underlying
mixed questions of law and fact and is subject to de novo
review.” Bard Peripheral Vascular, Inc. v. W.L. Gore &
Assocs., Inc., No. 2010-1510, --- F.3d ---, 2012 WL
2149495, at *1 (Fed. Cir. June 14, 2012); see also Powell v.
Home Depot U.S.A., Inc., 663 F.3d 1221, 1236 (Fed. Cir.
2011). That determination must be made by the court as
a matter of law rather than by the jury. We review the
court’s determination of objective reasonableness without
deference since it is a question of law. Bard, 2012 WL
2149495, at *1. 1 With respect to the subjective prong,
1 The dissent urges that Bard was wrongly decided
in holding that de novo review was required. As ex-
plained in Bard, the objective reasonableness test was
based on the objective prong of the standard for sham
litigation explained in Professional Real Estate Investors,
Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49(1993). The Supreme Court in Professional Real Estate
held that objective reasonableness in this context is an
issue decided by the court as a matter of law. 508 U.S. at
63.
The dissent nonetheless urges that treating objective
reasonableness as a question of law is inconsistent with
Cooter & Gell v. Hartmax Corp., 496 U.S. 384 (1990), and
Pierce v. Underwood, 487 U.S. 552 (1988). These cases
held that appeals courts must apply deferential standards
of review to district court Rule 11 sanctions and determi-
nations under the Equal Access to Justice Act (“EAJA”)
that a litigation position was “substantially justified.”
Rule 11 and EAJA are materially different from section
285, and the Supreme Court in Cooter and Pierce identi-
fied relevant distinguishing factors.
First, in Pierce, the Supreme Court recognized that
where there is potential for a “substantial amount of
[monetary] liability produced by the District Judge’s
HIGHMARK v. ALLCARE HEALTH 10
decision,” more “intensive[]” review by the appellate court
is necessary. 487 U.S. at 563. Because the median award
in EAJA cases was less than $3,000, deferential review
was appropriate. Under section 285, however, the award
of fees is routinely in the millions of dollars as it is here,
thus supporting de novo review. Also in Pierce, the Court
noted that the language of the EAJA statute itself “sug-
gests some deference to the district court upon appeal,”
and recognizes deferential review where an agency
awards fees. Id. at 559.
Second, while both Rule 11 and section 285 have both
subjective and objective components, Rule 11 review is not
easily separated into these separate components as is the
standard under section 285. See Cooter, 496 U.S. at 401-
02. Because deferential review is particularly appropriate
as to the subjective determination, see id., a deferential
standard for the whole of Rule 11 is required. Under the
Brooks Furniture standard, where the section 285 inquiry
is easily divided into objective and subjective components,
only the subjective prong is reviewed under a deferential
standard.
Third, the inquiries under Rule 11 and EAJA look to
the situation existing at the time a particular claim or
representation was made, analyzing only the facts and
law present at that time determine whether the claim or
representation was justified. Such inquiries are necessar-
ily fact intensive. On the other hand, as explained below,
the inquiry under the objective prong of Brooks Furniture
is a retrospective assessment of the merits of the entire
litigation and does not rely on the facts present at a
particular time and is “based on the record ultimately
made in the infringement proceedings.” Bard, 2012 WL
2149495, at *4; see also Seagate, 497 F.3d at 1371 (stating
that the objective prong is “determined by the record
developed in the infringement proceeding”). In other
words, the objective reasonableness determination does
not require fact finding. The question is simply whether
the record established in the proceeding supports a rea-
sonable argument as to the facts and law.
Finally, the policy goals of sanctioning and deterring
poor litigation practices present in Cooter (which suggest
deference to the district court because it is best situated
11 HIGHMARK v. ALLCARE HEALTH
“there is a presumption that an assertion of infringement
of a duly granted patent is made in good faith.” Med-
tronic Navigation, Inc. v. BrainLAB Medizinische Com-
putersyteme GmbH, 603 F.3d 943, 954 (Fed. Cir. 2010).
Thus, the subjective prong of Brooks Furniture must be
established with clear and convincing evidence. 2 iLOR,
631 F.3d at 1377; see also Medtronic, 603 F.3d at 954. We
review factual findings as to subjective bad faith for clear
error. See Forest Labs., 339 F.3d at 1328; see also Powell,
663 F.3d at 1236.
II
Highmark contends that the Brooks Furniture objec-
tive reasonableness standard applies only with respect to
the initial filing of the infringement counterclaim and
does not apply to determining whether Allcare’s continued
to achieve these goals) are not present here. See Fed. R.
Civ. P. 11 advisory committee’s note to 1993 amendments
(“[T]he purpose of Rule 11 sanctions is to deter rather
than to compensate . . . .”). The purpose of section 285,
unlike that of Rule 11, is not to control the local bar’s
litigation practices—which the district court is better
positioned to observe—but is remedial and for the purpose
of compensating the prevailing party for the costs it
incurred in the prosecution or defense of a case where it
would be grossly unjust, based on the baselessness of the
suit or because of litigation or Patent Office misconduct,
to require it to bear its own costs. See Badalamenti v.
Dunham's, Inc., 896 F.2d 1359, 1364 (Fed. Cir. 1990);
Cent. Soya Co., Inc. v. Geo. A. Hormel & Co., 723 F.2d
1573, 1578 (Fed. Cir. 1983).
2 As Seagate noted, under the subjective prong, “to
establish willful infringement, a patentee must show by
clear and convincing evidence that the infringer acted
despite an objectively high likelihood that its actions
constituted infringement of a valid patent.” 497 F.3d at
1371 (emphasis added).
HIGHMARK v. ALLCARE HEALTH 12
litigation of baseless claims was frivolous. Appellee’s Br.
41. That is not correct. Rather, the objective prong
requires a retrospective assessment of the merits of the
entire litigation determined “based on the record ulti-
mately made in the infringement proceedings.” Bard,
2012 WL 2149495, at *4 (directing the district court to
determine in the first instance, “based on the record
ultimately made in the infringement proceedings,
whether a reasonable litigant could realistically expect
[its positions] to succeed” (internal quotation marks
omitted)); iLOR, 631 F.3d at 1378; Seagate, 497 F.3d at
1371 (stating that the objective prong is “determined by
the record developed in the infringement proceeding”).
The question is whether, in light of that record, “no rea-
sonable litigant could realistically expect success on the
merits.” Prof’l Real Estate Investors, Inc. v. Columbia
Pictures Indus., Inc., 508 U.S. 49, 60 (1993). The objective
prong is a single backwards-looking inquiry into the
reasonableness of the claims in light of the full record.
See iLOR, 631 F.3d at 1377-78 (citing Brooks Furniture,
393 F.3d at 1382).
Similarly, in considering a party’s subjective state of
mind, we are “to take into account the totality of circum-
stances.” Mach. Corp. of Am. v. Gullfiber AB, 774 F.2d
467, 473 (Fed. Cir. 1985); Forest Labs., 339 F.3d at 1330(considering the record as a whole in determining whether
the patentee maintained its infringement counterclaim in
bad faith). Unlike the objective prong, which is a single
retrospective look at the entire litigation, the subjective
prong may suggest that a case initially brought in good
faith may be continued in bad faith depending on devel-
opments during discovery and otherwise. See Computer
Docking Station Corp. v. Dell, Inc., 519 F.3d 1366, 1380
(Fed. Cir. 2008).
13 HIGHMARK v. ALLCARE HEALTH
However, we apply the objective/subjective standard
on a claim by claim basis. ICU Med., Inc. v. Alaris Med.
Sys., Inc., 558 F.3d 1368, 1379-81 (Fed. Cir. 2009) (affirm-
ing the district court’s determination that the patentee’s
assertion of only one claim was objectively baseless and
brought in bad faith); see also Mathis v. Spears, 857 F.2d
749, 761 (Fed. Cir. 1988). Because the rationale for
awarding fees against a patentee for the filing of frivolous
claims is “to reimburse the alleged infringer for defending
an action improperly brought,” Mach. Corp., 774 F.2d at
474, in these situations attorneys’ fees can only be shifted
insofar as each claim is found frivolous, see Mathis, 857
F.2d at 761 (awarding attorneys’ fees only for the frivo-
lous claims); see also Beckman, 892 F.2d at 1554 (holding
that when “one party prevails on some claims in issue
while the other party prevails on other claims, this fact
should be taken into account when determining the
amount of fees under § 285”). Thus, here we will treat
separately the finding that infringement claim based on
claim 102 rendered the case exceptional and the finding
that the infringement claim based on claim 52 rendered
the case exceptional. See Carter v. ALK Holdings, Inc.,
605 F.3d 1319, 1323-26 (Fed. Cir. 2010) (addressing
separately whether each of three counts asserted by the
plaintiff was frivolous).
A
The district court found that Allcare’s claim 102 in-
fringement litigation warranted an exceptional case
finding. We agree.
Claim 102 is directed to “[a] method of managing an
integrated health care management system.” ’105 patent
col. 28 ll. 8-9. The key question with respect to claim 102
was whether the preamble term “integrated health care
management system” was a claim limitation and, if so,
HIGHMARK v. ALLCARE HEALTH 14
whether it required patient and employer interaction. On
appeal, Allcare contends that it was not unreasonable to
argue that the preamble was not limiting or, if limiting,
that it did not require patient and employer interaction.
The preamble of claim 102 clearly falls within those
cases where the preamble is held to be limiting because
the “limitations in the body of the claim rely upon and
derive antecedent basis from the preamble.” Eaton Corp.
v. Rockwell Int’l Corp., 323 F.3d 1332, 1339 (Fed. Cir.
2003). Here, claim 102’s recitation of “said system” in
elements (e) and (g) can only derive its antecedent basis
from the “integrated health care management system”
from the preamble. It is also clear from the specification
that an “integrated health care management system”
required patient and employer interaction in addition to
the participation of the health care provider and insurer.
The patent specification begins by explicitly stating that
“[t]his invention relates to managed health care systems
. . . which integrate physicians, medical care facilities,
patients, insurance companies and/or other health care
payers, employers and bank and/or other financial insti-
tutions.” ’105 patent col. 1 ll. 1-11. The specification goes
on to explain that “[t]he preferred embodiment of the
present invention includes the integrated interconnection
and interaction of the patient, health care provider, bank
or other financial institution, utilization reviewer/case
manager and employer.” ’105 patent col. 1 ll. 54-58 (em-
phasis added). In distinguishing the prior art in the
background of the invention, the specification also ex-
plains that previous payment systems have not “included
integration of the active participation by a patient’s em-
ployer or inclusion of a patient’s own available cash
balances.” ’105 patent col. 1 ll. 44-47 (emphasis added).
The invention was thus intended to “provide[] full inte-
gration of each of the aforementioned activities.” ’105
15 HIGHMARK v. ALLCARE HEALTH
patent col. 1 ll. 50-51. Moreover, one of the objects of the
invention is “to provide an integrated health care man-
agement system including interactive participation with
patients’ employers and banks.” ’105 patent col. 2 ll. 11-
14.
Allcare agreed early in the case in a Joint Claim Con-
struction statement that the preamble to claim 102 was
limiting. See J.A. 5665 (“The parties also agree that the
preamble term ‘integrated health care management
system’ is construed as a claim limitation . . . .”). Indeed,
Allcare’s own proposed construction of the preamble
specified that the system “integrates (i.e., . . . includes)
physicians, medical care facilities, patients, insurance
companies and/or other health care payers, employers and
banks and/or other financial institutions.” Claim Con-
struction Report, slip op. at 43-44 (emphases added).
Allcare thus contemplated that an integrated health care
management system somehow required interaction with
patients and employers. Even now, Allcare offers no
plausible arguments that the preamble should not have
been limiting or that it did not require patient and em-
ployer interaction.
There was also no plausible argument that High-
mark’s method involved the interconnection and interac-
tion of patients and employers as was required by claim
102. Allcare’s expert even conceded as much during
deposition. J.A. 22885. 3 Allcare has not even argued that
3 Q. How does the employee/member [i.e., pa-
tient] interact with the bank in the Highmark
system?
A. The employee—from the information that I
read, the employee does not appear to interact
with the bank. . . .
HIGHMARK v. ALLCARE HEALTH 16
Highmark’s method included such interaction. Thus,
Allcare’s infringement claims with respect to claim 102
were objectively unreasonable.
Allcare also argues on appeal that its infringement al-
legations with respect to claim 102 do not warrant an
exceptional case finding because they were not brought in
subjective bad faith. A claim is brought in subjective bad
faith if the objective unreasonableness of the claim “was
either known or so obvious that it should have been
known” by the patentee. See Seagate, 497 F.3d at 1371.
That is clearly so here. Allcare knew or should have
known that its allegation of infringement of claim 102
was unreasonable, and this is not a situation in which
Allcare acted in good faith at the inception of the litiga-
tion, but because of later developments acted in bad faith
in continuing the litigation.
To be sure, even where infringement allegations are
objectively unreasonable, a patentee may have reason to
believe that its allegations are supportable so as to negate
a finding of bad faith. 4 But here, Allcare has made no
Q. Is there any interaction between the em-
ployee/member and the employer in Highmark’s
system?
A. The employer—interaction between the em-
ployee and the employer in the Highmark system,
based on my—my opinion is without my report no.
4 Thus, for example, an adequate pre-filing investi-
gation may negate a claim of bad faith. The district court
here found that Allcare did not conduct an adequate pre-
filing investigation. Since we have concluded that Allcare
engaged in bad faith from the inception—because it knew
or should have known that the allegation of infringement
of claim 102 was frivolous—we need not examine the pre-
filing investigation. Furthermore, apart from the section
285 inquiry, failure to conduct an adequate pre-filing
investigation, in some circumstances, independently
17 HIGHMARK v. ALLCARE HEALTH
such showing at any point in the litigation. Allcare points
only to a survey of health care management and insur-
ance organizations regarding their medical authorization
and claims payment systems performed by Seaport Sur-
veys, Inc. (“Seaport”) to demonstrate that it had reason to
believe its infringement allegations with respect to claim
102 were supportable. Allcare, however, never demon-
strated how the survey (or anything else in the record)
supported its claim construction position with respect to
claim 102. The survey also did not show that Highmark
was infringing under the correct claim construction. The
district court did not clearly err in concluding that All-
care’s claim 102 allegations were brought in subjective
bad faith.
Allcare also argues that the district court’s vacating
sanctions against Allcare’s attorneys is inconsistent with
the district court’s exceptional case finding against All-
care. This is incorrect. A lack of sanctions against attor-
neys is not in itself a ground for barring sanctions against
a client. Rule 11 sanctions against an attorney may form
a basis for an exceptional case finding. See Brooks Furni-
ture, 393 F.3d at 1381 (“A case may be deemed excep-
tional when there has been some material inappropriate
conduct related to the matter in litigation, such as . . .
conduct that violates Fed. R. Civ. P. 11 . . . .”). But the
absence of Rule 11 sanctions does not mandate the oppo-
site conclusion. Allcare also contends that new evidence
brought up during the reconsideration of Rule 11 sanc-
tions mandates reversal of the exceptional case finding.
However, the additional evidence relied on by the district
supports an award of attorneys’ fees under Rule 11. See
Hoffmann-La Roche Inc. v. Invamed Inc., 213 F.3d 1359,
1363 (Fed. Cir. 2000). Here, the district court did not
sanction Allcare under Rule 11 for its failure to conduct
an adequate pre-filing investigation.
HIGHMARK v. ALLCARE HEALTH 18
court in vacating the Rule 11 sanctions had no bearing on
the interpretation of claim 102 or Allcare’s knowledge of
whether Highmark’s systems were infringing. The dis-
trict court thus did not clearly err in concluding that
Allcare’s allegations of infringement of claim 102 war-
ranted an exceptional case finding.
B
We reach a different conclusion with respect to the
claim 52 infringement claims because we conclude that
Allcare’s position was not objectively unreasonable.
Highmark’s theory is that it did not infringe because it
did not satisfy element (c) of claim 52. Element (c) re-
quires “entering . . . data symbolic of patient symptoms
for tentatively identifying a proposed mode of treat-
ment . . . .” ’105 patent col. 21 ll. 31-34. It was not dis-
puted that this limitation covered the patent’s preferred
embodiment—what the parties refer to as a “diagnostic
smart system”—which automatically generates a list of
recommended treatments based on the patient symptoms
reported by the healthcare providers. J.A. 11584. The
question was whether this limitation was also met where
a physician enters both the symptoms and the proposed
diagnosis or treatment as done in Highmark’s system,
referred to as a traditional “utilization review smart
system,” i.e., a system which does not automatically
generate treatment options. The district court found that
it did not, and we affirmed.
The district court’s exceptional case finding with re-
spect to claim 52 centered on Allcare’s lack of basis for its
claim construction position. Allcare’s position was that
claim 52 covered systems where the physician entered
both the “data symbolic of patient symptoms” and the
“proposed mode of treatment,” and the system did not
automatically propose a treatment. While the claim
19 HIGHMARK v. ALLCARE HEALTH
language “entering . . . data symbolic of patient symptoms
for tentatively identifying a proposed mode of treatment”
favors the construction ultimately adopted by the district
court, it does not foreclose Allcare’s construction.
Under Phillips v. AWH Corp., 415 F.3d 1303, 1315
(Fed. Cir. 2005) (en banc), we must also look to the speci-
fication. There was support in the specification for All-
care’s position. With respect to the entry of symptoms
and treatments, the specification discloses essentially two
embodiments. In the preferred embodiment, a physician
first facilitates “the entry of symptoms or other data
which can assist in making a diagnosis and identifying . .
. recommended treatment protocols.” ’105 patent col. 9 ll.
58-60. The system then “correlat[es] the observed patient
symptoms and test results so as to identify the most likely
causes of the health problem,” as well as “the most appro-
priate treatment protocols.” ’105 patent col. 9 ll. 61-65.
The specification states that the system will only “pre-
pare[] a list of the most likely medical condition . . . [and]
the generally approved and/or recommended treatment
protocols” when it is “requested” from the system. ’105
patent col. 6 ll. 64-67. This is what has been referred to
as the “diagnostic smart system.”
But the specification also discloses an embodiment
where, in addition to entering symptom and diagnosis
data, “[t]he physician or staff member enters into the
System data identifying the proposed pattern of treat-
ment.” ’105 patent col. 10 ll. 3-5. Thereafter, “the System
compares the proposed pattern of treatment with . . .
recommended treatment protocols and provides an indica-
tion of any problem differences.” ’105 patent col. 10 ll. 5-
8. Thus, as the special master recognized, a diagnosis can
be made “with or without the assistance of the diagnostic
smart system,” and the physician can be the one to “en-
HIGHMARK v. ALLCARE HEALTH 20
ter[] into the system data identifying the proposed treat-
ment.” Claim Construction Report, slip op. at 3.
We ultimately agreed with the district court that the
language of claim 52, and particularly element (c) (“enter-
ing . . . data symbolic of patient symptoms for tentatively
identifying a proposed mode of treatment”), did not cover
the embodiment where the physician entered the symp-
toms and the proposed treatment. But it was not unrea-
sonable for Allcare to argue that the language of the claim
encompassed both embodiments. While Allcare may not
have pointed to the specification as an argument in sup-
port of its theory, this theory as to the scope of claim 52
was argued repeatedly by Allcare. 5 As we held in iLOR,
“simply being wrong about claim construction should not
subject a party to sanctions where the construction is not
objectively baseless.” 631 F.3d at 1380. This is not a case
where the claim language was not subject to an alternate
construction or where “the specification and prosecution
history clearly refute [the patentee’s] proposed claim
construction.” MarcTec, LLC v. Johnson & Johnson, 664
F.3d 907, 919 (Fed. Cir. 2012). Allcare’s argument with
respect to this element was not “so unreasonable that no
reasonable litigant could believe it would succeed.” See
iLOR, 631 F.3d at 1378.
5 See Yee v. City of Escondido, 503 U.S. 519, 534
(1992) (holding that where an issue has been properly
presented, on appeal “parties are not limited to the pre-
cise arguments they made below”); Interactive Gift Ex-
press, Inc. v. Compuserve Inc., 256 F.3d 1323, 1347 (Fed.
Cir. 2001) (holding that although a party cannot change
the scope of its claim construction on appeal, it is not
precluded “from proffering additional or new supporting
arguments, based on evidence of record, for its claim
construction”).
21 HIGHMARK v. ALLCARE HEALTH
The burden was on the party seeking sanctions
(Highmark) to establish that under this alternative claim
construction, the allegations of infringement were objec-
tively unreasonable. There was no showing by Highmark
that it would not infringe under an alternate construction
of claim 52 covering the system where the physician
enters the proposed treatment.
Because we conclude that Allcare’s allegations of in-
fringement of claim 52 were not objectively baseless, we
need not reach the question of whether Allcare acted in
subjective bad faith. See Old Reliable Wholesale, Inc. v.
Cornell Corp., 635 F.3d 539, 547 n.4 (“When making a
section 285 fee award, subjective considerations of bad
faith are irrelevant if the challenged claims or defenses
are not objectively baseless.”); see also Prof'l Real Estate
Investors, 508 U.S. at 60 (“Only if challenged litigation is
objectively meritless may a court examine the litigant's
subjective motivation.”). We therefore reverse the district
court’s conclusion that Allcare’s allegations of infringe-
ment of claim 52 support an exceptional case finding. 6
6 Highmark appears to argue that an exceptional
case finding is justified here because Allcare failed to
make an adequate pre-filing investigation as required by
Rule 11. Our cases have not always been clear as to
whether the failure to make an adequate pre-filing inves-
tigation under Rule 11 can support an exceptional case
finding when the Brooks Furniture test has not been
satisfied, and it would be a most unusual case in which
the infringement case was objectively reasonable but the
pre-filing investigation was unreasonable. We need not
decide whether such a finding with respect to the pre-
filing investigation could ever support an exceptional case
finding because the district court made no finding of a
Rule 11 violation with respect to Allcare as opposed to its
attorneys, and the Rule 11 violation found with respect to
the Allcare attorneys was vacated. As we read the district
court opinion, sanctions here were based on a finding that
HIGHMARK v. ALLCARE HEALTH 22
III
Quite apart from the frivolity of the alleged infringe-
ment claims, an exceptional case finding can also be
supported by litigation misconduct. MarcTec, 664 F.3d at
919 (“[I]t is well-established that litigation misconduct
and ‘unprofessional behavior may suffice, by themselves,
to make a case exceptional under § 285.’” (quoting Ram-
bus Inc. v. Infineon Techs. AG, 318 F.3d 1081, 1106 (Fed.
Cir. 2003))); Brooks Furniture, 393 F.3d at 1381 (“A case
may be deemed exceptional when there has been . . .
misconduct during litigation, . . . conduct that violates
Fed. R. Civ. P. 11, or like infractions.”). “Litigation mis-
conduct generally involves unethical or unprofessional
conduct by a party or his attorneys during the course of
adjudicative proceedings,” and includes advancing frivo-
lous arguments during the course of the litigation or
otherwise prolonging litigation in bad faith. See Old
Reliable, 635 F.3d at 549; Computer Docking Station
Corp., 519 F.3d at 1379. A finding of exceptionality based
on litigation misconduct, however, usually does not sup-
port a full award of attorneys’ fees. See Beckman, 892
F.2d at 1553-54. Instead, the fee award “must bear some
relation to the extent of the misconduct,” Special Devices,
269 F.3d at 1344 (quoting Read Corp. v. Portec, Inc., 970
F.2d 816, 831 (Fed. Cir. 1992)), and compensate a party
for the “extra legal effort to counteract the[] misconduct,”
Beckman, 892 F.2d at 1553.
Here, in addition to determining that Allcare’s overall
infringement allegations were frivolous, the district court
found the case exceptional based on three primary in-
Allcare’s claim construction was frivolous, and were not
based on any finding that Allcare failed to investigate
whether under its proposed claim construction Highmark
infringed.
23 HIGHMARK v. ALLCARE HEALTH
stances of alleged litigation misconduct: (1) asserting a
frivolous position based on res judicata and collateral
estoppel; (2) shifting the claim construction position
throughout the course of the proceedings before the
district court; and (3) making misrepresentations to the
Western District of Pennsylvania in connection with a
motion to transfer venue. None of these actions is suffi-
cient to make this case exceptional under section 285.
A
We consider first whether Allcare engaged in litiga-
tion misconduct by making frivolous arguments. In
evaluating the frivolity of particular arguments made
during the course of the litigation, the arguments must be
shown to be at least objectively unreasonable. Thus,
under section 285 a party cannot be sanctioned for mak-
ing frivolous arguments during the course of the litigation
if the arguments themselves were not objectively unrea-
sonable at the time they were made. DePuy Spine, Inc. v.
Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1339 (Fed.
Cir. 2009) (“Although the district court ultimately con-
cluded that the underlying substance of Medtronic’s
defense ‘lacks merit,’ there is no indication, much less a
finding, that Medtronic’s arguments were baseless, frivo-
lous, or intended primarily to mislead the jury. Although
the defense ultimately failed, Medtronic should not have
been sanctioned for merely raising it . . . .”). We deter-
mine whether a particular argument was objectively
unreasonable without deference to the district court’s
determination. See Bard, 2012 WL 2149495, at *1. 7
7 If instead of relying on section 285 the district
court imposed sanctions for frivolous arguments under
Rule 11, we would apply Rule 11 standards and the
deferential standard of review from Cooter, 496 U.S. at
405. But here the district court vacated sanctions under
HIGHMARK v. ALLCARE HEALTH 24
This issue arises from the following circumstances.
Before initiating suit against Highmark, Allcare filed suit
against Trigon, a Blue Cross Blue Shield insurance pro-
vider like Highmark, in the Eastern District of Virginia,
also asserting various claims of the ’105 patent. As part
of the Trigon action, the court issued rulings construing
some of the disputed claim limitations, primarily in claim
52, in a manner favorable to Allcare. In answering
Highmark’s complaint, Allcare contended that based on
the Blue Cross Blue Shield relationship between High-
mark and Trigon, and based on Highmark’s knowledge of
and participation in the Trigon action, Highmark was
bound under principles of res judicata and collateral
estoppel to the district court’s rulings in that action.
Allcare’s theory was one of “virtual representation.”
However, after Allcare met-and-conferred with Highmark
and learned that there was only a limited relationship
between Highmark and Trigon, Allcare promptly with-
drew the argument.
Although the Supreme Court later “disapprove[d] the
doctrine of preclusion by ‘virtual representation,’” Taylor
v. Sturgell, 553 U.S. 880, 885 (2008), at the time Allcare
asserted the defense it was not wholly without merit. The
doctrine of virtual representation was “equitable and fact-
intensive” in nature, with “no clear test for determining
the applicability of the doctrine.” Tyus v. Schoemehl, 93
F.3d 449, 455 (8th Cir. 1996). Indeed, the doctrine was
unsettled and varied widely in application from circuit to
circuit. Compare id. at 455-56 (describing a seven-factor
test for finding virtual representation), with Klugh v.
United States, 818 F.2d 294, 300 (4th Cir. 1987) (holding
that a party is “a virtual representative” only if the party
Rule 11 standards and imposed them under only section
285.
25 HIGHMARK v. ALLCARE HEALTH
is accountable to the nonparties who file subsequent suit
and has “the tacit approval of the court” to act on the
nonparties’ behalf). Due to the relationship and similari-
ties between Highmark and Trigon, and Highmark’s
knowledge of and participation in the Trigon action,
Allcare had at least some support for its initial contention
that Trigon was a virtual representative of Highmark.
Thus, it was not objectively unreasonable for Allcare to
initially assert this legal argument. When Allcare re-
ceived information from Highmark regarding the limited
relationship between Highmark and Trigon and High-
mark’s limited involvement in the Trigon action, thus
leading Allcare to believe it would be unsuccessful in its
preclusion argument, it promptly withdrew it. This is not
a proper basis for finding the case exceptional under
section 285. The district court clearly erred by finding
that Allcare’s brief assertion of this position warrants an
exceptional case finding.
B
Highmark also argues that Allcare’s “shifting claim
construction” with respect to element 52(c) was improper
and warrants an exceptional case finding. Allcare origi-
nally proposed the following claim construction for the
two key (underscored) elements of element 52(c):
Data symbolic of symptoms for tentatively identify-
ing: “any information, coded or otherwise, reflect-
ing a patient’s health, reason for visit or condition,
e.g., symptoms, test results and other data, that is
relevant to diagnosis and treatment by a care pro-
vider, including but not limited to ICD disease
codes.”
Tentatively identifying a proposed mode of treat-
ment: “the act or process of determining the
HIGHMARK v. ALLCARE HEALTH 26
treatment that is appropriate, subject to later
amendment or confirmation.”
J.A. 11953-54. Allcare later combined the two key ele-
ments and proposed that element 52(c) be construed as
one or more items of information representative of
a sign of disorder or disease with a view toward,
as concerns or corresponding to, provisionally put-
ting forth a suggested method of the application of
remedies or therapies to a patient for a disease or
injury.
J.A. 11954. Allcare again adjusted its proposed claim
construction to
information expressed in a symbolic or represen-
tative manner pertaining to the evidence of dis-
ease or changes in the physical condition of a
patient, with a view toward, as concerns or corre-
sponding to, provisionally putting forth a sug-
gested method of the application of remedies or
therapies to a patient for a disease or injury.
J.A. 11954 (emphasis added). Finally, Allcare redrafted
its construction of “tentatively identifying a proposed
mode of treatment” to be “provisionally (i.e., non-finally)
naming or recognizing a suggested method of treatment.”
J.A. 23006 (emphasis added).
These linguistic shifts in the proposed claim construc-
tion are insufficient to constitute litigation misconduct
and an exceptional case finding. The constructions prof-
fered by Allcare do not differ in substance. Each demon-
strated that it was Allcare’s position that the claims were
not limited to diagnostic smart systems and that there
was no “cause-and-effect” relationship between the enter-
ing of symptoms and the automatic identification of the
treatment. Allcare’s position on this point never changed.
27 HIGHMARK v. ALLCARE HEALTH
Highmark does not cite any authority to support its
position that minor word variations in claim construction
positions, where the substance of the claim construction
does not change, are sanctionable. We also note that
some of Allcare’s resubmissions of claim construction
positions and arguments to the district court were the
result of this court’s en banc decision in Phillips, which
issued while the claim construction issues were pending
before the district court. Indeed, Highmark itself con-
ceded that new claim construction briefs in light of Phil-
lips were desirable and would benefit the district court.
See Order Striking Claim-Construction Motion and Re-
lated Filings, Directing an Amended Claim-Construction
Motion, and Rendering Moot Related Filings and Motions,
Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., No.
4:03-CV-1384-Y (N.D. Tex. Aug. 12, 2005), ECF No. 282.
Again, the district court clearly erred in finding that
Allcare’s minor changes in claim construction support an
exceptional case finding under section 285.
C
Finally, the district court found that misrepresenta-
tions made before the Western District of Pennsylvania in
connection with a motion to transfer venue supported an
exceptional case finding. After Highmark initiated suit in
the Western District of Pennsylvania, Allcare sought to
transfer the case to the Northern District of Texas. The
issue was personal jurisdiction. Highmark contended
that Allcare had sufficient contacts with Pennsylvania for
personal jurisdiction based in part on a survey it commis-
sioned to locate potential infringers, which led to survey
calls to companies in Pennsylvania. Allcare argued that
this was not a sufficient “contact” for purposes of personal
jurisdiction. Allcare contended that the survey was not
such a contact because Allcare “did not control the man-
ner in which Seaport Surveys, an independent contractor,
HIGHMARK v. ALLCARE HEALTH 28
went about completing the surveys.” Exceptional Case
Order, 706 F. Supp. 2d at 734 (internal quotation marks
omitted). Allcare also contended that it “did not control
how Seaport Surveys carried out its surveys, nor did it
dictate what companies Seaport opted to call upon.” Id.In finding this case exceptional, the district court found
that these statements were misrepresentations because,
although no Allcare employees participated in the actual
survey calls, “Allcare participated in and, indeed, con-
trolled every other aspect of the survey.” Id. This in-
cluded designing the initial questionnaire, providing a
supplemental questionnaire, and effectively controlling
which companies were to be interviewed. Thus, the
district court found that Allcare’s representations to the
Western District of Pennsylvania related to its motion to
transfer were “at best obfuscatory and [] strain[ed] the
bounds of zealous advocacy.” Id. at 735.
The district court erred in finding the case exceptional
based on these representations. As recognized by the
district court in vacating Rule 11 sanctions against the
attorneys, “if any court were to issue sanctions based on
the [transfer] motion, it would be most appropriate for the
Western District of Pennsylvania to do so.” Opinion and
Order Reconsidering and Vacating Sanctions, Highmark,
Inc. v. Allcare Health Mgmt. Sys., Inc., No. 4:03-CV-1384-
Y, slip op. at 41 (N.D. Tex. Aug. 9, 2010). Indeed, a court
generally should sanction “conduct beyond that occurring
in trial [only] when a party engages in bad-faith conduct
which is in direct defiance of the sanctioning court.” FDIC
v. Maxxam, Inc., 523 F.3d 566, 591 (5th Cir. 2008) (inter-
nal quotation marks omitted); see also Chambers v.
NASCO, Inc., 501 U.S. 32, 57 (1991). The district court
offered no justification for sanctioning conduct before a
different tribunal. On appeal, Highmark likewise offered
no authority for the issuance of sanctions for conduct that
29 HIGHMARK v. ALLCARE HEALTH
occurs solely before another tribunal. Thus, these sup-
posed misrepresentations do not support an exceptional
case finding.
* * *
We therefore affirm the district court’s finding that
Allcare’s allegations of infringement of claim 102 ren-
dered the case exceptional under section 285 and reverse
the district court’s finding that Allcare’s other claims and
actions supported an exceptional case finding. Because
the district court did not determine the amount of attor-
neys’ fees apportionable to each of the above issues, a
remand is necessary. See Molins PLC v. Textron, Inc., 48
F.3d 1172, 1186 (Fed. Cir. 1995) (remanding for a calcula-
tion of attorneys’ fees based on the court’s partial reversal
of the underpinnings of the exceptional case finding). We
remand this case to the district court for a calculation of
attorneys’ fees based on the frivolity of the claim 102
allegations only.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED
COSTS
No costs.
United States Court of Appeals
for the Federal Circuit
__________________________
HIGHMARK, INC.,
Plaintiff-Appellee,
v.
ALLCARE HEALTH MANAGEMENT SYSTEMS,
INC.,
Defendant-Appellant.
__________________________
2011-1219
__________________________
Appeal from the United States District Court for the
Northern District of Texas in case no. 03-CV-1384, Judge
Terry Means.
__________________________
MAYER, Circuit Judge, dissenting-in-part.
The court errs when it says that no deference is owed
to a district court’s finding that the infringement claims
asserted by a litigant at trial were objectively unreason-
able. See Ante at 9 (“We review the [district] court’s
determination of objective reasonableness without defer-
ence since it is a question of law.”). When reviewing an
exceptional case determination under 35 U.S.C. § 285,
reasonableness is a finding of fact which may be set aside
only for clear error. See Eon-Net LP v. Flagstar Bancorp,
653 F.3d 1314, 1324 (Fed. Cir. 2011) (“When reviewing an
exceptional case finding for clear error, we are mindful
that the district court has lived with the case and the
HIGHMARK v. ALLCARE HEALTH 2
lawyers for an extended period. Having only the briefs
and the cold record, and with counsel appearing before us
for only a short period of time, we are not in the position
to second-guess the trial court’s judgment.”). Applying
this highly deferential standard of review, there is no
basis for overturning the trial court’s determination that
the infringement counterclaims brought by Allcare Health
Management Systems, Inc. (“Allcare”) against Highmark,
Inc. (“Highmark”) were frivolous. I would affirm the
district court’s award of attorney fees and expenses in its
entirety.
I.
Congress created this court in 1982 with the goal of
promoting greater uniformity in the interpretation and
application of the nation’s patent laws. See Markman v.
Westview Instruments, Inc., 517 U.S. 370, 390 (1996)
(“Congress created the Court of Appeals for the Federal
Circuit as an exclusive appellate court for patent cases,
observing that increased uniformity would strengthen the
United States patent system in such a way as to foster
technological growth and industrial innovation.” (citations
and internal quotation marks omitted)). The fact that we
have been vested with exclusive appellate jurisdiction in
patent cases does not, however, grant us license to invade
the fact-finding province of the trial courts. Our increas-
ing infatuation with de novo review of factual determina-
tions began with claim construction, see Cybor Corp. v.
FAS Techs., Inc., 138 F.3d 1448, 1455-56 (Fed. Cir. 1998)
(en banc), and has now infected review of both willful
infringement, see Bard Peripheral Vascular, Inc. v. W.L.
Gore & Assocs., Inc., No. 2010-1510, 2012 WL 2149495, at
*1 (Fed. Cir. June 14, 2012), and section 285 exceptional
case determinations. As a result of this appellate over-
reaching, litigation before the district court has become a
mere dress rehearsal for the command performance here.
3 HIGHMARK v. ALLCARE HEALTH
See Phillips v. AWH Corp., 415 F.3d 1303, 1334 (Fed. Cir.
2005) (en banc) (Mayer J., dissenting) (“If we persist in
deciding the subsidiary factual components of claim
construction without deference, there is no reason why
litigants should be required to parade their evidence
before the district courts or for district courts to waste
time and resources evaluating such evidence.”). Encour-
aging relitigation of factual disputes on appeal is an
enormous waste of the litigants’ resources and vitiates the
critically important fact-finding role of the district courts.
See Anderson v. City of Bessemer City, 470 U.S. 564, 575
(1985) (“[T]he parties to a case on appeal have already
been forced to concentrate their energies and resources on
persuading the trial judge that their account of the facts
is the correct one; requiring them to persuade three more
judges at the appellate level is requiring too much.”).
Absent misconduct during litigation or when securing
a patent, sanctions under section 285 may be awarded
only if a two-prong test is satisfied: (1) the litigation is
brought in subjective bad faith; and (2) it is objectively
baseless. Old Reliable Wholesale, Inc. v. Cornell Corp.,
635 F.3d 539, 543 (Fed. Cir. 2011). The objective base-
lessness standard under section 285 “is identical to the
objective recklessness standard for enhanced damages” in
the willful infringement context. iLOR, LLC v. Google,
Inc., 631 F.3d 1372, 1377 (Fed. Cir. 2011). Until Bard,
2012 WL 2149495, at *1, this court had correctly applied a
highly deferential “clear error” standard of review to the
factual underpinnings of an exceptional case determina-
tion. See Nilssen v. Osram Sylvania, Inc., 528 F.3d 1352,
1357 (Fed. Cir. 2008) (“We review a finding that a case is
‘exceptional’ within the meaning of 35 U.S.C. § 285 for
clear error.”); Q-Pharma, Inc. v. Andrew Jergens Co., 360
F.3d 1295, 1299 (Fed. Cir. 2004) (“We review a denial of
attorney fees under 35 U.S.C. § 285 for an abuse of discre-
HIGHMARK v. ALLCARE HEALTH 4
tion; however, we review the factual determination
whether a case is exceptional under § 285 for clear er-
ror.”); Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324,
1328 (Fed. Cir. 2003) (emphasizing that this court reviews
a trial “court’s factual findings, including whether the
case is exceptional, for clear error”); Brasseler, U.S.A. I.,
L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1378 (Fed. Cir.
2001) (“Whether a case is ‘exceptional,’ in accordance with
35 U.S.C. § 285, is a question of fact.”). Bard, however,
rejected this approach, concluding that whether a liti-
gant’s conduct was objectively reasonable is a question of
law subject to de novo review. See 2012 WL 2149495, at
*1. Because Bard usurps the fact-finding role of the trial
courts and is plainly inconsistent with our precedent it is
an outlier and of no precedential value. We are bound to
follow the standard of review articulated in earlier deci-
sions. See Johnston v. IVAC Corp., 885 F.2d 1574, 1579
(Fed. Cir. 1989) (“Where conflicting statements . . . appear
in our precedent, the panel is obligated to review the
cases and reconcile or explain the statements, if possible.
If not reconcilable and if not merely conflicting dicta, the
panel is obligated to follow the earlier case law which is
the binding precedent.”). The law of this circuit can only
be superseded by the court en banc. See Sacco v. Dep’t of
Justice, 317 F.3d 1384, 1386 (Fed. Cir. 2003).
Bard is simply wrong when it concludes that a deter-
mination of whether conduct is objectively reasonable is a
question of law subject to de novo review. See 2012 WL
2149495, at *2. To the contrary, the question of what
constitutes reasonable conduct under varying circum-
stances is a quintessentially factual inquiry. Indeed, the
Supreme Court has acknowledged that reasonableness is
a question of fact by recognizing “the jury’s unique compe-
tence in applying the ‘reasonable man’ standard.” TSC
Indus. v. Northway, Inc., 426 U.S. 438, 450 n.12 (1976).
5 HIGHMARK v. ALLCARE HEALTH
This court, too, has recognized that the reasonableness of
a litigant’s conduct is a factual question. See Nat’l Presto
Indus., Inc. v. W. Bend Co., 76 F.3d 1185, 1193 (Fed. Cir.
1996) (“Whether the infringer had a reasonable belief that
the accused activity did not violate the law is a question of
fact, as are other questions relevant to the issue of will-
fulness.” (citations omitted)); see also Rand v. Underwrit-
ers at Lloyd’s, 295 F.2d 342, 346 (2nd Cir. 1961)
(emphasizing that “when dissimilar inferences may be
drawn from undisputed facts, or when the facts are in
dispute, ‘reasonableness’ is a jury question”). As an
appellate court, we are ill-suited to weigh the evidence
required to make an exceptional case determination. In
many cases, a trial court will declare a case exceptional
only after spending months—and sometimes even years—
reviewing the evidence, hearing testimony, and evaluat-
ing the conduct of the litigants. Its intimate familiarity
with the facts of the case, and the parties involved, place
it in a far superior position to judge whether or not a
litigant’s claims of infringement were objectively baseless:
The district judge is a firsthand observer of the
proceedings below. His is the view from the
trenches: he sees the shots fired by one party
against the other, and he has full knowledge of
the circumstances prompting the cross-fire. . . .
Since the imposition of sanctions will usually re-
quire [an] intensive inquiry into the factual cir-
cumstances surrounding an alleged violation, the
trial judge is in the best position to review [those]
circumstances and render an informed judgment.
Kale v. Combined Ins. Co., 861 F.2d 746, 758 (1st Cir.
1988) (citations and internal quotation marks omitted).
Bard’s assertion that objective reasonableness is a
question of law is anomalous given that the exceptional
HIGHMARK v. ALLCARE HEALTH 6
nature of the case must be established by clear and con-
vincing evidence. See Wedgetail, Ltd. v. Huddleston
Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir. 2009). The
clear and convincing evidence standard applies to ques-
tions of fact, not to questions of law. See, e.g., Star Scien-
tific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357,
1366 (Fed. Cir. 2008) (“The predicate facts must be proven
by clear and convincing evidence.” (citations and internal
quotation marks omitted)). Furthermore, the Bard ap-
proach is unnecessarily complex 1 and will undoubtedly
spawn unneeded litigation over which issues in a section
285 determination are issues of fact, which are issues of
law, and which are mixed questions of law and fact. See
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 401 (1990)
(explaining that there is no “rule or principle that will
unerringly distinguish a factual finding from a legal
conclusion,” and that “[m]aking such distinctions is par-
ticularly difficult” in the context of attorney fee awards
(citations and internal quotation marks omitted)).
1 As a practical matter, the Bard approach will be
difficult and time-consuming to apply. Bard instructs:
In considering the objective prong of [In re
Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir.
2007) (en banc)], the judge may when the defense
is a question of fact or a mixed question of law and
fact allow the jury to determine the underlying
facts relevant to the defense in the first instance,
for example, the questions of anticipation or obvi-
ousness. But . . . the ultimate legal question of
whether a reasonable person would have consid-
ered there to be a high likelihood of infringement
of a valid patent should always be decided as a
matter of law by the judge.
Bard, 2012 WL 2149495, at *4.
7 HIGHMARK v. ALLCARE HEALTH
Although the Supreme Court has not yet spoken on
the appropriate standard of review applicable to section
285 exceptional case determinations, it has made clear
that a highly deferential standard of review applies in
analogous proceedings brought under Rule 11 of the
Federal Rules of Civil Procedure. See Cooter, 496 U.S. at
399-405. Prior to Cooter, some circuit courts of appeals
had divided review of Rule 11 sanctions into three sepa-
rate analyses, reviewing fact-findings under a clearly
erroneous standard, legal questions under a de novo
standard, and the actual sanction decision for abuse of
discretion. Id. at 399. The Supreme Court rejected this
approach, concluding that although Rule 11 determina-
tions involve both factual and legal issues, all aspects of
such a determination must be reviewed under a highly
deferential abuse of discretion standard. Id. at 405. In
the Court’s view, application of a deferential standard
was appropriate because “the district court [was] better
situated than the court of appeals to marshal the perti-
nent facts and apply the fact-dependent legal standard
mandated by Rule 11.” Id. at 402. Significantly, the
Court rejected the view that a determination as to
whether a litigant’s conduct was reasonable must be
reviewed by an appellate court de novo. Id. at 405 (“An
appellate court’s review of whether a legal position was
reasonable or plausible enough under the circumstances
is unlikely to establish clear guidelines for lower courts;
nor will it clarify the underlying principles of law.” (cita-
tions and internal quotation marks omitted)). Similarly,
in the context of fee awards under the Equal Access to
Justice Act (“EAJA”), 28 U.S.C. § 2412(d), the Supreme
Court has determined that a deferential abuse of discre-
tion standard applies, even though an EAJA award turns
on the question of whether the government’s litigation
position had a “reasonable basis both in law and fact.”
Pierce v. Underwood, 487 U.S. 552, 565 (1988).
HIGHMARK v. ALLCARE HEALTH 8
Bard offers no persuasive explanation as to why the
highly deferential standard of review adopted in Cooter
and Pierce should not apply to section 285 exceptional
case determinations. Simply because the section 285
analysis can touch on issues of patent validity and in-
fringement does not mean that this court can shirk our
obligation to afford due deference to the better-informed
judgment of the trial court on factual matters. See Pull-
man-Standard v. Swint, 456 U.S. 273, 287 (1982) (Rule
52(a) of the Federal Rules of Civil Procedure “does not
make exceptions or purport to exclude certain categories
of factual findings from the obligation of a court of appeals
to accept a district court’s findings unless clearly errone-
ous.”).
II.
Here, the trial court, in a thorough and well-reasoned
opinion, concluded that Allcare engaged in “vexatious
and, at times, deceitful conduct” and “maintained in-
fringement claims well after such claims had been shown
by its own experts to be without merit.” Highmark, Inc. v.
Allcare Health Mgmt. Sys., Inc., 706 F. Supp. 2d 713, 737
(N.D. Tex. 2010). The court found that Allcare failed to
conduct any sort of reasonable pre-filing investigation
before asserting its infringement counterclaims against
Highmark. Id. at 723-27. Robert Shelton, Allcare’s vice-
president, ignored persuasive, publically-available evi-
dence 2 which clearly demonstrated that Highmark’s
2 “[B]y all accounts a large amount of information
regarding Highmark’s system was available publicly.
Allcare even discovered a demonstration version of High-
mark’s system complete with a representative user inter-
face. This interface displayed what code was used by
Highmark’s system . . . and what the code was used for (to
indicate symptoms rather than to determine a proposed
treatment).” Highmark, 706 F. Supp. 2d at 725 (citations
9 HIGHMARK v. ALLCARE HEALTH
accused system failed to meet key elements of claim 52(c)
of U.S. Patent No. 5,301,105 (the “’105 patent”). Claim
52(c) specifically requires “entering . . . data symbolic of
patient symptoms for tentatively identifying a proposed
mode of treatment.” ’105 patent col. 21 ll. 31-34 (empha-
sis added). In Highmark’s accused system, however, a
physician or other medical professional enters both the
symptoms and the proposed diagnosis and treatment
options. Thus, symptom data is not entered “for” the
purpose of “identifying a proposed mode of treatment” as
required by claim 52(c). Indeed, Allcare’s own expert
acknowledged that in the Highmark system symptom
data was entered to identify the condition for which the
patient was already receiving treatment and not “for” the
purpose of identifying the proposed mode of treatment.
See Joint App’x 11586-88; Highmark, 706 F. Supp. 2d at
731 (“Allcare’s allegations were shown to be without
support by its own expert’s report and deposition testi-
mony. Yet Allcare persisted in its infringement allega-
tions.”). Given that Allcare persisted in advancing
infringement allegations that were both in direct conflict
with the plain claim language and unsupported by the
testimony of its own expert, the district court had ample
grounds for concluding that Allcare’s allegations of in-
fringement of claim 52(c) were frivolous. 3 Because there
omitted). Had Allcare conducted an even minimal inves-
tigation of publically available information regarding the
Highmark system, it would have discovered that that
system did not meet claim 52(c)’s requirement that symp-
tom data is entered “for” the purpose of “identifying a
proposed mode of treatment.” ’105 patent col. 21 ll. 31-34.
3 The court errs when it concludes that an embodi-
ment disclosed in the specification provided reasonable
support for Allcare’s allegation that the Highmark system
met the limitations of claim 52(c). That embodiment
HIGHMARK v. ALLCARE HEALTH 10
was no clear error in the trial court’s exceptional case
determination, its section 285 award must be affirmed.
III.
Finally, it is worth noting that the infringement trial
in this case occurred prior to the Supreme Court’s deci-
sions in Bilski v. Kappos, 130 S. Ct. 3218 (2010), and
Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132
S. Ct. 1289 (2012). Had the trial court had the benefit of
these decisions, it could have applied 35 U.S.C. § 101 to
invalidate Allcare’s ’105 patent at the summary judgment
stage of the proceedings. See Bilski, 130 S. Ct. at 3225(noting that whether claims are directed to statutory
subject matter is a “threshold test”).
“[T]he patent system represents a carefully crafted
bargain that encourages both the creation and the public
disclosure of new and useful advances in technology, in
return for an exclusive monopoly for a limited period of
time.” Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 63 (1998). A
patentee does not uphold his end of this “bargain” if he
seeks broad monopoly rights over a basic concept, funda-
mental principle, or natural law without a concomitant
contribution to the existing body of scientific and techno-
logical knowledge. In Bilski, an application was rejected
as patent ineligible because it did not “add” anything to
the basic concept of hedging against economic risk. 130 S.
Ct. at 3231 (emphasizing that the application applied the
concept of hedging using “well-known random analysis
techniques”). In Mayo, likewise, process claims were
invalidated under section 101 because they simply de-
scribed a law of nature and applied it using “well-
plainly did not describe a system in which the physician
enters symptoms “for” the purposes of identifying a
method of treatment, see ’150 patent col. 10 ll. 5-8, and
was therefore not covered by claim 52(c).
11 HIGHMARK v. ALLCARE HEALTH
understood, routine, [and] conventional” means. 132 S.
Ct. at 1294.
A similar analysis applies here. Allcare’s claimed di-
agnostic system falls outside the ambit of section 101
because it is directed to the “abstract idea” that particular
symptoms are likely caused by particular diseases or
conditions. The ’105 patent describes a system in which a
user enters data regarding a patient’s symptoms and a
computer generates a list of possible diseases or condi-
tions that might be causing such symptoms. Any health-
care provider or patient who has ever consulted a medical
treatise or home medical reference book to determine
what disease or condition might be causing particular
symptoms has practiced a non-computerized version of
the claimed method. Because the ’105 patent simply
describes the abstract idea that certain symptoms are
correlated with certain diseases and then applies that
idea using conventional computer technology, it fails to
meet section 101’s subject matter eligibility requirements.
See MySpace, Inc. v. Graphon Corp., 672 F.3d 1250, 1267
(Fed. Cir. 2012) (Mayer, J., dissenting) (“While running a
particular process on a computer undeniably improves
efficiency and accuracy, cloaking an otherwise abstract
idea in the guise of a computer-implemented claim is
insufficient to bring it within section 101.” (footnote
omitted)); see also Dealertrack, Inc. v. Huber, 674 F.3d
1315, 1333 (Fed. Cir. 2012) (concluding that claims drawn
to a “computer-aided” method of processing information
through a clearinghouse fell outside the ambit of section
101); CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d
1366,1375 (Fed. Cir. 2011) (emphasizing “that the basic
character of a process claim drawn to an abstract idea is
not changed by claiming only its performance by com-
puters, or by claiming the process embodied in program
instructions on a computer readable medium”). Where, as
HIGHMARK v. ALLCARE HEALTH 12
here, a patent describes an abstract idea, but discloses no
new technology or “‘inventive concept,’” Mayo, 132 S. Ct.
at 1294, for applying that idea, a robust application of
section 101 at the summary judgment stage will save both
courts and litigants years of needless litigation.