Energy Heating, LLC v. Heat On-The-Fly, LLC

Case: 20-2038 Document: 40 Page: 1 Filed: 10/14/2021
United States Court of Appeals
for the Federal Circuit
______________________
ENERGY HEATING, LLC, ROCKY MOUNTAIN
OILFIELD SERVICES, LLC,
Plaintiffs-Appellees
MARATHON OIL CORPORATION, MARATHON OIL
COMPANY,
Third-Party Defendants-Appellees
v.
HEAT ON-THE-FLY, LLC, SUPER HEATERS
NORTH DAKOTA, LLC,
Defendants-Appellants
______________________
2020-2038
______________________
Appeal from the United States District Court for the
District of North Dakota in No. 4:13-cv-00010-RRE-ARS,
Chief Judge Ralph R. Erickson.
______________________
Decided: October 14, 2021
______________________
XIANG LI, Davis Wright Tremaine LLP, Seattle, WA,
argued for plaintiffs-appellees. Also represented by F.
ROSS BOUNDY, STUART RUSSELL DUNWOODY; STEVEN VAN
GIBBONS, Gibbons & Associates, P.S., Seattle, WA.
SHANE P. COLEMAN, Holland & Hart LLP, Billings, MT,
Case: 20-2038 Document: 40 Page: 2 Filed: 10/14/2021
2 ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC
argued for third-party defendants-appellees. Also repre-
sented by JOHN SULLIVAN.
DEVAN V. PADMANABHAN, Padmanabhan & Dawson,
PLLC, Minneapolis, MN, argued for defendants-appel-
lants. Also represented by BRITTA LOFTUS, PAUL J.
ROBBENNOLT.
______________________
Before MOORE, Chief Judge, PROST and STOLL, Circuit
Judges.
PROST, Circuit Judge.
On remand on the issue of attorneys’ fees (following an
affirmed judgment of patent unenforceability due to ineq-
uitable conduct), the district court found this case excep-
tional under 35 U.S.C. § 285 and entered judgment
awarding fees to Energy Heating, LLC, Rocky Mountain
Oilfield Services, LLC, Marathon Oil Corporation, and
Marathon Oil Company (collectively, “Appellees”). Heat
On-The-Fly, LLC and Super Heaters North Dakota, LLC
(collectively, “HOTF”)1 now appeal the district court’s ex-
ceptionality determination. We affirm.
BACKGROUND
This case is before us for a second time. In the first
appeal, we affirmed the district court’s judgment that U.S.
Patent No. 8,171,993 (“the ’993 patent”) is unenforceable
due to inequitable conduct but vacated the district court’s
denial of attorneys’ fees under § 285 and remanded on that
issue alone. Energy Heating, LLC v. Heat On-The-Fly,
1 Heat On-The-Fly is the patent owner and Super
Heaters is a “sister corporation” of Heat On-The-Fly and a
licensee of the patent. Appellants’ Br. 6; J.A. 3307. The
district court and the parties used “HOTF” to refer collec-
tively to both entities. We do the same for consistency.
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ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC 3
LLC, 889 F.3d 1291, 1308 (Fed. Cir. 2018). On remand, the
district court found the case to be exceptional under § 285
and awarded attorneys’ fees.
I
HOTF owns the ’993 patent, which relates to a “method
and apparatus for the continuous preparation of heated
water flow for use in hydraulic fracturing,” also known as
fracking. Id. at col. 1 ll. 28–30, 36–37. Energy Heating
and Rocky Mountain Oilfield Services (collectively, “En-
ergy”) compete with HOTF in providing water-heating ser-
vices during fracking. After a dispute arose between
Energy and HOTF over possible patent infringement, En-
ergy sought a declaratory judgment that the ’993 patent
was unenforceable due to inequitable conduct, invalid as
obvious, and not infringed. Energy additionally pled state-
law tort claims. 2 In response, HOTF filed counterclaims of
infringement against Energy and filed a third-party in-
fringement complaint against Marathon Oil Corporation
and Marathon Oil Company (collectively, “Marathon”),
which contracted with Energy for on-demand water-heat-
ing services. Marathon then filed counterclaims of its own
that mirrored Energy’s declaratory-judgment suit.
Before trial, the district court granted partial summary
judgment in Appellees’ favor, finding no direct infringe-
ment of certain claims of the ’993 patent and holding all
claims invalid as obvious. The case then proceeded to a
jury trial and a bench trial held concurrently—the jury
heard Energy’s tort claims and the district court heard Ap-
pellees’ inequitable-conduct claims. The district court ulti-
mately concluded that the ’993 patent was unenforceable
due to inequitable conduct. Specifically, the court found by
clear and convincing evidence that the patent would not
2 Energy also pled trademark claims on which it pre-
vailed at trial.
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4 ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC
have issued but for HOTF’s deliberate decision to withhold
information from the Patent and Trademark Office
(“PTO”)—information about substantial on-sale and public
uses of the claimed invention well before the patent’s criti-
cal date, and that it withheld with an intent to deceive. The
jury, for its part, found that HOTF tortiously interfered
with Energy’s business. It awarded damages for that con-
duct. See J.A. 312–13. The jury also found, by clear and
convincing evidence, that HOTF represented in bad faith
that it held a valid patent (although the jury found that
HOTF did not commit the torts of deceit or slander).
J.A. 312–13. The district court subsequently denied attor-
neys’ fees under § 285. 3
After trial, HOTF appealed the judgments of inequita-
ble conduct and tortious interference, the summary judg-
ments of obviousness and no direct infringement, and the
construction of disputed claim terms. Appellees cross-ap-
pealed the district court’s denial of attorneys’ fees under
§ 285. As to HOTF’s appeal, we affirmed the judgment that
the ’993 patent is unenforceable due to inequitable conduct
and therefore declined to reach the remaining patent is-
sues raised by HOTF. Energy Heating, 889 F.3d at 1296.
We also affirmed the judgment of tortious interference. Id.
As to Appellees’ cross-appeal, we vacated the district
court’s denial of attorneys’ fees under § 285 because the
court’s opinion left us “unsure as to whether the court’s ba-
sis for denying attorneys’ fees rests on a misunderstanding
of the law or an erroneous fact finding” and remanded the
issue to the district court for reconsideration. Id.
at 1307–08.
3 The district court also denied attorneys’ fees and
treble damages that Energy sought under state law be-
cause Energy did not plead the relevant cause of action.
We affirmed this denial in the prior appeal. Energy Heat-
ing, 889 F.3d at 1305.
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ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC 5
II
On remand, Appellees renewed their motions for attor-
neys’ fees under § 285, and the district court referred the
motions and all supplemental briefing to a magistrate
judge. The magistrate judge conducted a hearing and then
recommended that the case be found “exceptional” because
“the case stands out from others within the meaning of
§ 285 considering recent case law, the nature and extent of
HOTF’s inequitable conduct, and the jury’s findings of bad
faith.” J.A. 4. By a preponderance of the evidence, the
magistrate judge found that “this case stands out from oth-
ers with respect to the substantive strength of HOTF’s lit-
igation position” and that “HOTF litigated the case in an
unreasonable manner by persisting in its positions.”
J.A. 29. The magistrate judge also found, for example, that
“[t]he number of undisclosed prior sales and the amounts
HOTF received from those prior sales constitute affirma-
tive egregious conduct” and that HOTF “pursued claims of
infringement without any apparent attempt to minimize
litigation costs” “despite [its] knowledge that its patent was
invalid.” J.A. 29.
HOTF subsequently filed various objections to the re-
port and recommendation. The district court considered
HOTF’s “additional evidence and arguments” but adopted
the report and recommendation in its entirety, therefore
finding the case exceptional under § 285. J.A. 37–38. The
district court then awarded attorneys’ fees to Appellees and
entered judgment accordingly. J.A. 1.
HOTF appealed. We have jurisdiction under 28 U.S.C.
§ 1295(a)(1).
DISCUSSION
I
The only issue HOTF raises in this appeal is the dis-
trict court’s exceptionality determination under § 285,
which we review for an abuse of discretion. Highmark Inc.
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6 ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC
v. Allcare Health Mgmt. Sys., Inc., 572 U.S. 559, 563–64
(2014); Bayer CropScience AG v. Dow AgroSciences LLC,
851 F.3d 1302, 1306 (Fed. Cir. 2017). We “must give great
deference to the district court’s exercise of discretion in
awarding fees.” Energy Heating, 889 F.3d at 1307 (citing
Highmark, 572 U.S. at 564). To meet the abuse-of-discre-
tion standard, the appellant must show that the district
court made “a clear error of judgment in weighing relevant
factors or in basing its decision on an error of law or on
clearly erroneous factual findings.” Bayer, 851 F.3d
at 1306 (quoting Mentor Graphics Corp. v. Quickturn De-
sign Sys., Inc., 150 F.3d 1374, 1377 (Fed. Cir. 1998)).
Under § 285, a “court in exceptional cases may award
reasonable attorney fees to the prevailing party.” An “ex-
ceptional” case under § 285 is “one that stands out from
others with respect to the substantive strength of a party’s
litigating position (considering both the governing law and
the facts of the case) or the unreasonable manner in which
the case was litigated.” Octane Fitness, LLC v. ICON
Health & Fitness, Inc., 572 U.S. 545, 554 (2014). The party
seeking fees must prove that the case is exceptional by a
preponderance of the evidence, and the district court
makes the exceptional-case determination on a case-by-
case basis considering the totality of the circumstances. Id.
at 554, 557–58. We have explained that “prevailing on a
claim of inequitable conduct often makes a case ‘excep-
tional,’” Therasense, Inc. v. Becton, Dickinson & Co.,
649 F.3d 1276, 1289 (Fed. Cir. 2011) (en banc), although
not necessarily so, Energy Heating, 889 F.3d at 1307 (“We
reaffirm that district courts may award attorneys’ fees af-
ter finding inequitable conduct, but are not required to do
so.”).
II
HOTF challenges the district court’s exceptionality de-
termination on three principal grounds: (1) that the district
court based its decision on an erroneous factual finding,
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ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC 7
(2) that the district court failed to address or properly
weigh the relevant factors, and (3) that the district court
failed to properly apply the law. We address each issue in
turn and conclude that the district court did not abuse its
discretion in determining this case to be exceptional under
§ 285.
First, HOTF contends that the district court errone-
ously credited the jury’s bad-faith finding in determining
that “the jury concluded HOTF’s case was substantively
weak and . . . HOTF [unreasonably] persisted with its
claims.” Appellants’ Br. 23 (quoting J.A. 30). HOTF’s the-
ory is that the district court abused its discretion in relying
on the jury’s bad-faith finding because that finding “had
nothing to do with the strength or weakness of HOTF’s lit-
igation positions; it was tied exclusively to [Energy’s] tor-
tious interference claim.” Appellants’ Br. 23–24. We
disagree. That HOTF made representations in bad faith
that it held a valid patent was within the district court’s
“equitable discretion” to consider as part of the totality of
the circumstances of HOTF’s infringement case. See Oc-
tane Fitness, 572 U.S. at 554.
HOTF further argues that the district court errone-
ously relied on the jury verdict in finding exceptionality be-
cause “[b]y finding that HOTF did not commit the tort of
deceit, the jury necessarily found that HOTF did not en-
gage in inequitable conduct.” Appellants’ Br. 25 (emphases
omitted). HOTF also argues that the district court on re-
mand erroneously failed to address factual findings pur-
portedly made in the court’s order denying fees before the
first appeal. Appellants’ Br. 26. Neither argument is per-
suasive. As to the former, inequitable conduct was tried to
the district court, not the jury, resulting in a judgment of
unenforceability that we affirmed in the prior appeal. En-
ergy Heating, 889 F.3d at 1308. The jury’s finding of no
state-law “deceit” simply has no bearing on inequitable
conduct. As to the latter argument, the district court’s pre-
vious order denying attorneys’ fees is inapposite because
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8 ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC
we vacated that order in the prior appeal. Id. (vacating and
remanding to the district court for “reconsideration” of at-
torneys’ fees); Camreta v. Greene, 563 U.S. 692, 713 (2011)
(“Vacatur . . . strips the decision below of its binding effect
and clears the path for future relitigation.” (cleaned up)).
Second, HOTF contends that the district court abused
its discretion because it “failed to address or properly
weigh” factors relevant to exceptionality under § 285,
namely, the “strength or weakness” of HOTF’s litigation
position, the absence of a finding of litigation misconduct,
and the PTO’s subsequent allowance of certain continua-
tion patents claiming priority to the ’993 patent. Appel-
lants’ Br. 26–33 (capitalization normalized). We disagree.
For starters, the district court provided ample support for
its conclusion that HOTF’s case was “substantively
weak”—for example, HOTF knew “that its patent was in-
valid” and that “no reasonable person could expect to pre-
vail on claims of the patent’s validity.” J.A. 29–30. Indeed,
here, HOTF mainly regurgitates its (losing) argument that
the district court’s previous order denying fees should con-
trol. See Appellants’ Br. 28–30.
Next, contrary to HOTF’s assertion, the district court
was not required to affirmatively weigh HOTF’s purported
“lack of litigation misconduct.” See Reply Br. 10–11. In
support, HOTF relies on Electronic Communication Tech-
nologies, LLC v. ShoppersChoice.com, LLC, 963 F.3d 1371,
1378 (Fed. Cir. 2020). But HOTF mistakenly sees in that
case its own proposition that “evidence that a party did not
engage in [litigation] misconduct is equally relevant [to ev-
idence of litigation misconduct] and must be considered.”
Appellants’ Br. 32. Rather, in Electronic Communication,
we merely held in relevant part that “the manner in which
[patentee] litigated the case or its broader litigation con-
duct” is “a relevant consideration.” 963 F.3d at 1378; ac-
cord Octane Fitness, 572 U.S. at 554 (holding that an
“exceptional” case under § 285 is “one that stands out from
others with respect to the substantive strength of a party’s
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ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC 9
litigating position . . . or the unreasonable manner in which
the case was litigated”). In other words, while the “man-
ner” or “broader conduct” of litigation is relevant under
§ 285, the absence of litigation misconduct is not separately
of mandatory weight. See Octane Fitness, 572 U.S. at 554
(concluding that there is “no precise rule or formula” for
making determinations under § 285 (citation omitted)).
Likewise, we reject HOTF’s further suggestion that litiga-
tion misconduct is “necessary to find a case exceptional,”
Reply Br. 10; see also Oral Arg. at 1:40–2:15, 4 a proposition
wholly lacking support, see, e.g., Octane Fitness, 572 U.S.
at 554; Monolithic Power Sys., Inc. v. O2 Micro Int’l Ltd.,
726 F.3d 1359, 1366 (Fed. Cir. 2013) (“[A]s a general mat-
ter, many forms of misconduct can support a district court’s
exceptional case finding . . . .”); Therasense, 649 F.3d
at 1289. Here, the district court properly considered the
totality of the circumstances, including the manner of
HOTF’s litigation, finding that “HOTF litigated the case in
an unreasonable manner by persisting in its positions.”
J.A. 29. We see no abuse of discretion in the district court’s
apparent refusal to credit HOTF for not further engaging
in litigation misconduct.
In addition, HOTF argues that the district court “failed
to consider or weigh” that the PTO has issued “several con-
tinuation patents that claim priority to the ’993 [p]atent
and recite similar claims, despite the fact that HOTF [has
now] disclosed [the] pre-critical date uses of [the] invention
to the [PTO] during prosecution of those patents.” Appel-
lants’ Br. 33. HOTF suggests that by allowing these
claims, the PTO “apparently agreed that [HOTF’s] pre-crit-
ical date uses were experimental, providing strong evi-
dence of the strength of HOTF’s litigation defenses to the
inequitable conduct claims.” Reply Br. 20. We are
4 No. 20-2038, http://oralarguments.cafc.uscourts
.gov/default.aspx?fl=20-2038_06072021.mp3.
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10 ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC
unpersuaded. HOTF’s inequitable conduct as to the
’993 patent was affirmed in the first appeal. The district
court did not abuse its discretion in finding the later-issued
continuation patents (which concern different claims) of lit-
tle or no relevance to its exceptionality determination.
Third, HOTF contends that the district court misap-
plied the law because it “viewed an inequitable conduct
finding as mandating a finding of exceptionality.” Appel-
lants’ Br. 36. Not so. The district court correctly explained
that “[a] finding of inequitable conduct does not mandate a
finding of exceptionality.” J.A. 17; see Energy Heating,
889 F.3d at 1307 (“We reaffirm that district courts may
award attorneys’ fees after finding inequitable conduct, but
are not required to do so.”). And while the district court
stated that after Octane Fitness “it appears other courts
have universally” found “exceptionality if inequitable con-
duct is found,” the district court nonetheless appropriately
considered the governing law and the facts of this case in
reaching its conclusion. J.A. 29. We discern no legal error
and so no abuse of discretion in the district court’s applica-
tion of the relevant law.
In sum, the district court did not abuse its discretion in
finding this case to be exceptional under § 285.
III
Relatedly, Appellees requested attorneys’ fees under
§ 285 for this appeal in their respective briefs. See Energy’s
Br. 29–31; Marathon’s Br. 40–41. We generally have au-
thority to award appellate fees under § 285. See, e.g., D.L.
Auld Co. v. Chroma Graphics Corp., 753 F.2d 1029, 1032
(Fed. Cir. 1985) (explaining that § 285 “authorizes us to
award to the prevailing party before this court its attor-
ney[s’] fees incurred in its successful handling of an ap-
peal”); Rohm & Haas Co. v. Crystal Chem. Co., 736 F.2d
688, 692 (Fed. Cir. 1984) (“We construe the language of
§ 285 as applicable to cases in which the appeal itself is ex-
ceptional . . . .”). But, as HOTF notes, see Reply Br. 21–22,
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ENERGY HEATING, LLC v. HEAT ON-THE-FLY, LLC 11
Appellees’ request is premature under Federal Circuit
Rule 47.7, which requires here that “the application must
be made within thirty (30) days after entry of the judgment
or order denying rehearing, whichever is later,” Fed. Cir.
R. 47.7(a)(2) (emphasis added); see Vidal v. U.S. Postal
Serv., 143 F.3d 1475, 1481 (Fed. Cir. 1998). Accordingly,
we decline to consider the merits of Appellees’ request.
CONCLUSION
We have considered HOTF’s remaining arguments
about the district court’s exceptionality determination but
find them unpersuasive. For the reasons above, we affirm
the district court’s judgment awarding attorneys’ fees.
AFFIRMED