United States: Pre-Litigation Conduct of Patentee Toward Alleged Infringer Does Not Support Award of Attorney Fees

The U.S. Court of Appeals for the Federal Circuit, finding that conduct that gives rise to an equitable estoppel defense is not an appropriate basis for awarding attorney fees, reversed a district court in finding that a case was "exceptional" under 35 U.S.C. §285. Forest Laboratories, Inc. v. Abbott Laboratories, Case No. 03-1067 (Fed. Cir. August 7, 2003).

The Abbott case concerned two patents directed to a lung surfactant composition for treating respiratory distress syndrome in premature babies that Abbott licensed (the Tanabe patents). Pursuant to its license, Abbott developed a commercial product known as Survanta®. ONY developed its own product, Calf Lung Surfactant Extract (CLSE), which was further developed and marketed by Forest Laboratories under the trade name Infasurf®.

Throughout the 1980s, Abbott and ONY discussed the development of CLSE. Abbot informed ONY that it had opted not to develop CLSE. In 1984, after conducting a patentability search, Abbott told ONY that CLSE was likely not patentable in light of two "pertinent references," but did not mention the Tanabe patents. Abbott and ONY discussed future collaboration and the possibility of joint development of CLSE. Abbott monitored the development of CLSE while internally expressing concern that ONY might receive U.S. Federal Drug Administration (FDA) approval for its Intrasurf® product before Abbott could receive approval for Survanta®.

In 1991, Abbott received FDA approval and orphan drug status for Survanta®. Abbott subsequently informed ONY and Forest that it had reason to believe that Infasurf® would infringe the Tanabe patents if it were marketed. When ONY filed a new drug application in 1995 for approval to market Infasurf®, the FDA notified ONY that Infasurf® was the "same drug" as Survanta® under the Orphan Drug Act, and it, therefore, could not be approved for sale until Abbott’s seven-year market exclusivity period expired.

ONY and Forest sued Abbott seeking a declaratory judgment of non-infringement and invalidity of the Tanabe patents. Abbott counterclaimed for infringement. After a jury found both patents infringed and were not invalid, the district court granted ONY and Forest a judgment of non-infringement as a matter of law (JMOL). The district court found that Abbott failed to present any evidence to show CLSE infringed the Tanabe patents and further ruled that Abbott was equitably estopped from asserting infringement of the Tanabe patents against ONY and Forest. The district court based its equitable estoppel ruling on its finding that Abbott misled ONY and Forest to believe that it would not assert infringement by encouraging their development of Infasurf® and by "neglecting its duty to inform them of any possible infringement" upon which ONY and Forest reasonably relied.

The district court also granted ONY and Forest’s motion for attorney fees and expenses, finding the case to be "exceptional" under §285. The district court found that Abbott, in bad faith, encouraged ONY to develop CLSE, disregarded its duty to advise ONY and Forest of possible infringement and pursued its infringement counterclaim with a "reckless disregard for the facts in an attempt to prevent Infasurf from reaching the market."

The Federal Circuit reversed, finding that "exceptional" cases under §285 are those cases involving "inequitable conduct before the [patent office]; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement." Since none of those circumstances was present, it was error for the district court, in its "expansive reading of §285," to find the case exceptional. The Federal Circuit noted, "[W]e have not … upheld a finding of exceptionality based on a patentee’s bad-faith business conduct toward an accused infringer prior to litigation, and we decline to expand the scope of the statutory term ‘exceptional’ in that manner." While equitable estoppel may be imposed when a patentee induces another party to believe that it will not be sued for infringement, the consequence of that estoppel is the loss of the cause of action, not attorney fees "under the rubric of exceptional case."