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,
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 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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                               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
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 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