Withdrawal Of Rule 11 Sanctions Against An Attorney Does Not Preclude An Exceptional Case Finding Under 35 U.S.C. § 285

In Highmark, Inc. v. Allcare Health Management Systems, Inc., No. 11-1219 (Fed. Cir. Aug. 7, 2012), the Federal Circuit affirmed-in-part, reversed-in-part, and remanded the district court's exceptional case finding under 35 U.S.C. § 285 and award of attorneys' fees and costs to Highmark, Inc. ("Highmark").

Allcare Health Management Systems, Inc. ("Allcare") owns U.S. Patent No. 5,301,105 ("the '105 patent"), directed to methods of managing health care systems that interconnect and integrate physicians, medical care facilities, patients, insurance companies, and financial institutions under a utilization review process. Highmark sued Allcare, seeking a DJ of noninfringement, invalidity, and unenforceability of all claims of the '105 patent, and Allcare counterclaimed for infringement. Highmark moved for SJ of noninfringement, and the district court found that Highmark did not infringe. Allcare appealed, and the Federal Circuit affirmed the judgment without written opinion.

During the pendency of the appeal, Highmark moved for an exceptional case finding, an award of attorneys' fees and expenses under 35 U.S.C. § 285 against Allcare, and for sanctions against Allcare's attorneys under Fed. R. Civ. P. 11. The district court found that the case was exceptional and that Allcare's attorneys had violated Rule 11. Specifically, the district court found that Allcare's claims for infringement of claims 52 and 102 of the '105 patent were frivolous, and that Allcare had engaged in litigation misconduct by asserting a frivolous position based on res judicata and collateral estoppel. The district court later vacated the Rule 11 sanctions against Allcare's attorneys but maintained the exceptional case finding and the award of attorneys' fees against Allcare.

"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 developments during discovery and otherwise." Slip op. at 12 (citing Computer Docking Station Corp. v. Dell, Inc., 519 F.3d 1366, 1380 (Fed. Cir. 2008)).

"Rule 11 sanctions against an attorney may form a basis for an exceptional case finding . . . [b]ut the absence of [such] sanctions does not mandate the opposite conclusion." Slip op. at 17 (citation omitted).

As an initial matter on appeal, the Court rejected Highmark's argument that the objective reasonableness standard applies only with...