iLOR, LLC v. Google, Inc.

United States Court of Appeals

for the Federal Circuit

__________________________

ILOR, LLC,

Plaintiff-Appellant,

v.

GOOGLE, INC.,

Defendant-Appellee.

__________________________

2010-1117, 1172

__________________________

Appeals from the United States District Court for the

Eastern District of Kentucky case no. 07-CV-00109,

Senior Judge Joseph M. Hood.

___________________________

Decided: January 11, 2011

___________________________

DAVID E. SCHMIT, Frost Brown Todd LLC, of Cincin-

nati, Ohio, argued for plaintiff-appellant.

FRANK E. SCHERKENBACH, Fish & Richardson P.C., of

Boston, Massachusetts, argued for defendant-appellee.

With him on the brief were KURT L. GLITZENSTEIN; and

SHELLEY K. MACK, of Redwood City, California.

__________________________

ILOR v. GOOGLE 2

Before RADER, Chief Judge, LINN and DYK, Circuit

Judges.

DYK, Circuit Judge.

iLOR, LLC (“iLOR”) appeals from an order of the

United States District Court for the Eastern District of

Kentucky finding this case exceptional under 35 U.S.C. §

285 and awarding attorneys’ fees and costs and expenses.

iLOR, LLC v. Google, Inc., No. 5:07-CV-109, Doc. 93, 2009

WL 3367391 (E.D. Ky. Oct. 15, 2009). This decision was

based on a finding that iLOR’s proposed construction of

claim 26 of U.S. Patent No. 7,206,839 (“’839 patent”) was

baseless, and that iLOR knew or should have known that

the Google Notebook product did not infringe its patent.

Id. at *4.

Because we hold that iLOR’s proposed construction of

claim 26 was not objectively baseless, we reverse.

BACKGROUND

iLOR is an Internet company and assignee of the ’839

patent. This patent is directed to a “[m]ethod for adding a

user selectable function to a hyperlink.” ’839 Patent at

[54]. A hyperlink is a “string of text or a computer

graphic that a user can ‘click’ with the mouse pointer” to

open a new browser page. Id. at col.1 ll.24–26. Claim 26,

the only claim at issue, provides:

A method for enhancing a hyperlink, comprising:

providing a user-selectable link enhancement for a

toolbar, the toolbar being displayable

based on a location of a cursor in relation to a hy-

perlink in a first page in a first window of an ap-

plication, wherein said first page is associated

with a first uniform resource locator (URL),

wherein said hyperlink is associated with a sec-

ond URL and a second page, wherein said user-

3 ILOR v. GOOGLE

selectable link enhancement is adapted to display

a graphical element based on said first URL;

receiving an indication of a first user selection of said

link enhancement; and

as a result of said first user selection,

capturing said first URL associated with

said first page; and displaying a graphical

element, said graphical element associ-

ated with said captured first URL, said

graphical element adapted to cause said

first page to be displayed as a result of a

second user selection of said graphical

element.

Id. at col.12 l.59–col.13 l.13 (emphasis added).

In its infringement suit against Google in the United

States District Court for the Eastern District of Kentucky,

iLOR alleged that the Google Notebook product infringed

claim 26 of the ’839 patent because the online application

had a feature that allowed a user to right-click on a

hyperlink while the cursor was positioned over that

hyperlink. This action caused a toolbar to be displayed

from which the user could select a “Note This Item” option

to bookmark the URL address of the hyperlink for later

viewing. Google counterclaimed, seeking a declaratory

judgment of non-infringement, invalidity, and unenforce-

ability based on inequitable conduct. Relying only on

claim 26, iLOR moved for a preliminary injunction, re-

questing that Google be enjoined from using or inducing

others to use Google Notebook in a way that infringed

that claim.

In connection with the preliminary injunction motion,

the only disputed limitation of claim 26 was “the toolbar

being displayable based on a location of a cursor in rela-

tion to a hyperlink.” Id. at col.12 ll.63–64 (emphasis

ILOR v. GOOGLE 4

added). Google argued that the “being displayable” limi-

tation only covered methods where the toolbar was auto-

matically displayed when a cursor was proximate to the

hyperlink. iLOR contended that the claim also covered an

embodiment where a right-mouse click was required to

display the toolbar. The district court agreed with Google

and construed the claim to mean that “the toolbar is

‘automatically displayed’ upon the placement of the cursor

in proximity to a hyperlink with no further action on the

part of a user.” iLOR, LLC v. Google, Inc., No. 5:07-CV-

109, Doc. 70, 2007 WL 4259586, at *6 (E.D. Ky. Nov. 30,

2007).

The district court supported its construction by look-

ing to the ordinary meaning of the claim language, con-

cluding that the language of claim 26 “means simply that

the toolbar is displayable or capable of being displayed,

put before the view of the user, or made evident based on

the location of the cursor.” Id. at *4. The court also noted

that the specification distinguished the current invention

from Web browsers in which a user could open a new

window by “right clicking on [a] link and then clicking on

the ‘open in new window’ menu [item].” Id. at *5; see ’839

Patent col.6 ll.22–27). The court was also persuaded by

the prosecution history, which suggested that iLOR

contemplated a display of the toolbar without further user

action. iLOR, 2007 WL 4259586, at *6–8. The court thus

concluded that the “displayable” limitation of claim 26 did

not teach a right-click action in order to display a toolbar.

Because it was undisputed that Google Notebook did not

automatically display its toolbar, but instead required the

user to right-click on the hyperlink, the district court

granted summary judgment on non-infringement and

dismissed the suit with prejudice. Id. at *9.

iLOR appealed, and we approved the district court’s

construction of claim 26, holding that the district court

5 ILOR v. GOOGLE

therefore did not err in denying a preliminary injunction.

iLOR, LLC v. Google, Inc., 550 F.3d 1067, 1069 (Fed. Cir.

2008). In that first appeal, we agreed that the language

of the claim and the specification suggested that the

toolbar display was automatic and “based on the location

of the cursor” in relation to the hyperlink. Id. at 1073.

We also found that the abstract and specification permit-

ted an interpretation in which “user inaction” (i.e., hover-

ing the cursor over the hyperlink) may cause the toolbar

to display, but nothing in the specification indicated that

a further action, such as right-clicking, was required. Id.

at 1074. For example, we noted that the abstract provides

“[w]hen the cursor has remained near the hyperlink for a

predetermined time period, a toolbar is displayed contain-

ing one or more link enhancements that the user may

select.” Id. (quoting ’839 Patent, at [57]).

Finally, we agreed with the district court that there

was support in the prosecution history that iLOR contem-

plated an automatic toolbar display. During the prosecu-

tion of the ’839 patent’s parent application, iLOR

distinguished a prior art Newfield patent, which, it

claimed, required further user action for a display, not

merely locating the cursor near the hyperlink. The dis-

claimer stated, in relevant part:

First, Newfield does not teach detecting a cursor in

proximity to a hyperlink. Instead, Newfield

teaches that a user must click on or select a hyper-

link to access the breadth-first search system of

Newfield. In contrast, the present invention detects

a cursor in proximity to the hyperlink. Therefore

Newfield does not teach detecting a cursor in

proximity to a hyperlink.

Joint App. 1465 (emphases altered) (internal citation

omitted).

ILOR v. GOOGLE 6

After the disposition of that first appeal, Google

moved to recover its attorneys’ fees and costs and ex-

penses under 35 U.S.C. § 285. On October 15, 2009, the

district court granted Google’s motion, finding the case

exceptional under 35 U.S.C. § 285 and awarding attor-

neys’ fees and costs and expenses. In so ruling, the dis-

trict court found that the case was “not close” on the

merits (i.e., objectively baseless) and that iLOR had acted

in subjective bad faith. iLOR appealed from the October

15, 2009, order. Thereafter, on December 23, 2009, the

district court issued a final order increasing the attorneys’

fee award to $627,039.25 and the total award to

$660,351.93. iLOR again appealed, and we consolidated

the two pending appeals. We have jurisdiction pursuant

to 28 U.S.C. § 1295(a)(1).

DISCUSSION

Under 35 U.S.C. § 285, a “court in exceptional cases

may award reasonable attorney[s’] fees to the prevailing

party.” We review an award of attorneys’ fees for abuse of

discretion. Superior Fireplace Co. v. Majestic Prods. Co.,

270 F.3d 1358, 1376 (Fed. Cir. 2001). However, a finding

that a case is exceptional under § 285 is reviewable only

for clear error. See Takeda Chem. Indus., Ltd. v. Mylan

Labs., Inc., 549 F.3d 1381, 1385 (Fed. Cir. 2008). “A

district court abuses its discretion when its decision is

based on clearly erroneous findings of fact, is based on

erroneous interpretations of the law, or is clearly unrea-

sonable, arbitrary or fanciful.” Cybor Corp. v. FAS Techs.,

Inc., 138 F.3d 1448, 1460 (Fed. Cir. 1998) (en banc).

The sanctions imposed under § 285 carry serious eco-

nomic and reputational consequences for both litigants

and counsel, and

[d]espite our reluctance to second-guess the judg-

ment of trial judges who typically have intimate

7 ILOR v. GOOGLE

knowledge of the case, we have the responsibility,

in light of the substantial economic and reputa-

tional impact of such sanctions, to examine the re-

cord with care to determine whether the trial

court has committed clear error in holding the

case exceptional or has abused its discretion with

respect to the fee award. Where we have found

error, we have reversed exceptional case findings

and vacated attorney fee awards based on those

findings.

Medtronic Navigation, Inc. v. BrainLAB Medizinische

Computersysteme GmbH, 603 F.3d 943, 953 (Fed. Cir.

2010).

I

A

Section 285 must be interpreted against the back-

ground of the Supreme Court’s decision in Professional

Real Estate Investors, Inc. v. Columbia Pictures Indus-

tries, Inc., 508 U.S. 49 (1993). There, the Court recog-

nized that the right to bring and defend litigation

implicated First Amendment rights and that bringing

allegedly frivolous litigation could only be sanctioned if

the lawsuit was “objectively baseless in the sense that no

reasonable litigant could realistically expect success on

the merits.” Id. at 60. “Only if challenged litigation is

objectively meritless may a court examine the litigant’s

subjective motivation.” Id.

In determining whether a case is “exceptional” under

§ 285, the relevant standard is set forth in Brooks Furni-

ture Manufacturing, Inc. v. Dutailier International, Inc.,

393 F.3d 1378 (Fed. Cir. 2005). There, we held that an

award of attorneys’ fees is permissible “when there has

been some material inappropriate conduct related to the

ILOR v. GOOGLE 8

matter in litigation, such as willful infringement, fraud or

inequitable conduct in procuring the patent, misconduct

during litigation, vexatious or unjustified litigation,

conduct that violates Fed. R. Civ. P. 11, or like infrac-

tions.” Id. at 1381. Relying on Professional Real Estate,

we held that, absent misconduct during patent prosecu-

tion or litigation, sanctions may be imposed against a

patent plaintiff “only if both (1) the litigation is brought in

subjective bad faith, and (2) the litigation is objectively

baseless.” Id.; see also Wedgetail Ltd. v. Huddleston

Deluxe, Inc., 576 F.3d 1302, 1304–06 (Fed. Cir. 2009)

(refusing to find patentee’s unsuccessful case exceptional

under Brooks Furniture). An infringement action “does

not become unreasonable in terms of [§ 285] if the in-

fringement can reasonably be disputed. Infringement is

often difficult to determine, and a patentee’s ultimately

incorrect view of how a court will find does not of itself

establish bad faith.” Brooks Furniture, 393 F.3d at 1384.

Under this exacting standard, the plaintiff’s case must

have no objective foundation, and the plaintiff must

actually know this. Both the objective and subjective

prongs of Brooks Furniture “must be established by clear

and convincing evidence.” Wedgetail, 576 F.3d at 1304.

We recognize a “presumption that the assertion of in-

fringement of a duly granted patent is made in good

faith.” Brooks Furniture, 393 F.3d at 1382 (citing Springs

Window Fashions LP v. Novo Indus., L.P., 323 F.3d 989,

999 (Fed. Cir. 2003)).

B

The objective baselessness standard for enhanced

damages and attorneys’ fees against a non-prevailing

plaintiff under Brooks Furniture is identical to the objec-

tive recklessness standard for enhanced damages and

9 ILOR v. GOOGLE

attorneys’ fees against an accused infringer for § 284

willful infringement actions under In re Seagate Technol-

ogy, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc).

Relying on the Supreme Court’s decision in Safeco Insur-

ance Co. of America v. Burr, 551 U.S. 47 (2007), we held

that:

[P]roof of willful infringement permitting en-

hanced damages requires at least a showing of ob-

jective recklessness. . . . Accordingly, 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.

. . . The state of mind of the accused infringer is

not relevant to this objective inquiry. If this

threshold objective standard is satisfied, the pat-

entee must also demonstrate that this objectively-

defined risk (determined by the record developed

in the infringement proceeding) was either known

or so obvious that it should have been known to

the accused infringer.

Seagate, 497 F.3d at 1371 (emphases added). A finding of

willful infringement is only justified if the objective prong

is satisfied. See, e.g., Spine Solutions, Inc. v. Medtronic

Sofamor Danek USA, Inc., 620 F.3d 1305, 1319–20 (Fed.

Cir. 2010) (reversing denial of JMOL of no willfulness

after finding that Medtronic was not objectively reckless

in relying on obviousness defense despite jury’s finding of

non-obviousness); DePuy Spine, Inc. v. Medtronic Sofa-

mor Danek, Inc., 567 F.3d 1314, 1336–37 (Fed. Cir. 2009)

(affirming JMOL of no willfulness where defendant “pre-

sented a substantial question” of noninfringement under

the doctrine of equivalents, even though the jury found

equivalence). Under both Brooks Furniture and Seagate,

objective baselessness “does not depend on the plaintiff’s

ILOR v. GOOGLE 10

state of mind at the time the action was commenced, but

rather requires an objective assessment of the merits.”

Brooks Furniture, 393 F.3d at 1382. State of mind is

irrelevant to the objective baselessness inquiry. See id.;

Seagate, 497 F.3d at 1371 (“[S]tate of mind of the accused

infringer is not relevant to [the] objective inquiry.”). The

existence of objective baselessness is to be determined

based on the record ultimately made in the infringement

proceedings. See Brooks Furniture, 393 F.3d at 1382;

Seagate, 497 F.3d at 1371.

C

While the district court’s opinion here is not entirely

clear, the district court appears to have found both objec-

tive baselessness and subjective bad faith based on a

finding that “iLOR was aware long before filing suit” that

Google Notebook did not automatically display its toolbar

and that the scope of the ’839 patent did not cover non-

automatic methods of displaying toolbars. iLOR, 2009

WL 3367391, at *2. As we now discuss, we conclude that

a finding of objective baselessness has not been met here,

and we need not consider the issue of subjective bad faith.

II

Though iLOR was ultimately unsuccessful in its pat-

ent infringement suit, Google has not met its high burden

to show by clear and convincing evidence that this suit

was brought frivolously or that iLOR’s position on claim

construction was objectively baseless. The question is

whether iLOR’s broader claim construction was so unrea-

sonable that no reasonable litigant could believe it would

succeed. See Dominant Semiconductors Sdn. Bhd. v.

OSRAM GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008) (“To

be objectively baseless, the infringement allegations must

be such that no reasonable litigant could reasonably

11 ILOR v. GOOGLE

expect success on the merits.” (internal quotation omit-

ted)).

The parties agree that this case turns almost entirely

on whether the patentee’s construction of claim 26—the

only claim at issue—had any objective merit. That claim

provided in part: “the toolbar being displayable based on a

location of a cursor in relation to a hyperlink in a first

page in a first window of an application.” ’839 Patent

col.12 ll.63–65. As noted above, iLOR proffered a con-

struction where claim 26 would cover a toolbar that might

also be displayed upon a right-mouse click. iLOR, 2007

WL 4259586, at *4. However, the district court disagreed

and adopted Google’s proposed construction, and we

affirmed.

On its face, the claim language does not preclude the

patentee’s construction, although, as we held in the first

appeal, the language supports the district court’s con-

struction. For instance, iLOR points out that claim 26

does not use the word “automatic.” iLOR also points out

that the plain language of the preamble to claim 26 uses

open-ended “comprising” language, which does not pre-

clude additional steps such as a right-mouse click to

display the toolbar. See, e.g., Genentech, Inc. v. Chiron

Corp., 112 F.3d 495, 501 (Fed. Cir. 1997) (construing

“comprising” as a “term of art used in claim language

which means that the named elements are essential, but

other elements may be added and still form a construct

within the scope of the claim”). A reasonable litigant

could proffer these arguments in good faith.

Nor does the specification clearly refute the patentee’s

construction. There is no description in the ’839 patent

that the toolbar must automatically pop up. And while

the specification does not disclose a right-click embodi-

ment, it does not foreclose that argument either. For

ILOR v. GOOGLE 12

example, the Abstract describes a patented method that

“permits the user to interact with a hyperlink in a variety

of ways without necessarily having to open and/or follow

the hyperlink.” ’839 Patent, at [57] (emphasis added).

This language could suggest that a right-click action is

not foreclosed.

We also find that the district court’s reliance on the

prosecution history of the parent patent is misplaced.

The district court found that during the prosecution

history of the parent application to the ’839 patent, iLOR

differentiated the Newfield prior art from the claimed

invention based on the fact that Newfield required a click

to select a hyperlink. iLOR’s disclaimer stated, in rele-

vant part:

First, Newfield does not teach detecting a cursor

in proximity to a hyperlink. Instead, Newfield

teaches that a user must click on or select a hy-

perlink to access the breadth-first search system

of Newfield. . . . In contrast, the present invention

detects a cursor in proximity to the hyperlink.

Joint App. 1465 (emphases altered) (internal citation

omitted). Although we decided in the first appeal that

this disclaimer applies to claim 26, it was not frivolous to

argue that this disclaimer is directed to claims 178 and

190 of the parent application (which later became claims

1 and 9 of the ’839 patent). Among other differences,

original claims 178 and 190 are different from claim 26 in

that they contain the limitation “detecting a cursor in

proximity to [a] hyperlink,” while claim 26 does not.

Compare Joint App. 1458, 1462, with ’839 Patent col.12

l.59–col.13 l.13. Thus, iLOR could reasonably argue that

the disclaimer applied only to the “detecting” step in

original claims 178 and 190.

13 ILOR v. GOOGLE

In light of the claim terms, specification, and prosecu-

tion history, we believe that iLOR could reasonably argue

for the claim construction that it proposed. As with many

cases, this suit presents a routine question of claim con-

struction in which the issues are often complex and the

resolutions not always predictable. As this court has

recognized, patent claim construction can be difficult:

Claim interpretation is not always an exact sci-

ence, and it is not unusual for parties to offer

competing definitions of even the simplest claim

language. In this case, however, it is not for us to

determine whether [plaintiff’s] pre-filing interpre-

tation of the asserted claims was correct, but only

whether it was frivolous. We conclude that it was

not, for [plaintiff’s] claim interpretation, while

broad, followed the standard canons of claim con-

struction and was reasonably supported by the in-

trinsic record.

Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295,

1301 (Fed. Cir. 2004) (finding Q-Pharma's pre-filing claim

interpretation of a “therapeutically effective amount” of

an active ingredient in body lotion non-frivolous because

nothing in the written description mandated Jergens’

more narrow interpretation, and Q-Pharma's interpreta-

tion appeared consistent with the claim language, written

description, and prosecution history) (internal citation

omitted). Even when presented with “simple” claim

terms, courts may differ in their interpretation of those

terms. Here, the claim issues were far from “simple.”

The objective evidence in this case demonstrates that

iLOR could reasonably argue that its broad claim con-

struction position was correct and that Google infringed

its claims. Indeed, the fact that this court held oral

argument and issued a precedential written opinion in the

first appeal suggests that we did not regard the case as

ILOR v. GOOGLE 14

frivolous. See Fed. R. App. P. 34 (“Oral argument must be

allowed in every case unless a panel of three judges who

have examined the briefs and record unanimously agrees

that oral argument is unnecessary for any of the following

reasons: (A) the appeal is frivolous . . . .”) (emphasis

added).

As we held in the first appeal, iLOR’s claim construc-

tion was incorrect. But simply being wrong about claim

construction should not subject a party to sanctions where

the construction is not objectively baseless.

We also note that the contention as to iLOR’s repre-

sentations about its commercial product vis-à-vis Google’s

Notebook product are irrelevant in finding objective

baselessness. Prior to commencing suit, iLOR’s CEO,

Steve Mansfield, wrote a blog entry that identified iLOR’s

automatically displayed “fly-out” toolbar as a feature that

differentiated iLOR’s product from Google’s product.

From the statements, the district court inferred that

iLOR must have known that Google did not infringe its

patents. However, these statements are irrelevant to the

issue of objective baselessness. A finding of objective

baselessness is to be determined by the record made in

the infringement proceedings. See Brooks Furniture, 393

F.3d at 1382; Seagate, 497 F.3d at 1371.

Because the district court committed clear error in

holding this case exceptional under § 285, we vacate the

award of attorneys’ fees.

III

iLOR also challenges the district court’s award of

costs and expenses for copying, court reporting, tran-

scripts, expert fees, travel, research, obtaining documents

and pleadings, and electronic document handling under §

15 ILOR v. GOOGLE

285. iLOR concedes that copying, court reporting, and

transcripts are properly taxable under 28 U.S.C. § 1920.

On remand, these costs may be allowed. Other costs and

expenses may not be allowed.

We note the district court also awarded expert fees

under § 285. We have held that such fees cannot be

awarded under § 285, but recognize that a court can

invoke its inherent power to award such fees in excep-

tional cases based upon a finding of bad faith. See, e.g.,

Takeda Chem. Indus, Ltd. v. Mylan Labs, Inc., 549 F.3d

1381, 1391 (Fed. Cir. 2008); Amsted Indus. v. Buckeye

Steel Castings Co., 23 F.3d 374, 378 (Fed. Cir. 1994);

Mathis v. Spears, 857 F.2d 749, 757–58 (Fed. Cir. 1988).

Because there is no basis for finding bad faith here, we set

aside the award of expert fees.

REVERSED AND REMANDED