Court Opinion

ID: 4272705
Source: CourtListenerOpinion
Date Created: 2018-05-04 15:00:59.23392+00
Date Added: 2024-06-11T14:27:25.638021
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

  ENERGY HEATING, LLC, AN IDAHO LIMITED
   LIABILITY COMPANY, ROCKY MOUNTAIN
 OILFIELD SERVICES, LLC, AN IDAHO LIMITED
           LIABILITY COMPANY,
           Plaintiffs-Cross-Appellants

MARATHON OIL CORPORATION, MARATHON OIL
                  COMPANY,
     Third-Party Defendants-Cross-Appellants

                           v.

HEAT ON-THE-FLY, LLC, A LOUISIANA LIMITED
LIABILITY COMPANY, SUPER HEATERS NORTH
  DAKOTA, LLC, A NORTH DAKOTA LIMITED
           LIABILITY COMPANY,
             Defendants-Appellants
            ______________________

            2016-1559, 2016-1893, 2016-1894
                ______________________

    Appeals 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: May 4, 2018
                ______________________

    F. ROSS BOUNDY, Davis Wright Tremaine LLP, Seat-
tle, WA, argued for plaintiffs-cross-appellants. Also
2              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

represented by BENJAMIN J. BYER, STUART RUSSELL
DUNWOODY; STEVEN VAN GIBBONS, Gibbons & Associates,
P.S., Seattle, WA.

   SHANE P. COLEMAN, Holland & Hart LLP, Billings,
MT, argued for third-party defendants-cross-appellants.

    SCOTT A. BRISTER, Andrews Kurth Kenyon LLP,
Austin, TX, argued for defendants-appellants.     Also
represented by LLOYD LEE DAVIS, III, GREGORY LAWRENCE
PORTER, Houston, TX.
                ______________________

    Before MOORE, HUGHES, and STOLL, Circuit Judges.
STOLL, Circuit Judge.
     Appellants Heat On-The-Fly, LLC and Super Heaters
North Dakota, LLC (together, “HOTF”)1 appeal the dis-
trict court’s judgment of inequitable conduct, summary
judgment of obviousness, denial of judgment as a matter
of law of no tortious interference, construction of disputed
claim terms, and dismissal of HOTF’s counterclaim of
direct infringement. Cross-Appellants Energy Heating,
LLC and Rocky Mountain Oilfield Services, LLC (togeth-
er, “Energy”); and Marathon Oil Company and Marathon
Oil Corporation (together, “Marathon”) appeal the district
court’s denial of attorneys’ fees under 35 U.S.C. § 285.

    1   Heat On-The-Fly is the patent owner and Super
Heaters is a current licensee. The district court used
“HOTF” to refer to Heat On-The-Fly, LLC and Super
Heaters North Dakota, LLC collectively. J.A. 54; J.A. 85.
We do the same in the interest of consistency, but note
that Heat On-The-Fly is the sole counterclaim-plaintiff for
the infringement counterclaims.
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC             3

     We affirm the district court’s declaratory judgment
that U.S. Patent No. 8,171,993 is unenforceable due to
inequitable conduct, and therefore do not reach the dis-
trict court’s summary judgment of obviousness, claim
construction order, or summary judgment of no direct
infringement. We also affirm the district court’s judg-
ment of tortious interference and denial of remedies
under the North Dakota Unlawful Sales or Advertising
Practices Act. Finally, we vacate the district court’s
denial of attorneys’ fees under § 285 and remand on that
issue alone.
                       BACKGROUND
    The ’993 patent, which is at the heart of the disputes
on appeal, is titled “Water Heating Apparatus for Contin-
uous Heated Water Flow and Method for Use in Hydrau-
lic Fracturing.” ’993 patent col. 1 ll. 1–5. It relates to a
“method and apparatus for the continuous preparation of
heated water flow for use in hydraulic fracturing,” also
known as “fracing.” 2 Id. at col. 1 ll. 28–30, 36–37. More
specifically, the invention relates to heating water on
demand or inline during the fracing process, instead of
using preheated water in large standing tanks. See id.
HOTF also refers to this as heating water “on-the-fly.”
The sole named inventor is Mr. Hefley, the founder of
Heat On-The-Fly. He filed the earliest provisional appli-
cation, Patent App. No. 61/276,950, on September 18,
2009. Thus, the critical date for analyzing the on-sale and

   2    The patent describes fracing as “a process em-
ployed after the well has been drilled, for the completion
of the well to enhance hydrocarbon production.”
’993 patent col. 1 ll. 36–39.
4              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

public-use bars under 35 U.S.C. § 102 3 is September 18,
2008, one year before the priority date.
    Claim 1 of the ’993 patent reads as follows:
    1. A method of fracturing a formation producing
    at least one of oil and gas, comprising the steps of:
    a) providing a transportable heating apparatus for
    heating water to a temperature of at least about
    40 degrees F. (4.4 degrees C.);
    b) transmitting a water stream of cool or cold wa-
    ter to a mixer, the cool or cold water stream being
    at a temperature of less than a predetermined
    target temperature;
    c) the mixer having a first inlet that receives cool
    or cold water from the stream of step “b” and a
    first outlet that enables discharge of a substan-
    tially continuous stream which is a mix of cool or
    cold and heated water;
    d) the mixer having a second inlet that enables
    heated water to enter the mixer;
    e) adding heated water from the transportable
    heating apparatus of step “a” to the mixer via the
    second inlet;
    f) wherein the volume of cool or cold water of step
    “b” is much greater than the volume of heated wa-
    ter of step “e”;

    3   Congress amended § 102 when it enacted the
Leahy-Smith America Invents Act (“AIA”).            Pub. L.
No. 112–29, § 3(b)(1), 125 Stat. 284, 285–87 (2011).
However, because the application that led to the
’993 patent was filed before March 16, 2013, the pre-AIA
§ 102 applies. See id. § 3(n)(1), 125 Stat. at 293.
ENERGY HEATING, LLC    v. HEAT ON-THE-FLY, LLC            5

   g) adding a selected proppant to the mix of cool or
   cold and heated water discharged from the mixer
   after step “f”; and
   h) transmitting the mix of cool or cold and heated
   water and the proppant into a formation produc-
   ing at least one of oil and gas, wherein water flows
   substantially continuously from the first inlet to
   the first outlet during the fracturing process.
’993 patent claim 1.
    Before the critical date, Mr. Hefley and his companies
performed on-the-fly heating of water on at least 61 frac
jobs using the system described in the ’993 patent appli-
cation. In total, Mr. Hefley’s companies collected over
$1.8 million for those heat-on-the-fly services. Further-
more, Mr. Hefley knew that the patent process required
that he file his application within one year of the first
offer for sale or public use. It is undisputed that
Mr. Hefley’s business partner had discussed the on-sale
bar requirement with him. Nevertheless, Mr. Hefley did
not disclose any of the 61 frac jobs to the Patent and
Trademark Office (“PTO”) during prosecution as potential
on-sale or public uses of the invention that might have
triggered an on-sale bar. Ultimately, the patent issued on
May 8, 2012.
    Energy competes with HOTF in providing water-
heating services during fracing. Energy began using its
accused process of heating water on frac jobs in 2012.
Energy initially obtained all jobs through Wind River, a
water supplier working for Triangle Oil (“Triangle”).
After Energy stopped receiving payment from Wind River,
it directly solicited work from Triangle. Energy alleges
that HOTF tortiously interfered with its prospective
business relationship with Triangle by calling Triangle
and alleging that Energy’s water heaters infringed a valid
and enforceable patent, raising the possibility of a patent
infringement lawsuit. Energy ultimately lost the work
6              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

with Triangle. Instead, Triangle hired HOTF for its
water-heating needs in early December 2012.
     This case commenced a month later, in January 2013,
when Energy sought declaratory judgment that the
’993 patent was unenforceable for inequitable conduct,
invalid as obvious, and not infringed. In response, HOTF
filed counterclaims of infringement, inducement to in-
fringe, and contributory infringement against Energy.
HOTF also filed a third-party complaint against Mara-
thon—an oil company that contracted with Energy for on-
demand water-heating services—alleging claims for
induced infringement and contributory infringement. In
response, Marathon filed counterclaims of its own, seek-
ing declaratory judgments of invalidity, non-infringement,
and unenforceability due to inequitable conduct. HOTF
later added a direct infringement claim against Mara-
thon. Energy then filed a second amended complaint,
seeking declaratory judgment for tortious interference
with existing or prospective business relationships and for
tortious interference with contracts under state law.
Energy did not plead any cause of action arising under
North Dakota’s Unlawful Sales or Advertising Practices
Act in its complaint.
    Before trial, the district court granted summary
judgment in Energy and Marathon’s favor, (1) dismissing
HOTF’s claims of direct infringement of method claims 1,
13, and 63; and (2) finding all claims of the ’993 patent
would have been obvious under 35 U.S.C. § 103. In late
2015, the district court held a jury trial, where the jury
found:
    (1) HOTF represented in bad faith that it possessed a
        valid patent.
    (2) HOTF knowingly engaged in unlawful sales or ad-
        vertising practices.
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC             7

   (3) HOTF unlawfully interfered with Energy’s contrac-
       tual rights and prospective business relationship
       with Triangle Oil.
   (4) Energy sustained damages of $750,000 caused by
       HOTF’s intentional conduct.
     Concurrent with the jury trial, the district court held
a bench trial on inequitable conduct. After an additional
hearing, the district court granted declaratory judgment
against the patent owner on the issue of inequitable
conduct. Energy Heating, LLC v. Heat On-The-Fly, LLC,
No. 4:13-cv-10, 2016 WL 10837799, at *4 (D.N.D. Jan. 14,
2016) (“Inequitable Conduct Op.”). The district court
found “clear and convincing evidence of substantial on-
sale and public uses” of the claimed invention as early as
October 2006. Id. at *2 ¶ 10. Ultimately, the district
court found that, by failing to disclose prior sales and
public uses, the inventor effectively withheld material
information concerning prior acts with an intent to de-
ceive the PTO into granting the ’993 patent. The district
court further concluded that, even if the prior frac jobs
were experimental, they were focused on economic viabil-
ity, not how to meet the claims of the ’993 patent. Thus,
the prior frac jobs would not fall under the experimenta-
tion exception and Mr. Hefley still would have violated
the on-sale bar. Accordingly, the district court concluded
the patent was unenforceable for inequitable conduct.
    Next, the district court denied Energy and Marathon’s
motions for a finding of exceptionality and an award of
attorneys’ fees and costs under § 285. Energy Heating,
LLC v. Heat On-The-Fly, LLC, No. 4:13-cv-10, 2016 WL
10837794 (D.N.D. Mar. 16, 2016) (“Attorneys’ Fees Op.”).
The district court also denied Energy’s motion under the
North Dakota Unlawful Sales or Advertising Practices
Act (North Dakota Century Code § 51-15-09) for attor-
neys’ fees, costs, and enhanced damages.
8               ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

    Here, HOTF appeals the district court’s judgment
with regard to inequitable conduct, obviousness, tortious
interference, claim construction, and divided infringe-
ment. Energy and Marathon appeal the district court’s
denial of attorneys’ fees under § 285. Energy also appeals
the district court’s denial of attorneys’ fees under the
North Dakota Unlawful Sales or Advertising Practices
Act.    We have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(1).
                        DISCUSSION
                              I.
    First, we affirm the district court’s conclusion that the
patent is unenforceable for inequitable conduct. Inequi-
table conduct is an equitable issue committed to the
discretion of the trial court and is, therefore, reviewed by
this court under an abuse of discretion standard. Regen-
eron Pharm., Inc. v. Merus N.V., 864 F.3d 1343, 1351
(Fed. Cir. 2017) (citing Am. Calcar, Inc. v. Am. Honda
Motor Co., 768 F.3d 1185, 1189 (Fed. Cir. 2014));
Kingsdown Med. Consultants, Ltd. v. Hollister Inc.,
863 F.2d 867, 876 (Fed. Cir. 1988) (en banc in relevant
part). We will not substitute our judgment for that of the
trial court in relation to the discretionary ruling of inequi-
table conduct unless the appellant establishes that the
ruling is based on clearly erroneous findings of fact or a
misapplication or misinterpretation of applicable law, or
that the ruling evidences a clear error of judgment on the
part of the district court. Kingsdown, 863 F.2d at 876.
    To prevail on inequitable conduct, the accused in-
fringer must prove by clear and convincing evidence that
the applicant knew of the reference or prior commercial
sale, knew that it was material, and made a deliberate
decision to withhold it. Therasense, Inc. v. Becton, Dickin-
son & Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011) (en banc).
The inequitable conduct issue here relates to whether the
applicant failed to disclose information that would have
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC               9

implicated the on-sale bar under 35 U.S.C. § 102(b). A
patent is invalid under the on-sale bar if, before the
critical date, the invention was both (1) the subject of a
commercial sale or offer for sale and (2) ready for patent-
ing. Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998); see
also The Medicines Co. v. Hospira, Inc., 881 F.3d 1347,
1351 (Fed. Cir. 2018). If a prior commercial sale was a
bona fide experiment to (1) test the claimed features or
(2) determine if the invention would work for its intended
use, the sale will not serve as a bar. Clock Spring, L.P. v.
Wrapmaster, Inc., 560 F.3d 1317, 1327 (Fed. Cir. 2009).
    After a bench trial, the district court entered findings
of fact and conclusions of law on the issue of inequitable
conduct, concluding that inventor Mark Hefley and his
companies engaged in inequitable conduct in order to
obtain the ’993 patent, rendering the patent unenforcea-
ble. In its findings of fact, the district court found that
the critical date for the on-sale and public-use bars of
§ 102(b) was September 18, 2008, one year prior to the
earliest provisional application—U.S. Patent App.
No. 61/276,950. The district court further found clear and
convincing evidence of substantial on-sale and public uses
of the claimed invention as early as October 2006, well
before the critical date. Specifically, the court found that
Mr. Hefley admitted at trial that he and his companies
used water-heating systems containing all the elements of
claim 1 on at least 61 frac jobs before the critical date.
The court further found that invoices reflected that
Mr. Hefley’s companies collected over $1.8 million for
those pre-critical date heat-on-the-fly services.
     The court also found that Mr. Hefley could not claim
ignorance of either the significance of the “critical date” as
it related to his patent, or the one-year grace period for
filing a patent application on his claimed invention. The
court found that Mr. Hefley himself testified at trial that
his business partner had discussed with him the fact that
the patent process required filing the application within
10              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

one year after the invention was first offered for sale. It is
undisputed that Mr. Hefley did not report prior sales to
the PTO during prosecution of the ’993 patent application.
The district court also entered findings of fact regarding
HOTF’s claim that the prior sales were experimental,
ultimately finding that they were not experimental and
that any alleged experimentation was not related to the
claims.
    Eight months after the district court’s inequitable
conduct judgment, while this appeal was pending, the
PTO issued a continuation patent related to the same
invention after all 61 frac jobs were disclosed. HOTF did
not ask the district court to reconsider its inequitable
conduct determination in light of the PTO’s notice of
allowance of its continuation patent.
    On appeal, HOTF argues that the district court’s con-
clusion of inequitable conduct is incorrect for three rea-
sons: (1) the district court clearly erred in finding that
Mr. Hefley’s sales and public uses needed to be disclosed
to the PTO because they were not experimental, (2) the
fact that the PTO issued the continuation patent even
after HOTF disclosed the 61 prior sales disproves both
materiality and intent, and (3) the court improperly found
that there was clear and convincing evidence that the
inventor knew that the prior jobs were material and
specifically intended to deceive the PTO. As we discuss
below, we do not find any of these arguments persuasive.
                               A.
    The district court did not clearly err in finding that
Mr. Hefley’s 61 prior commercial sales and public uses
were not experimental. See Pfaff, 525 U.S. at 64, 67–68.
A use may be experimental only if it is designed to (1) test
claimed features of the invention or (2) determine wheth-
er an invention will work for its intended purpose—itself
a requirement of patentability. Clock Spring, 560 F.3d
at 1327 (citing In re Omeprazole Patent Litig., 536 F.3d
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC            11

1361, 1373–75 (Fed. Cir. 2008)); see also Pfaff, 525 U.S. at
65 (quoting Elizabeth v. Am. Nicholson Pavement Co.,
97 U.S. 126, 137 (1877)). “In other words, an invention
may not be ready for patenting if claimed features or
overall workability are being tested.” Clock Spring,
560 F.3d at 1327.
     Here, the record supports the district court’s finding
that the 61 prior frac jobs were not experimental.
Mr. Hefley’s invention disclosure form, which was submit-
ted to his employer, states that he conceived the invention
in January 2006 and experimented through October 2006.
The disclosure form also identifies the “[f]irst date of
service on [a] paying job” as November 3, 2006—almost
two years before the critical date. J.A. 23641. The dis-
trict court found—and the parties do not dispute on
appeal—that: (1) Mr. Hefley admitted at trial that prior to
the critical date he and his companies used water-heating
systems containing all the elements of claim 1 of the
patent; (2) the 61 prior on-sale uses of the invention were
not done in secret; (3) there was no attempt to enter into
confidentiality agreements or hide the system HOTF used
to heat water; and (4) Mr. Hefley “kept no notebooks,
drawings, plans or explanations of the outcomes” and
“expressed no preliminary hypotheses prior to the heating
and recorded no conclusions confirming or rejecting the
hypotheses.”       Inequitable Conduct Op., 2016 WL
10837799, at *2. Based on this and other record evidence,
we see no clear error in the court’s finding that the prima-
ry reason for the 61 prior uses of the heat-on-the-fly
process was to provide income to Mr. Hefley and his
companies. We also see no error in the court’s finding
that the absence of contemporaneous records, explana-
tions, or confirmation by uninterested parties further
supported that the prior commercial sales were not exper-
imental.
    In performing our review, we have considered the
well-established indicia of experimental usage set forth in
12             ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

Allen Engineering Corp. v. Bartell Industries, Inc.,
299 F.3d 1336 (Fed. Cir. 2002). These objective factors
include (1) the necessity for public testing, (2) the amount
of control over the experiment retained by the inventor,
(3) the nature of the invention, (4) the length of the test
period, (5) whether payment was made, (6) whether there
was a secrecy obligation, (7) whether records of the exper-
iment were kept, (8) who conducted the experiment,
(9) the degree of commercial exploitation during testing,
(10) whether the invention reasonably requires evaluation
under actual conditions of use, (11) whether testing was
systematically performed, (12) whether the inventor
continually monitored the invention during testing, and
(13) the nature of contacts made with potential customers.
Id. at 1353 (citing EZ Dock v. Schafer Sys., Inc., 276 F.3d
1347, 1357 (Fed. Cir. 2002) (Linn, J., concurring)). Hav-
ing examined all the Allen factors, we are not persuaded
that the district court clearly erred in finding that Energy
and Marathon showed, by clear and convincing evidence,
that HOTF’s prior commercial sales were not experi-
mental.
    We are not persuaded by HOTF’s experimentation ar-
gument for an additional reason. As the district court
explained, even if the court assumes that the primary
purpose of the 61 frac jobs was experimentation, the
purported improvements that were the focus of the al-
leged experimentation were unrelated to any claim in the
’993 patent. Mr. Hefley testified that his goals in his
alleged experimentation were: (1) to heat water at the
same rate that the water was being pumped downhole
(100 barrels per minute in Oklahoma), (2) to get a thirty-
degree rise in temperature, and (3) to achieve those
results consistently. None of these purported experi-
mental criteria are reflected in the claims of the patent.
As such, we see no error in the district court’s finding that
the alleged experimentation was not designed to refine
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC            13

the claim limitations in the patent application or test the
overall workability of the invention.
                               B.
    The district court did not abuse its discretion in not
considering the PTO’s issuance of the continuation patent
because (1) the continuation patent was issued after the
district court’s judgment; and (2) the claims of the contin-
uation patent materially differ from the ’993 patent
claims. HOTF argues that the PTO’s issuance of the
continuation patent shows that nondisclosure of the 61
previous jobs would not have prevented issuance of the
’993 patent in 2012, because full disclosure of the same
jobs did not prevent issuance of the continuation patent in
2016. In American Calcar, Inc. v. American Honda Motor
Co., 768 F.3d 1185 (Fed. Cir. 2014), a post-Therasense
case, we affirmed the district court’s materiality and
intent findings despite the same argument HOTF makes
here. Id. We find American Calcar to be on point and
reject HOTF’s argument for the same reasons. We also
agree with Marathon that the PTO’s treatment of the
continuation patent is factually irrelevant because the
continuation patent’s claims materially differ from the
’993 patent’s claims. Specifically, the continuation patent
claims recite the heating-capacity and flow-rate limita-
tions that were the subject of Mr. Hefley’s alleged experi-
mentation. For all these reasons, we conclude that the
district court did not abuse its discretion by not consider-
ing the later-issued continuation patent.
                               C.
    Nor did the district court abuse its discretion in find-
ing that there was clear and convincing evidence that the
inventor knew that the prior frac jobs were material and
specifically intended to deceive the PTO by not disclosing
these jobs to it. Therasense holds that “clear and convinc-
ing evidence must show that the applicant made a delib-
erate decision to withhold a known material reference.”
14             ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

Therasense, 649 F.3d at 1290 (quoting Molins PLC v.
Textron, Inc., 48 F.3d 1172, 1181 (Fed. Cir. 1995)). Fur-
thermore, specific intent to deceive the PTO must be “the
single most reasonable inference” that can be drawn from
the evidence. Id. (quoting Star Sci., Inc. v. R.J. Reynolds
Tobacco Co., 537 F.3d 1357, 1366 (Fed. Cir. 2008)).
“When there are multiple reasonable inferences that may
be drawn, intent to deceive cannot be found.” Id. at 1290–
91. HOTF argues that the evidence showed that, objec-
tively and subjectively, Mr. Hefley could not have clearly
and convincingly known that the 61 pre-critical-date jobs
were material. We have reviewed the evidence, however,
including the evidence of 61 commercial sales dating back
to 2006, and note the absence of contemporaneous evi-
dence of experimentation. In light of our review, we
conclude that the district court had sufficient evidence to
disbelieve Mr. Hefley’s testimony and to find instead that
“[t]he single most reasonable inference to be drawn from
the evidence requires a finding of deceitful intent in light
of all of the circumstances” and that “[i]ntent to deceive
was proven by clear and convincing evidence.” Inequita-
ble Conduct Op., 2016 WL 10837799, at *4.
    Relatedly, HOTF argues that the district court erred
in excluding testimony from Mr. Hefley’s prosecuting
attorney, Mr. Seth Nehrbass.         HOTF asserts that
Mr. Nehrbass would have testified that Mr. Hefley told
him about the 61 frac jobs, but that Mr. Nehrbass decided
they were all experimental uses that need not be dis-
closed. HOTF sought to introduce this testimony as an
advice of counsel defense that would negate a finding of
specific intent to deceive. The district court, however,
excluded Mr. Nehrbass’s testimony because the attorney-
client privilege was asserted during the depositions of
Mr. Nehrbass and Mr. Hefley, when HOTF was already
on notice that Energy and Marathon would likely raise an
inequitable conduct defense. This last-minute attempt to
waive the attorney-client privilege so close to trial in
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC           15

order to claim an advice of counsel defense was untimely
and, in the district court’s assessment, would have preju-
diced Energy and Marathon.
    We conclude that the district court did not abuse its
discretion in excluding Mr. Nehrbass’s testimony. The
attorney-client privilege cannot be used as both a sword
and a shield. HOTF was the one who asserted the attor-
ney-client privilege in the first instance and was also the
one who failed to follow up later by deposing or otherwise
making Mr. Nehrbass available for examination prior to
trial. HOTF cannot have it both ways. Accordingly, we
conclude that the district court did not abuse its discre-
tion in excluding this evidence on HOTF’s advice of coun-
sel defense.
    Because the district court’s findings on materiality
and intent were not clearly erroneous, the district court
did not abuse its discretion in determining that HOTF
procured the ’993 patent through inequitable conduct,
rendering the patent unenforceable. Thus, we need not
reach the issues of obviousness, claim construction, and
divided infringement.
                             II.
    The jury found that HOTF tortiously interfered with
Energy’s business. The district court denied HOTF’s post-
trial motion for judgment as a matter of law (“JMOL”) of
no tortious interference and entered judgment in accord-
ance with the jury’s finding. We affirm.
    We apply the law of the regional circuit to procedural
issues that are not unique to patent law. Here, we apply
the law of the Eighth Circuit, where JMOL may be grant-
ed when “there is no legally sufficient evidentiary basis
for a reasonable jury to find for the nonmoving party on
an issue and all of the evidence directs against a finding
for the nonmoving party.” Jones v. TEK Indus., Inc.,
319 F.3d 355, 358 (8th Cir. 2003); Waner v. Ford Motor
16             ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

Co., 331 F.3d 851, 855 (Fed. Cir. 2003) (applying Eighth
Circuit law). We review de novo the district court’s denial
of a motion for JMOL, viewing the evidence in the light
most favorable to the verdict. Hyundai Motor Fin. Co. v.
McKay Motors I, LLC, 574 F.3d 637, 640 (8th Cir. 2009).
Under this standard of review, a denial of a motion for
JMOL will be reversed “only when the evidence is suscep-
tible to no reasonable interpretation supporting the
verdict.” Warren v. Prejean, 301 F.3d 893, 900 (8th Cir.
2002).
    To support its tortious interference claim, Energy pre-
sented testimony showing that, in November 2012, it
reached an agreement to provide its accused water-
heating services to Triangle. But, in early December
2012, Triangle allegedly told Energy that its services were
no longer required. Energy alleges that Triangle’s expla-
nation was that a HOTF employee (Mr. Ron Lyles) had
called Triangle, informing it that Energy was “infringing
on a patent that they had” on the water-heating technolo-
gy. Wary of the litigation risk, Triangle gave its water-
heating jobs to HOTF instead. Based on this testimony,
Energy argued to the jury that HOTF tortiously inter-
fered with the prospective business relationship Energy
had with Triangle. The jury agreed and awarded Energy
$750,000 in damages.
    On appeal, HOTF urges us to reverse the district
court’s judgment of tortious interference for two reasons.
First, HOTF asserts that Energy’s claim rests on improp-
erly admitted hearsay. Second, HOTF argues that federal
patent laws preempt this state tort claim because the jury
should not have found that HOTF acted in bad faith. We
address each argument in turn.
    We conclude that the jury’s verdict does not rest on
improperly admitted hearsay because HOTF did not
object to Gerald Lind’s testimony as hearsay. Two of
Energy’s owners, Jeremy Powell and Gerald Lind, testi-
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC           17

fied about a telephone conversation they had with Trian-
gle’s company man, Bill Kelley. Mr. Powell and Mr. Lind
both testified that Mr. Kelley said that he could not work
with Energy because Mr. Lyles said that Energy was
“infringing on a patent that [HOTF] had” and “there
would be a possible lawsuit with Mr. Kelley and Triangle
involved pertaining [to] that patent infringement.”
J.A. 21908 (Powell testimony); see also J.A. 22757 (Lind
testimony). Called by Energy as an adverse witness,
Mr. Kelley denied that (a) he ever made such a statement
to Messrs. Powell or Lind, or that (b) Mr. Lyles ever made
such a statement to him. Notably, the jury heard live
testimony from all four players—Messrs. Lyles, Kelley,
Powell, and Lind. On one hand, Messrs. Lyles and Kelley
testified that Mr. Lyles had not mentioned the patent to
Mr. Kelley. On the other hand, Messrs. Powell and Lind
testified that Mr. Kelley told them Mr. Lyles had men-
tioned the patent to Mr. Kelley.
    The district court admitted Mr. Powell’s testimony
over HOTF’s objection, finding that Mr. Powell’s testimo-
ny was being offered to impeach Mr. Lyles and was there-
fore nonhearsay. Mr. Powell’s testimony was properly
objected to and thus could not be admitted for the truth of
the matter asserted.      Energy, however, also called
Mr. Lind, who testified that, according to Mr. Kelley,
Mr. Lyles had mentioned the patent to Mr. Kelley. HOTF
did not object to Mr. Lind’s testimony. Thus, the jury
properly heard and considered his testimony for the truth
of the matter asserted. On this unusual record where
HOTF did not object to Mr. Lind’s testimony, we conclude
that there was substantial evidence to support the jury
verdict.
    Next, HOTF argues that this state tort claim is
preempted by federal patent laws. State tort claims based
on enforcing a patent, including for tortious interference,
are preempted by federal patent laws, unless the claimant
can show that the patent holder acted in bad faith. 800
18             ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

Adept, Inc. v. Murex Sec., Ltd., 539 F.3d 1354, 1369
(Fed. Cir. 2008). The jury found that HOTF made repre-
sentations to Triangle that it had a valid patent, and that
those representations were made in bad faith. HOTF
does not dispute that the jury was properly instructed on
bad faith, which requires a showing, by clear and convinc-
ing evidence, that HOTF’s assertions were both objective-
ly and subjectively baseless. We have reviewed the record
and find substantial evidence to support the jury’s finding
of bad faith. Energy presented sufficient evidence to
allow a reasonable fact finder to conclude that HOTF, the
patent holder, acted in bad faith, and therefore its claim
for tortious interference falls within the bad-faith excep-
tion to preemption. We therefore affirm.
                            III.
     We also affirm the district court’s finding that it did
not have authority to award treble damages and attor-
neys’ fees under North Dakota’s Unlawful Sales or Adver-
tising Practices Act because Energy did not plead that
cause of action and we conclude it was not tried by con-
sent. North Dakota Century Code § 51-15-09, also known
as the Unlawful Sales or Advertising Practices Act, allows
a private right of action, including up to treble actual
damages and mandatory costs and actual attorneys’ fees,
for deceptive acts or misrepresentations made in connec-
tion with the sale or advertisement of merchandise.
Energy 4 seeks fees and treble damages under this North
Dakota statute.
                            A.
    Energy does not dispute that it did not plead this
cause of action in its complaint. The district court refused
to award fees or damages under the North Dakota stat-

     4  Marathon does not take a position because it did
not raise this state law claim.
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC            19

ute: “[Energy] did not assert a cause of action under the
North Dakota Unlawful Sales [or] Advertising Practices
Act, [so] the court is without authority to award treble
damages and/or attorneys’ fees under section 51-15-09.”
Attorneys’ Fees Op., 2016 WL 10837794, at *1. We agree.
                             B.
    We also agree with the district court that the parties
did not impliedly consent to trial on the issue of HOTF’s
alleged violation of the North Dakota statute. Federal
Rule of Civil Procedure 15(b)(2) provides that an issue not
raised in the pleadings, but tried by the parties’ implied
consent, “must be treated in all respects” as having been
raised in the pleadings. Fed. R. Civ. P. 15(b)(2). Trial by
consent of unpleaded claims is not unique to patent law,
so we apply the law of the regional circuit. In the Eighth
Circuit, implied consent exists where a party has “actual
notice of an unpleaded issue and ha[s] been given an
adequate opportunity to cure any surprise resulting from
the change in the pleadings.” Kim v. Nash Finch Co.,
123 F.3d 1046, 1063 (8th Cir. 1997) (quoting Nielson v.
Armstrong Rubber Co., 570 F.2d 272, 275 (8th Cir. 1978)).
“Consent may be implied when evidence relevant to an
unpleaded issue has been introduced at trial without
objection.” Modern Leasing, Inc. of Iowa v. Falcon Mfg. of
Cal., Inc., 888 F.2d 59, 63 (8th Cir. 1989) (quoting St. Joe
Minerals Corp. v. Occupational Safety & Health Review
Comm’n, 647 F.2d 840, 844 (8th Cir. 1981)).
    Energy argues that its claim under the North Dakota
Unlawful Sales or Advertising Practices Act was tried by
consent because the jury verdict form included the ele-
ments of such a claim as part of the tortious interference
claim. The jury specifically found a knowing violation of
the statute after rejecting the alternative allegation of
deceit. The district court, in denying Energy’s motion for
remedies under the North Dakota statute, acknowledged
the jury’s findings on this point.
20              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

    HOTF responds that the evidence and instruction on
the North Dakota statute were admitted for the “unlawful
act” element of tortious interference, not for implied
consent trial of the unpleaded statutory claim on false
advertising. We agree. The district court merely reserved
judgment on the question of whether Energy was entitled
to seek attorneys’ fees and treble damages based on the
North Dakota statute. Moreover, HOTF protested the
inclusion of the claim at that time:
     MR. BOUNDY: The North Dakota statute, unfor-
     tunately I can’t give you the cite but it’s the stat-
     ute on false advertising, does have a provision to
     treble damages and award attorney’s fees if the
     actions are intentional. And so it seems like the
     Court should ask the jury to consider whether it
     was intentionally done. It’s No. 6 is the— . . . So I
     think what you could simply say after 6 is: “If so,
     was it intentional?”
     THE COURT: Any objection to that?
     MR. PADMANABHAN: Your Honor, this is not
     actually a cause of action he’s [pled]. This is a—
     it’s something—it’s one element of the tortious
     case that he’s actually arguing here. I don’t think
     it’s actually appropriate. I mean, this is not what
     we’ve come here to argue at all. It’s just an ele-
     ment. That’s what I’d say.
J.A. 23423 (emphases added). That is enough to find that
HOTF did not impliedly consent to trial on this issue and
indeed actively objected to adjudication of this particular
issue. Accordingly, we affirm the district court’s denial of
Energy’s motion for remedies under the North Dakota
Unlawful Sales or Advertising Practices Act.
                             IV.
   Finally, we turn to the district court’s denial of Energy
and Marathon’s motions for attorneys’ fees under § 285,
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC            21

which we vacate and remand. Under § 285, a “court in
exceptional cases may award reasonable attorney fees to
the prevailing party.” An “exceptional” case under § 285
is “one that stands out from others with respect to the
substantive strength of a party’s litigating position (con-
sidering both the governing law and the facts of the case)
or the unreasonable manner in which the case was liti-
gated.” Octane Fitness, LLC v. ICON Health & Fitness,
Inc., 134 S. Ct. 1749, 1756 (2014). The party seeking fees
must prove that the case is exceptional by a preponder-
ance of the evidence, and the district court makes the
exceptional case determination on a case-by-case basis
considering the totality of the circumstances. See id.
at 1756, 1758.
   We review a district court’s grant or denial of attor-
neys’ fees for an abuse of discretion, which is a highly
deferential standard of review. Highmark Inc. v. Allcare
Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1749 (2014);
Bayer CropScience AG v. Dow AgroSciences LLC, 851 F.3d
1302, 1306 (Fed. Cir. 2017) (citing Mentor Graphics Corp.
v. Quickturn Design Sys., Inc., 150 F.3d 1374, 1377
(Fed. Cir. 1998)). To meet the abuse-of-discretion stand-
ard, 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, 150 F.3d at 1377); see also
Highmark, 134 S. Ct. at 1748 n.2.
    District courts have often awarded attorneys’ fees un-
der § 285 following a finding of inequitable conduct, and
this court has upheld such awards. See, e.g., Taltech Ltd.
v. Esquel Enters. Ltd., 604 F.3d 1324, 1327, 1329, 1333
(Fed. Cir. 2010); Nilssen v. Osram Sylvania, Inc., 528 F.3d
1352, 1358–59 (Fed. Cir. 2008); Bruno Indep. Living Aids,
Inc. v. Acorn Mobility Servs., Ltd., 394 F.3d 1348, 1350
(Fed. Cir. 2005); Brasseler, U.S.A. I, L.P. v. Stryker Sales
Corp., 267 F.3d 1370, 1386 (Fed. Cir. 2001). Many of
22              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

these cases predate Therasense, where we heightened the
standard for inequitable conduct. As we explained in
Therasense, inequitable conduct requires specific intent to
deceive, and “to meet the clear and convincing evidence
standard, the specific intent to deceive must be ‘the single
most reasonable inference able to be drawn from the
evidence.’” See Therasense, 649 F.3d at 1290 (quoting
Star, 537 F.3d at 1366). Following Therasense, district
courts have continued to tend to grant attorneys’ fees
following a finding of inequitable conduct. See Jeffrey D.
Mills, Patent Litigation Two Years After Octane Fitness:
How to Enhance the Prospect of Recovering Attorneys’
Fees, 45 AIPLA Q.J. 27, 52 (2017). Given Therasense’s
heightened standard for intent in finding inequitable
conduct, this tendency makes sense. See Therasense,
649 F.3d at 1290.
     We do not suggest, however, that a district court must
always award attorneys’ fees following a finding of inequi-
table conduct. Indeed, the Supreme Court in Octane
Fitness emphasized that there are no per se rules and
rather a determination should be made based on the
totality of circumstances.       Octane Fitness, 134 S. Ct.
at 1756. Moreover, our court must give great deference to
the district court’s exercise of discretion in awarding fees.
See Highmark, 134 S. Ct. at 1748–49 (“[T]he district court
‘is better positioned’ to decide whether a case is excep-
tional, because it lives with the case over a prolonged
period of time . . . . [T]he question is ‘multifarious and
novel,’ not susceptible to ‘useful generalization’ of the sort
that de novo review provides . . . .” (quoting Pierce v.
Underwood, 487 U.S. 552, 559–60, 562 (1988))). We
reaffirm that district courts may award attorneys’ fees
after finding inequitable conduct, but are not required to
do so. See Nilssen, 528 F.3d at 1358.
    Nonetheless, given the strict standard in Therasense,
we are of the view that a district court must articulate a
basis for denying attorneys’ fees following a finding of
ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC              23

inequitable conduct. Just as it is incumbent on a trial
court to articulate a basis for finding a case exceptional, it
is equally necessary to explain why a case is not excep-
tional in the face of an express finding of inequitable
conduct. Cf. S.C. Johnson & Son, Inc. v. Carter-Wallace,
Inc., 781 F.2d 198, 201 (Fed. Cir. 1986) (requiring, in an
analogous case, an explanation of why the case was not
exceptional in the face of an express finding of willful
infringement).
    Here, we cannot determine whether the district court
abused its discretion in denying attorneys’ fees. In ex-
plaining why it would not award fees, the district court
found: “HOTF reasonably disputed facts with its own
evidence and provided a meritorious argument against a
finding of inequitable conduct.” Attorneys’ Fees Op.,
2016 WL 10837794, at *3 (emphasis added). Even if we
were to assume that the district court used the word
“meritorious” to mean “plausible,” the court’s finding
contradicts Therasense, which holds that “when there are
multiple reasonable inferences that may be drawn, intent
to deceive cannot be found.” Therasense, 649 F.3d at
1290–91.
     Ultimately, this finding in the court’s opinion leaves
us unsure as to whether the court’s basis for denying
attorneys’ fees rests on a misunderstanding of the law or
an erroneous fact finding. Accordingly, we are unable to
affirm the court’s exercise of discretion, absent further
explanation or reconciliation of the court’s reasoning with
regard to its finding of inequitable conduct. We vacate
the portion of the judgment denying attorneys’ fees on the
basis that this is not an exceptional case under § 285, and
we remand to the district court for reconsideration.
                        CONCLUSION
    For the reasons above, we affirm the district court’s
declaratory judgment that the ’993 patent is unenforcea-
ble for inequitable conduct. We therefore do not reach the
24              ENERGY HEATING, LLC   v. HEAT ON-THE-FLY, LLC

district court’s summary judgment of obviousness, claim
construction order, or summary judgment of no direct
infringement. We also affirm the district court’s judg-
ment of tortious interference and denial of remedies
under the North Dakota Unlawful Sales or Advertising
Practices Act. Finally, we vacate the district court’s
denial of attorneys’ fees under § 285 and remand on that
issue alone.
            AFFIRMED-IN-PART AND
        VACATED-AND-REMANDED-IN-PART
                           COSTS
     Costs to cross-appellants.