A recent Law 360 story by Tiffany Hu, “Fed. Circ. Reverses Atty Fee Award in Sippy Cup IP Case” reports that the Federal Circuit ruled that a failed patent lawsuit over spill-proof sippy cups is not exceptional enough to merit attorney fees, finding in a precedential opinion that a lower court "abused its discretion" in awarding the fees without adjudicating the issues.  In a 16-page opinion, a three-judge panel overturned a California federal judge's decision that granted Luv N' Care Ltd.'s bid for $1 million in a patent dispute against Munchkin Inc.  The lower court had deemed the case exceptional because Munchkin concealed relevant prior art during litigation, and its amended trademark claims were so weak they were abandoned.

Following a 40-minute hearing in February, where attorneys for both companies told the Federal Circuit that the lower court didn't make factual determinations on either issue, the panel agreed the exceptionality finding was underdeveloped.  "None of these issues was fully adjudicated before the court on the merits, and given the limited arguments [Luv N' Care and another defendant] made in support of [their] fee motion, we hold that the district court abused its discretion in granting the motion and we reverse the exceptional-case determination," U.S. Circuit Judge Raymond T. Chen wrote for the panel.

The panel said the district court failed to explain why Munchkin's arguments concerning the validity of its patent were unreasonable, and was also "led astray" by Luv N' Care's claim that Munchkin improperly maintained the lawsuit after the Patent Trial and Appeal Board launched an inter partes review of the patent and found the patent invalid.  "That Munchkin's patent was ultimately held unpatentable does not alone translate to finding its defense of the patent unreasonable," Judge Chen wrote.

Munchkin sued Luv N' Care and Admar International Inc. for trademark infringement and unfair competition in 2013.  Munchkin moved to amend the trademark claim the following year, deciding to assert a different trademark in the case, and then added a patent infringement claim to the suit in 2015.  Luv N' Care later challenged the validity of Munchkin's patent at the PTAB, which invalidated all of the challenged claims.  After the board invalidated the patent, the district court ruled in favor of Luv N' Care and deemed it the prevailing party.  The district court tacked on the cost of the PTAB proceedings to the fee award, as well as Munchkin's appeal of the PTAB decision that was affirmed by the Federal Circuit in 2017.