May 23, 2014 Articles

Attorney Fees Now Easier to Recover in Patent Litigation

Two recent Supreme Court rulings help prevailing parties in cases against patent trolls

By Jim Shelson

The U.S. Supreme Court recently decided two cases that make it easier for the prevailing party in patent cases to recover attorney fees. The cases are Octane Fitness, LLC v. ICON Health & Fitness Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.

Octane Fitness, LLC v. ICON Health & Fitness, Inc.

Section 285 of Patent Act authorizes district courts to award attorney fees in patent litigation. Octane Fitness, 2014 WL 1672251 at *2. The statute reads as follows: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285.

The United States Court of Appeals for the Federal Circuit previously held that “[a] case may be deemed exceptional” only “when there has been some material inappropriate conduct, or when the litigation is both “brought in subjective bad faith” and “objectively baseless.” Octane Fitness, 2014 WL 1672251 at *2.

ICON Health & Fitness, Inc. owns a patent for an elliptical exercise machine that it has never commercially sold. ICON sued Octane Fitness, LLC, alleging that Octane’s elliptical machines violate ICON’s patent. The district court granted Octane’s motion for summary judgment. Octane moved for attorney fees. The district court denied Octane’s request because it determined that Octane did not show that ICON’s claim was objectively baseless or that ICON brought its claim in subjective bad faith. The federal circuit affirmed the district court’s grant of summary judgment to Octane and its denial of attorney fees to Octane. Id. at *4.

The Supreme Court reviewed the denial of Octane’s request for attorney fees. Because the Patent Act does not define “exceptional” as that word is used in § 285 of Patent Act, the Court construed it in accordance with its ordinary meaning. In 1952, when Congress used the word in § 285, it was generally defined to mean “uncommon,” “rare,” or “not ordinary.”

Given this meaning, the Court held that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a cases is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id. at *5.

The Court rejected the federal circuit’s standard as too rigid. Under that standard, “a case is ‘exceptional’ only if a district court either finds litigation-related misconduct of an independently sanctionable magnitude or determines that the litigation was both ‘brought in subjective bad faith’ and ‘objectively baseless.” Id. at *6. Under the standard announced by the Supreme Court, “a district court may award fees in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify an award of fees.” Id.

The Court further rejected the federal circuit’s requirement that an entitlement to attorney fees under § 285 must be established by clear and convincing evidence. “[N]othing in § 285 justifies such a high standard of proof. Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one. Indeed, patent-infringement litigation has always been governed by a preponderance of the evidence standard.” Id. at 7.

Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.

The Highmark case built on the holding in Octane Fitness. The issue in Highmark was “whether an appellate court should accord deference to a district court’s determination that litigation is ‘objectively baseless.’” Highmark Inc., 2014 WL 1672043 at * 2. On the basis of its opinion in Octane Fitness, the Court held that an appellate court should review all aspects of a district court’s § 285 determination for an abuse of discretion. Id.

The Court noted that “[o]ur holding in Octane settles this case: Because § 285 commits the determination whether a case is 'exceptional' to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion.” Id. at *3.

Conclusion

Commentary on these cases is generally that they will make it easier for the prevailing party in patent litigation to recover attorney fees against patent trolls: “These cases have been watched closely because of their potential impact on so-called ‘patent trolls.’ The outcome will make it much easier for trial courts to shift the fees to the non-prevailing party if it believes that the litigation was brought or conducted in an abusive manner. It will also make it more difficult for an appeals court to overturn such a determination.”

Keywords: litigation, trial practice, attorney fees, Supreme Court, patent cases


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