October 28, 2014 Top Story

Increase in Attorney Fee Awards on the Horizon

Losing parties may pay attorney fees in patent infringement cases more often

Angela Foster

Litigators are concerned about the possibility of paying their adversary’s attorney fees after losing a patent infringement case. In Octane Fitness, LLC v. Icon Health & Fitness, Inc., and Highmark Inc. v. Allcare Health Management System, Inc., the U.S. Supreme Court removed an almost 20-year-old rule that granted attorney fees for baseless claims brought in bad faith. Now the winning party need only show that the case stands out from others to receive an award of attorney fees.

Redefining an “Exceptional Case” 

The Patent Act provides that in exceptional cases, a court may award reasonable attorney fees to the prevailing party. 35 U.S.C. § 285. In 2005, the U.S. Court of Appeals for the Federal Circuit defined a case as exceptional when there has been some material inappropriate conduct, or when a case is both brought in subjective bad faith and is objectively baseless. Brooks Furniture Mfg. v. Dutailier Int’l, IncThe Federal Circuit held that exceptionality must be proven by clear and convincing evidence.

Octane Fitness v. Icon involved a patent infringement suit. The U.S. District Court for Minnesota granted summary judgment to Octane for noninfringement, and Octane moved for attorney fees. Applying Brooks, the district court found that although Icon’s arguments were not ultimately successful, they were not frivolous or objectively baseless, and Octane had not demonstrated by clear and convincing evidence that Icon brought the case in subjective bad faith. As a result, the district court held that the case was not exceptional and an award of attorney fees was not warranted. On appeal, the Federal Circuit affirmed.

Criticizing the Federal Circuit’s definition of an exceptional patent case as too narrow, the Supreme Court held that an exceptional case is simply one that stands out from others. The Court directed trial courts to assess: (1) the substantive strength of positions taken by the parties, or (2) the unreasonable manner in which the case was litigated.

The Court also eliminated the requirement that a prevailing party must prove its right to attorney fees by clear and convincing evidence. Instead, trial judges may determine whether a case is exceptional in a case-by-case exercise of their discretion, considering the totality of the circumstances. The Court vacated and remanded the case.

Resetting the Standard of Review 

In Highmark v. Allcare Health, Highmark sued Allcare seeking a declaratory judgment that Allcare’s patent was invalid and unenforceable. Allcare counterclaimed for patent infringement. The district court entered a judgment of noninfringement in favor of Highmark and the Federal Circuit affirmed. Highmark moved for fees under § 285, and the district court granted Highmark’s motion. The court reasoned that Allcare had engaged in a pattern of vexatious and deceitful conduct throughout the litigation. Specifically, the district court found that Allcare had maintained infringement claims against Highmark well after its own experts had shown such claims to be meritless and had asserted defenses Allcare and its attorneys knew to be frivolous.

The Federal Circuit disagreed with the district court’s exceptional-case determination, concluding that the Allcare’s argument as to claim construction was not one that no reasonable litigant could believe Allcare would succeed on and that none of Allcare's conduct warranted an award of fees based on litigation misconduct. The Federal Circuit found that because the question whether litigation is objectively baseless is a question of law based on underlying mixed questions of law and fact, on appeal, an objective-baselessness determination is reviewed de novowithout deference.

Reiterating that district courts may exercise their discretion in determining an exceptional case, the Supreme Court added that matters of discretion are traditionally reviewable for abuse of discretion and not de novo. The Court vacated and remanded the case for further proceedings consistent with Octane and Highmark.

Impact on Patent Community

Section leaders are not surprised at the Octane decision. “I doubt if it will make a tremendous difference; however, the decision will encourage patent holders to do due diligence,” says Alton L. Absher III, Winston-Salem, NC, cochair of the Patents Subcommittee of the ABA Section of Litigation’s Intellectual Property Litigation Committee .

The decision may also alter how litigators proceed with patent infringement cases. “Forwarding cease and desist letters without knowing whether there is infringement will be discouraged,” says Robert M. Asher, Boston, MA, cochair of the Patents Subcommittee of the Section of Litigation’s Intellectual Property Litigation Committee.

“We will probably see more fee motions, but it is not clear whether fee shifting will change,” observes Michael P. Padden, Chicago, IL, cochair of the Patents Subcommittee of the Section’s Intellectual Property Litigation Committee. Padden adds “because the new exceptional case standard is unclear, we will see more litigators testing the standard by filing more motions until it is clarified.”

Much concern has also centered around the impact of Octane and Highmark on patent trolls. Describing patent trolls as patent holders who acquired a patent but do not manufacture or practice the patent, Padden notes that “so-called patent trolls will think a little harder before bringing a patent infringement case.”

Advice for Litigators

“If possible, transfer the case to the court of your choice,” says Absher. “Let plaintiff know early that its claims are frivolous,” Absher advises, “Build your record for defense early so you are in good shape to collect attorney fees.” For example, Absher adds, “conduct early claim construction with one or two disputed claim terms, so if you win the claim construction hearing, you are in a position to seek attorney fees.”

Angela Foster is an associate editor for Litigation News.

Keywords: attorney fees, 35 U.S.C. § 285, exceptional cases, de novo, abuse of discretion, patent trolls

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