Supreme Court Issues Two "High-Octane" Decisions to Address Abusive Patent Litigation Practices

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Yesterday, the United States Supreme Court handed down two pivotal opinions redefining the standard for obtaining attorney's fees in patent cases. The opinions provide alleged infringers with the increased possibility of obtaining attorney's fees for having to defend against meritless claims, and level the playing field against abusive patent plaintiffs ever so slightly because now patent trolls and their lawyers have some skin in the game. In Octane Fitness, LLC v. Icon Health & Fitness, Inc., the Supreme Court unanimously found the previous standard for awarding attorney's fees was too rigid, and ruled districts courts may award attorney's fees in any case that simply "stands out from others."[1] In Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., the Supreme Court further ruled that a district court's grant of attorney's fees will only be reversed when it has "abused its discretion."[2] While it is still too early to assess the impact of these rulings, alleged infringers now have another tool to fight back against the increasing tide of baseless patent litigation.

Background
Section 285 of the Patent Act (the "attorney's fees provision") authorizes district courts to award attorney's fees to prevailing parties in "exceptional cases."[3] Almost 10 years ago, in Brooks Furniture Mfg., Inc. v. Dutailer Int'l, Inc., the Federal Circuit defined an "exceptional case" as one that either involves "material inappropriate conduct" or that is both "objectively baseless" and brought in "subjective bad faith."[4] The Brooks Furniture standard also required parties seeking attorney's fees to establish the "exceptional" nature of the case by "clear and convincing evidence."[5]

In the district court proceeding underlying the Octane opinion, ICON sued Octane for patent infringement asserting infringement of ICON's patent for an elliptical machine with an adjustable stride length.[6] Prior to trial, the District Court ruled in Octane's favor, finding Octane did not infringe ICON's patent as a matter of law.[7] Octane then moved for attorney's fees. Applying Brooks Furniture, the District Court denied Octane's motion, finding ICON's claim to be neither objectively baseless nor brought in subjective bad faith.[8] On appeal, the Federal Circuit affirmed.[9]

In the Highmark District Court proceeding, Allcare sued Highmark for infringement of a patent related to health care systems used to interconnect and integrate physicians, medical care facilities, patients, insurance companies, and financial institutions.[10] After winning summary judgment of non-infringement, Highmark sought fees under the attorney's fees provision. The District Court granted Highmark's motion, finding the case to be "exceptional" because Allcare proceeded with the litigation despite its own expert's findings of Highmark's non-infringement.[11] The Federal Circuit, reviewing the District Court's findings without deference utilizing a de novo standard, found Allcare's conduct in this instance constituted "objective baselessness" and affirmed the grant of attorney's fees.[12]

Both cases were reviewed by the Supreme Court.

The Supreme Court's New Standards for Attorney's Fees
In Octane, the Supreme Court said the Patent Act imposes one constraint on a District Court's discretion to award attorney's fees: it is reserved for "exceptional cases."[13] Because the Patent Act does not define the term "exceptional," the Supreme Court reasoned that "exceptional" should be given its plain and ordinary meaning.[14] Therefore, an "exceptional case," is simply one that stands out of from others with regards to the strength of a party's litigating position, or the unreasonable manner in which the case was litigated."[15] The Supreme Court criticized the Brooks Furniture standard as being too restrictive, allowing attorney's fees in only two limited situations, and essentially rendering the attorney's fee provision superfluous.[16] While the Supreme Court's new standard will be subject to much interpretation and debate in the lower courts, the Supreme Court provides guidance in the form of a non-exclusive list of factors, including: "frivolousness, motivation, objective reasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence."[17]

Following Octane, the Supreme Court in Highmark held that attorney's fees awards by a District Court are subject to an abuse of discretion standard.[18] Following the Supreme Court's decision in Highmark, a District Court's award of attorney's fees can be overturned only if the District Court "based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence."[19]

Implications
The Supreme Court opinions in Octane and Highmark level the playing field against patent plaintiffs asserting baseless claims. By making it easier to obtain— and uphold on appeal—awards of attorney's fees, the Supreme Court has provided an additional tool for alleged infringers to fight back against plaintiffs who assert and maintain meritless claims of patent infringement in hopes of a quick payoff. Companies faced with these types of claims should take a fresh look at seeking attorney's fees in litigation and leveraging such potential recovery in responding to license demands and litigation threats. Further, these new rulings may be useful in settlement negotiations once the issues of invalidity and non-infringement become clear as the case progresses.


[1] - 572 U.S. ___ (2014), slip op. at 7-8.
[2] - 572 U.S. ___ (2014), slip op. at 4.
[3] - See 35 U.S.C. § 285.
[4] - 393 F. 3d 1378, 1381 (Fed. Cir. 2005).
[5] - Id. at 1382.
[6] - See Icon Health & Fitness, Inc. v. Octane Fitness, LLC, 2011 WL 2457914, at *1 (D. Minn. June 17, 2011).
[7] - Id. at *14.
[8] - See Icon Health & Fitness, Inc. v. Octane Fitness, LLC, 2011 WL 3900975, at *4 (D. Minn. Sept. 6, 2011).
[9] - Icon Health & Fitness, Inc. v. Octane Fitness, LLC, 496 Fed.Appx. 57, 64 (Fed. Cir. 2012).
[10] - See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 706 F.Supp.2d 713, 716-17 (N.D. Tex. Mar. 31, 2010).
[11] - See id. at 736-37.
[12] - See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1323 (Fed. Cir. 2012).
[13] - 572 U.S. ___ (2014), slip op. at 7.
[14] - Id. at 7-8.
[15] - Id.
[16] - Id. at 8-9 (noting that the Federal Circuit’s "subjective bad faith" and "objectively baseless" standard "superimposes an inflexible framework onto statutory text that is inherently flexible.")
[17] - Id. at FN. 6.
[18] - 572 U.S. ___ (2014), slip op. at 4.
[19] - Id. at FN. 2.

Topics:  Attorney's Fees, Highmark v. Allcare, Octane Fitness v. ICON, Patent Infringement, Patent Litigation, Patent Trolls, Patents, SCOTUS

Published In: Civil Procedure Updates, Civil Remedies Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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