Supreme Court Liberalizes Award of Attorney Fees in Patent Cases

by Orrick, Herrington & Sutcliffe LLP
Contact

Yesterday, describing the Federal Circuit's two-part test as "unduly rigid" and "impermissibly encumber[ing] the statutory grant of discretion to district courts," Justice Sonia Sotomayor delivered a pair of unanimous U.S. Supreme Court decisions liberalizing the standards for awards of attorney fees in patent cases.  In the first case, Octane Fitness, LLC v. Icon Health & Fitness, Inc., __ U.S. __, No. 12-1184 (April 29, 2014), the Court held that the Federal Circuit's existing framework for "exceptional case" fee awards was so "demanding" and inconsistent with the text of 35 U.S.C. § 285 as to render the statute "superfluous."  The Court therefore overruled that authority and significantly expanded the situations in which district courts may award such fees.  In the second case, Highmark Inc. v. Allcare Health Management System, Inc., __ U.S. __, No. 12-1163 (April 29, 2014), the Court held, based on Octane, that because § 285 fee awards are the product of the district judge's discretion, they are reviewed only for abuse of discretion on appeal.

Brooks Furniture Test Rejected

In Octane, the Supreme Court overturned the Federal  Circuit's earlier decision in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005).  In Brooks Furniture, the Federal Circuit had defined an "exceptional case" for purposes of 35 U.S.C. § 285 as one that either involves "material inappropriate conduct" or is both "objectively baseless" and "brought in subjective bad faith."  Under Brooks Furniture, a party was also required to establish the "exceptional" nature of a case by clear and convincing evidence.  The Supreme Court ruled that all three standards are incorrect.

The Court found that, with Brooks Furniture and its progeny, the Federal Circuit had abandoned an earlier "holistic, equitable approach [for finding an exceptional case] in favor of a more rigid and mechanical formulation."  It based this conclusion on a review of the legislative history of § 285 and its predecessor, regional circuit decisions from before the Federal Circuit was established, and Federal Circuit decisions predating Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. 508 U.S. 49 (1993).  The Court further found that the Federal Circuit's Brooks Furniture standard "superimposes an inflexible framework onto statutory text that is inherently flexible."  It thus found the standard to be too restrictive, in part because district courts already possess inherent power to award fees in cases involving misconduct or bad faith.  In addition, the Court rejected Brooks Furniture's requirement of "clear and convincing evidence" because it has never interpreted comparable fee-shifting statutes to require such a burden of proof, the language of § 285 imposes no specific evidentiary burden, and patent law issues are generally decided on a preponderance of the evidence.

The New Test for Fee Awards

In place of the Brooks Furniture standard, the Court held in Octane 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 governing law and the facts of the case) or the unreasonable manner in which the case was litigated."  The Court further stated, "District courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances."

Finding comparable its earlier decision in the context of the Copyright Act (Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994)), the Court stated that "there is no precise rule or formula for making these determinations, but instead equitable discretion should be exercised in light of the considerations we have identified."  The Court noted that nonexclusive factors in the copyright context include "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence."  More specific guidance was not given.

In contrasting the standard announced in Octane with the overly rigid Brooks Furniture framework, the Court has made clear that conduct justifying fees under § 285 need not be independently sanctionable and that a case presenting either subjective bad faith or meritless claims "may sufficiently set itself apart from mine-run cases to warrant a fee award."

Change in Standard of Review

In a five-page opinion in Highmark—remarkably brief, particularly considering the volume of party and amici briefing—the Supreme Court held that all aspects of a district court's "exceptional case" determination under § 285 should be reviewed for abuse of discretion.  The Court therefore vacated the decision below, which had reviewed at least portions of the district court's exceptional-case determination "de novo" and "without deference."

The Highmark opinion reiterates the Court's holding from Octane that determining whether a case is "exceptional" under § 285 is a matter of discretion.  Accordingly, following its precedent in prior cases involving similar determinations, the exceptional-case determination is to be reviewed only for abuse of discretion.  Paraphrasing a prior decision, the Court offered several reasons for its ruling:  the statute "suggests some deference to the district court upon appeal," a district court is better positioned to decide if a case is "exceptional" because it lives with the case over a prolonged period of time, and the issue is not susceptible to the generalization of de novo review and is likely to benefit from the experience that an abuse-of-discretion rule will permit to develop.  Finally, the Court noted that "[a]lthough questions of law may in some cases be relevant to the § 285 inquiry, that inquiry generally is, at heart, 'rooted in factual determinations.'"

Implications

The Octane and Highmark decisions likely will have an immediate impact on pending patent litigation by making the prospect of receiving attorney fees more readily available to a party prevailing in a "not run-of-the-mill" case.  If you desire more information about the implications of the Supreme Court's rulings, please contact the authors or your Orrick relationship partner.

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.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:

Orrick, Herrington & Sutcliffe LLP
Contact
more
less

Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.