Supreme Court Lowers the Bar for Prevailing Parties to Recover Attorney Fees in Patent Litigation

by Dorsey & Whitney LLP
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Two decisions handed down by the United States Supreme Court on April 29 will make it easier for a party wrongfully sued for patent infringement to recover attorney fees. As such, the decisions have the potential to significantly curtail the assertion of weak patent claims, thereby reducing the burdensome costs of patent litigation felt by many.

"Unduly Rigid" Brooks Furniture Standard Rejected by High Court

The High Court's April 29 decisions in Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., No. 12-1163, both concerned challenges to Federal Circuit-established limits on the Patent Act’s provision regarding the award of attorney fees to prevailing parties in patent litigation. That provision reads in full: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285.

Until 2005, district courts based their fee award determinations on the totality of the circumstances, which last week the Supreme Court referred to as a “holistic” and “equitable” approach. Octane, slip op. at 4. In 2005, however, the Federal Circuit abandoned that approach, ruling that a prevailing party was only entitled to attorney fees when there was either misconduct in securing the patent or in conducting the litigation, or (i) when the litigation was brought in subjective bad faith and (ii) was objectively baseless. Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (2005). Not surprisingly, the “subjective bad faith” and “objectively baseless” standards were very difficult to meet. Moreover, in order for a party seeking a fee award to prevail, it had to prove that it was entitled to the award by clear-and-convincing evidence.

Finding the Brooks Furniture framework to be “unduly rigid” and to “impermissibly encumber[] the statutory grant of discretion to district courts,” Octane, slip op. at 7, the Supreme Court rejected that framework and gave district courts significantly more discretion to decide when a fee award may be appropriate, holding:

[A]n “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. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.

Id. at 7-8 (emphasis added).

Essentially, the Court held that an “exceptional” case under Section 285 is simply that: exceptional. Looking to the ordinary meaning of the term “exceptional”, the Court used terms such as “’un-common,’ ‘rare,’ or ‘not ordinary’.” Octane, slip op. at 7. The Court found it necessary to reject the Brooks Furniture framework because it arose from a standard inapplicable to the patent context, and was found to render Section 285 of the Patent Act superfluous in light of already-existing limited common-law exceptions to the general rule that each party is to bear its own attorney fees.

Fee Awards Returned to the Discretion of District Courts Based on the Totality of the Circumstances

The Supreme Court’s ruling returns to the district courts the discretionary authority they once enjoyed to make a fee determination based on the totality of the circumstances.

The Court addressed both Brooks Furniture categories of cases in which the Federal Circuit allowed fee awards, namely, those involving “litigation-related misconduct of an independently sanctionable magnitude” and those which are found to have been both “brought in subjective bad faith” and “objectively baseless.” Octane, slip op. at 8.

Regarding the first category of cases, the Court held that it is not necessary for a party’s conduct to be independently sanctionable to meet the fee-shifting standard, so long as it is nonetheless “so ‘exceptional’ as to justify an award of fees.” Id. at 9.

With regard to the second category, the Court held that contrary to the prior standard, which required both that the patent claim be “objectively baseless” and the plaintiff to have brought the claim in “subjective bad faith,” a case presenting “either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.” Id. at 9 (emphasis added).

An Easing of the Evidentiary Burden

In addition to changing the standard necessary to obtain a fee award, the Supreme Court rejected the Federal Circuit’s requirement that patent litigants make such a showing by “clear and convincing evidence”. Instead, the Court held that the Patent Act only “demands a simple discretionary inquiry,” noting that patent infringement litigation has always been governed by a “preponderance of the evidence standard.” Id. at 11.

Appellate Review Now More Deferential to District Court Fee Determinations

Through Highmark, the high court shifted the focus away from appellate review of fee determinations giving district courts even more discretion in such determinations. Until now, the Federal Circuit reviewed a trial court’s fee determination without deference. The Supreme Court rejected that standard of review, holding that, because §285 commits the determination of whether a case is “exceptional” to the discretion of the district court, “all aspects of a district court’s Sec. 285 fee determination” are to be reviewed under the “abuse of discretion” standard. Highmark, slip op. at 5.

Potential Impact on Patent Litigants, and a Warning to Patent Trolls

Octane and Highmark signal the Supreme Court’s recognition of the significant costs of patent litigation and the need to curtail frivolous lawsuits, which have become far too common of late. It will now be easier for prevailing parties to obtain fee awards from district courts. Additionally, it will be more difficult for an appellate court to disturb a district court’s fee determination.

While not a panacea for a defendant who believes it was wrongly accused of patent infringement—after all, a case must still reach a final decision on the merits and be found to be “exceptional” before fees can be awarded—the Supreme Court gives district courts much greater freedom to sanction plaintiffs who wrongfully exploit the American patent system. As such, the Court’s decisions have the potential to significantly curtail the assertion of frivolous or otherwise weak patent claims.

 

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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