Supreme Court Rulings Expected To Curb Meritless Patent Litigation

by Ballard Spahr LLP
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The U.S. Supreme Court rendered two decisions yesterday that should help curb meritless “patent troll” litigation. The decisions are particularly helpful to technology companies and large retail businesses that frequently face baseless infringement claims.

First, in Octane Fitness v. Icon Health and Fitness, the Court ruled that the prevailing party in a patent lawsuit may obtain legal fees if the trial court determines that the case “stands out from others” as to the litigation position or conduct of the losing party, taking into account the “totality of the circumstances.”

This standard is much more workable than the prior standard established in 2005 by the Federal Circuit. Under the prior standard, absent misconduct in securing the patent or in litigation, fees could be awarded only if the litigation was both objectively baseless and brought in subjective bad faith. As Justice Sonia Sotomayor wrote for the unanimous Court in rejecting this standard: “[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.”

The Court also rejected the Federal Circuit's imposition of the “clear and convincing” burden of proof, instead allowing fee awards to be based on the lower “preponderance of the evidence” standard. The new standard gives trial judges more flexibility and authority to award fees if a case is without merit or brought in bad faith.

Second, in a related case, Highmark v. Allcare Health Management Systems, the Court limited the ability of the Federal Circuit to change a district court's decision on the grant of attorney fees, by elevating the standard for review of such awards on appeal. In Highmark, the Federal Circuit previously had vacated a fee award to the defendant by applying the de novo standard of review, without deference to the trial court. The Supreme Court reversed, holding that “all aspects” of a trial court's fee determination should be reviewed only for “abuse of discretion,” requiring significant deference on appeal.

Several technology companies had urged the Court to loosen the standard for awards of legal fees, to provide redress when patent trolls bring frivolous infringement claims and extract nuisance settlements based only on the high cost to defend patent cases. While the full impact of the Supreme Court's decisions remains to be seen, they greatly increase the likelihood that patent trolls will face the consequence of fee awards in bogus cases. Such awards will be judged at the trial court level under a more practical standard, under a lower burden of proof, with more deference being given to the award on appeal.

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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