Supreme Court to Hear Oral Arguments in Attorney Fee Shifting Cases

Supreme Court Building #2As we have reported over the past couple of weeks, the Supreme Court will hear arguments in two cases involving the attorney fees provision of 35 U.S.C. § 285 on Wednesday, February 26.  That statute provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party."  These cases will be heard shortly after the Court convenes at 10:00 A.M. Eastern.  The first of the cases listed on the Hearing List, Highmark Inc. v. Allcare Management Sys., Inc., relates to whether the lower court's determination regarding attorney fees is entitled to deference.  Specifically, the question presented was: whether a district court's exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.  The second listed case, Octane Fitness v. Icon Health and Fitness, involves how a court is to determine when a case is exceptional.  The specific question presented was:

[W]hether the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is 'exceptional' under 35 U.S.C. § 285 improperly appropriates a district court's discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlement from defendants.

We have already explained the factual and procedural history of both cases, and highlighted the arguments presented in the briefs submitted by the Petitioners and Respondents in both cases (see "Supreme Court Preview -- Octane Fitness, LLC v. ICON Health & Fitness, Inc." and "Supreme Court Preview -- Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.").  The amicus curiae briefs in the Octane Fitness case unanimously supported a change in the standard for an exceptional-case determination (even though some of them filed briefs in support of neither party).  They also almost all supported a standard that applies equally to plaintiff patent holders and defendant accused infringers.  In addition, almost all recognized the incentives that the current Federal Circuit standard provides for patent holders to assert their patents abusively (although they portrayed very different pictures of the state of the problem).  What was interesting, however, was the different approaches and alternatives suggested for what the standard should be.  For example, should the district court only look to whether the position of the non-prevailing party was "objectively baseless," or can the subjective intent of the party ever be considered.  Because it is very possible that the Court will adopt one of these new standards, it is worthwhile to review some of the suggestion and arguments presented in these briefs.  This post addresses a selection of the amicus curiae briefs.

United States Amicus Curiae Brief

It is generally advisable when reviewing various amicus curiae briefs for a given case to begin with the brief for the United States.  This is because not only is the Solicitor General provided special attention by the Court, but in this case, Roman Martinez, Assistant to the Solicitor General, is scheduled to argue for the United States.  In this case, the United States is advocating a totality of the circumstances test.  Specifically, according to the United States, the lower court should be able to consider whether the losing party had inflicted "gross injustice" on the prevailing party before or during the case.

To support its position, the United States looked to the history of 35 U.S.C. § 285, including its adoption in 1952.  This statute was based on one that was introduced in 1946, but did not include the "exceptional case" limitation.  Nevertheless, the legislative history suggested that the new provision was not intended to change the substantive standards for granting fee awards.  Therefore, according to the United States, the standard should be the same as that used between 1946 and 1952.  During this time, "grossly unjust" conduct could support a fee award, and such conduct included fraud on the Patent Office, willful infringement, harassing tactics during litigation by either party, or untenable legal or factual theories.  This standard did not have to rise to the level of objective baselessness, because fee awards were made when the theories were "unjustified," "wholly unjustified," "unwarranted," "unreasonable," or "groundless."  Also, "subjective bad faith" was not required, although the United States argued that it could be highly relevant to the Section 285 analysis.  Finally, the United States urged that "clear and convincing" evidence should not be required for an accused infringer to be awarded fees.  The United States did not take a position on whether the present case was an exceptional case under the proffered standard, but instead requested that the case be vacated and remanded.

Amicus Curiae Briefs From Participants in the Patent System

Several different companies that own and assert patents filed amicus curiae briefs, either alone or as part of a collection.  In general, they pointed out that as owners of intellectual property and as frequent targets of abusive litigation tactics, they have a balanced perspective and unique insights into the issue.  For example, a collection of seven intellectual property owners, Yahoo!, the New York Times, NetApp, Medtronic, General Mills, EMC, and Boston Scientific, filed a brief in support of petitioners in both cases.  This collection of companies is somewhat interesting, because it includes two (Medtronic and Boston Scientific) that were on opposing sides of a recently decided Supreme Court case.  In an articulated standard much like the one proffered by the United States, this collection urged the adoption of a test that would "afford[] a district court discretion to enter a fee award in favor of a plaintiff or defendant whenever it would be grossly unjust or inequitable for the prevailing party to bear its own costs."  Brief at 5.  And, just like the United States, this collection pointed to the period just before the enactment of 35 U.S.C. § 285 for support.  However, they also pointed to the statute itself as giving three "guideposts" for a district court to follow.  These are that "exceptional" cases are meant to be those that are "uncommon" or "extraordinary," that prevailing plaintiffs and defendants are to be treated equally, and the trial court should have discretion to make the grant determination, as well as the amount.

Another collection of intellectual property owners, 3M Co., General Electric Co., The Procter & Gamble Company, and Johnson & Johnson, also filed a brief advocating a flexible standard.  Specifically, they urged the "adoption of a flexible standard that permits 'district courts in patent cases to consider traditional equitable factors, guided by the purposes of patent law, in granting fee awards' under Section 285."  Brief and 4.  This collection also acknowledged that there is a problem of abusive patent litigation, but they went out of their way to defend patent assertion entities, explaining that they serve a valuable purpose in the patent system.  For example, they pointed out that the U.S. patent system has always been based on a disclosure system, and that patent holders have never been requirement to practice the invention.  In fact, this collection stressed that greater than 60% of the inventors of the Industrial Revolution sold or licensed at least some of their patents, including Thomas Edison and Charles Goodyear.

Another collection of "leading providers of high-technology products and services" filed anamicus curiae brief supporting a flexible standard.  This collection included Google, Cisco Systems, Facebook, HTC, Intel, LinkedIn, Motorola Mobility, Netflix, Newegg, Rackspace, salesforce.com, T-Mobile, Verizon, and Vizio.  Specifically, they asserted that there should be no exclusive list of factors that can make a case exceptional under § 285, but that these factors should all be considered together.  Importantly, they requested a disjunctive approach in which subjective bad faith and objective reasonableness can either be used as an independent bases for fee-shifting.  Therefore, bad faith alone can support an award of attorney fees.  Another collection, this one entitled BSA | The Software Alliance, disagreed, and instead asserted that "objectively unreasonable" should be the standard.  The standard was summarized as "[a] losing litigant that persists in advocating a claim or defense lacking an objective basis in law or fact should pay the winning party's fees."  Brief at 2.  BSA | The Software Alliance did not think that a subjective component should be included because common law already allows for fee-shifting when the lower litigates in bad faith.

The final participant in the patent system to file an amicus curiae brief (not including the Intellectual Property Owners Association), and the only one to do it on its own, was Apple.  Apple's brief was in support of the patent system, but it came out strong against so-called "patent trolls."  It advocated a flexible standard that would look to a host of factors relevant to the particular litigation.  Specifically, Apple advocated for the inclusion of such factors as "the nature of the parties, the motivations underlying the parties' positions, the objective merit of both parties' claims and the particular arguments advanced in court, and the parties' conduct."  Brief at 9.  Only then, according to Apple, will the fee-shifting provision of § 285 function properly to deal with "patent assertion entities that thrive on strike suits, nuisance suits, and in terrorem demands."  Brief at 7.

Amicus Curiae Briefs From "Anti-Troll" Representatives

There were several briefs that were filed for organizations and individuals that focused more on the so-called "patent troll" problem then on what the appropriate standard should be for what an exceptional case should be.  For example, the Electronic Frontier Foundation, et al., ("EFF") spent almost its entire brief explaining how the current standard was allowing patent trolls to thrive, and therefore harming small businesses, start-ups, and American innovation.  Only near the end of its brief did the EFF advocate for a flexible test that considers the totality of the circumstances.  The EFF would look to whether the "Plaintiff brings an objectively weak case or uses the cost of defense as a weapon."  Brief at 17.  Not surprisingly, the EFF focused almost exclusively on when the non-prevailing party is the patent holder.  Therefore, it did not address the sort of factors one would look when the accused infringer was the non-prevailing party, if they would even be entitled to an award under the EFF's scheme in the first place.

To their credit, however, the EFF did provide a somewhat workable test, even if it was one-sided.  Professor Robin Feldman and the U.C. Hastings Institute for Innovation Law filed an amicus brief urging the Court to adopt a standard which would "empower courts to remedy schemes that exploit the patent system."  Instead of articulating a standard, Prof. Feldman railed against the Federal Circuit's standard and the abuses that have stemmed from it.  One of the "abuses" that he cites is that of reverse payments in Hatch-Waxman litigations.  However, he does not explain how section 285 could be used to stop such "abusive schemes."

As a final example of the "anti-troll" amicus briefs, a collection of thirty (30) states, including Vermont and Nebraska (but not Illinois), filed a brief advocating overturning the Federal Circuit's precedent.  Like the other "anti-troll" parties, these states urge a standard that does not provide for a shift of fees when the accused infringer is the non-prevailing party.  Instead, the states submit that the district courts should "have discretion to award fees where the patentee's claim had an objectively low likelihood of success and a fee award is otherwise appropriate."  Brief at 27.  They also urged the Court to consider the broader context – and unfortunately they asserted that this broader context was that the patent system is broken.  For example, in addition to addressing the "attorney fee" problem, the collective states extoll the other problems of the patent system, including the Federal Circuit's test for personal jurisdiction, the lenient pleading standards allowed by Form 18, and the cost of litigating vague and ambiguous patent claims caused by the Federal Circuits "insolubly ambiguous" test for 35 U.S.C. § 112, ¶ 2.  Of course, the Supreme Court is taking up this last issue in the Biosig Instruments, Inc. v. Nautilus, Inc. case, but it is unclear how the Court is supposed to "take into account" these other problems to address how an "exceptional case" is determined.

 

Topics:  Attorney's Fees, Corporate Counsel, Electronic Frontier Foundation, Fee Awards, Highmark v. Allcare, Octane Fitness v. ICON, 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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