The Supreme Court recently issued two decisions empowering district court judges to award attorney fees to prevailing parties in patent litigation, Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management System, Inc. The Octane decision eliminates a significant safe harbor for plaintiffs that existed under the Federal Circuit’s prior rubric governing the exceptional circumstances needed to award attorney fees. In the past, a defendant seeking attorney fees from a non-prevailing plaintiff had to establish that the plaintiff’s litigation was “objectively baseless,” which is difficult to prove in patent cases. Under Octane, that safe harbor has disappeared. An exceptional case is now “simply one that stands out from others.” In addition, Highmark requires the Federal Circuit to defer to a District Court’s ruling granting or denying an award of attorneys’ fees unless that ruling was an abuse of discretion. Taken together, the Octane and Highmark decisions give trial courts broad discretion to shift fees to a non-prevailing party if the court believes the case was weak or the litigation was conducted unreasonably, and increase the likelihood that such fee-shifting will stick.
In light of these decisions, patentees with weak cases may think twice about filing, now that they face a credible risk of having to pay defendants’ attorney fees. By the same token, accused infringers with questionable positions may be more likely to settle or, at least, may be more selective in which defenses they pursue.
Nevertheless, the decisions may instead increase the number of patent cases filed, both by patentees and accused infringers. Recent Federal Circuit cases have broadened the scope of patentee activity sufficient to establish declaratory judgment jurisdiction. Bolstered by the Supreme Court’s decisions, accused infringers may be more likely to file declaratory judgment actions in their home districts where they might be awarded fees if the patentee’s lawyers are unreasonable. In response, patentees---and particularly those patentees with marginal cases---may adopt a file-now-negotiate-later approach to litigation and race to establish venue in historically patentee-friendly district courts less likely to penalize a non-prevailing plaintiff. In any event, it is certain that the decisions will increase the number of attorney fees awards sought by prevailing defendants, particularly those that win on both non-infringement and invalidity.
These decisions come as Congress is working out a compromise on a new provision to the patent statute meant to curb patent trolling by shifting fees to non-prevailing plaintiffs. Post-Octane and Highmark, attorney fees awards to prevailing defendants may become more common in trial courts, addressing some of Congress’s concerns to some extent. Thus, time will tell how the Supreme Court’s rulings may affect the legislative fee-shifting proposals.
[Bridget A. Smith is a partner in the Irvine office of Knobbe Martens, specializing in patent protection and other forms for intellectual property protection in the semiconductor, computer, chemical, medical device, and healthcare fields.]