Oral Arguments in the Supreme Court Octane Fitness, LLC v. ICON Health & Fitness, Inc. Case

Supreme Court Building #3On February 26, 2014, the Supreme Court heard oral arguments in two cases dealing with the attorney fee-shifting provision of 35 U.S.C. § 285.  In the first case, Octane Fitness, LLC v. ICON Health & Fitness, Inc. (Supreme Court docket number 12-1184), the issue on appeal was what constitutes an "exceptional case" such that attorney fees can be awarded to the prevailing party.  The Federal Circuit had developed a two-part test, which included both an objective component ("objectively baseless") and a subjective component ("subjective bad faith").  Except for a few questions from the Justices that would suggest some deference to the Federal Circuit, no one appeared to be advocating for maintaining this test.  Instead, the Justices seemed to struggle with what the appropriate standard should be -- as Justice Kennedy put it "this is a search for adjectives."  The choices for when a case could be considered exceptional seemed to range from "frivolousness," to "objectively baseless," to "gross injustice," to "objectively reasonable," to "just let the District Court decide."  There was no clear indication from the questioning where the Court as a whole was leaning on the issue.

Rudolph Telscher, on behalf of Octane Fitness, summed the issue up in his rebuttal as:  "What we're all really talking about here is how extreme should the test be for an exceptional case.  I mean, that's what this boils down to."  However, just what the test should be turned out to be a moving target.  Mr. Telscher began by asserting that the test should be whether the case was "meritless."  Justice Scalia challenged him on this standard, because in his mind, every non-prevailing case is meritless ("Don't you have to add something to meritless?  I mean, every time you win the summary judgment motion, that's a determination that the claim is without merit.").  However, he didn't like Mr. Telscher's proffered alternative, "unreasonably weak," either ("[Y]ou realize how differently various District Courts would operate if you just say, what was your phrase?  Unreasonably week?").  Mr. Telscher then settled on "objectively unreasonable," which he explained was something less than frivolous.  In response to a question by Justice Sotomayor about what the difference would be between his test and the Federal Circuit's "objectively baseless" test, he responded that "baseless" connotes "absolutely no foundation or zero merit," while he believes that the test should be "something less than frivolous."  Mr. Telscher also indicted that "without substantial merit" or "low likelihood of success" would be two additional ways to articulate his proffered standard.

Justice Alito challenged Mr. Telscher on whether they should incorporate a subjective standard into the test.  Of course, Mr. Telscher did not think that bad faith was required, but that it could be considered in conjunction with a weak case on the merits.  The problem Justice Alito had with such a determination was how to articulate it to the district courts ("How am I supposed to determine whether the case is exceptional if the standard is, take everything into account, litigation misconduct, the strength of the case, any indication of bad faith, and decide whether it exceptional?  Exceptional compared to what?").  He was concerned that lower court judges might not have the requisite experience with patent attorneys, and after all, "[t]hey are different from other attorneys."  This discussion actually appeared to clear things up for Justice Scalia, because he stated that "you really cannot answer the question of what adjectives should be attached to 'meritless,' . . . [because] it is a totality of the circumstances test, that is only one factor and it doesn't have to be an absolute degree of meritlessness."  Of course, when pushed by Justice Kagen for all the factors that can be considered in this "totality-of-the-circumstances" test, Mr. Telscher suggested that it should be a non-exhaustive list -- "anything that bears on the gross injustice and the uncommon nature of the case."

Carter Phillips argued the case on behalf of ICON Health and Fitness.  Of course, he was mainly playing prevent defense, suggesting that whatever standard the Court settled upon, the actions of ICON would not fall within that standard.  Nevertheless, he advocated for the "objectively baseless" standard, with or without a subjective component.  He got some of his toughest questioning from Justice Breyer, who was silent during Octane Fitness' presentation.  Justice Breyer made clear his concerns about the patent system, and the quality of patents that were being issued by the Patent Office (especially with regard to software patents).  In fact, it appeared to be the opinion of Justice Breyer that if the test was "objectively baseless," it could never be met ("[W]hy cannot I, the district judge, say, I've seen all these things, taken together they spell serious injustice, and therefore I'm shifting the fees.  Okay?  Why can I not do that even though, as I've just said and repeat, I cannot in honesty say it's frivolous given the standard for patenting that seem to be administered?").  And, echoing a comment made in the Prometheus decision, Justice Breyer suggested that that patent attorneys seem to have the ability to get anything patented ("Patent attorneys are very brilliant at figuring out just how to do this.").

To be fair, Mr. Phillips did not define "objectively baseless" as "frivolous."  Instead, it was Mr. Phillips's impression that that "baseless" meant "unjustified and vexatious," which in turn meant that the case had "to have enough merit to be -- to satisfy the standards of probable cause" (meaning in this context that the case had to have enough merit to go forward).  Nevertheless, Justice Breyer seemed to want to just let the district court decide when a case was "exceptional" -- "[w]ell, let's send it back and tell them that they were imposing a standard that was too narrow, that didn't take account of all the circumstances where something could be unusually unjust, and then let them, no clear and convincing, but it's up to you, district judge.  You're the expert on litigation.  You decide."  Mr. Phillips did not like this approach because he was concerned that what would be considered an "exceptional" case would be unevenly applied ("There are lots of disincentives for plaintiffs to bring this case.  And at the end of the process, based on a completely indeterminate standard, the district court would then retain authority to say, I conclude what you did here is unreasonable.").

Justice Ginsburg asked why the Court should not just use the same standard as that in the Lanham Act, after all, both statutes use the same language.  In Lanham Act cases, an exceptional case is one that is not run of the mill, or uncommon, as Justice Ginsburg suggested.  Mr. Phillips had a couple of reasons why this would be inappropriate.  First, the two statutes have had two entirely different histories, and therefore two entirely different sets of case-law interpreting them.  Second, Mr. Phillips suggested that if the two statutes were to be reconciled, it should be the Lanham Act that should be made to comport with the Patent Act, because the Patent Act came first.

Roman Martinez, Assistant to the Solicitor General, argued on behalf of the United States.  It was the United States' opinion that the test should revert back to the understanding of the law back when the 1952 Patent Act was enacted -- "to prevent gross injustice."  However, with the connotation that "gross injustice" has today, this sounds like a very high barrier to an award of fees, and the Court seemed to struggle with this.  As Justice Kagen put it, "[g]ross injustice, I mean that's really really exceptional.  That sounds like 'shocks the conscience.'"  However, Mr. Martinez assured the Court that the "gross injustice" standard was not so difficult to meet, and that, in the end, it essentially comes down to a totality-of-the-circumstances test, with a list of non-exclusive factors to consider.

It is often difficult to determine the outcome of a case based on the questioning from the bench.  This case is no exception, although it is highly unlikely that the Federal Circuit two-part test will stand.  We will provide an analysis of the Highmark oral hearing in a future post, and we will, of course, provide an analysis of both opinions when the Court issues them, which should occur before the end of June, 2014.

 

Topics:  Attorney's Fees, Bad Faith, Fee-Shifting Statutes, Octane Fitness v. ICON, SCOTUS

Published In: 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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