Rapid Changes in Standards for Fees in IP Disputes

by Adler Pollock & Sheehan P.C.

Background of Attorney’s Fees in Patent Disputes

Old Patent Act Standard – The Patent Act by its express terms permits a prevailing party, whether a plaintiff-patentee or defendant-competitor, to recover its attorney’s fees from the losing party in “exceptional cases.”  The Federal Circuit Court of Appeals, since its 2005 decision in Brooks Furniture v. Dutailier Int’l, has given the phrase “exceptional cases” a very limited interpretation: a losing plaintiff-patentee’s claims had to have been “objectively baseless” and brought in “subjective bad faith,” or a losing defendant-competitor had to have engaged in “material inappropriate conduct.”  In either case, the prevailing party had to show that the standard had been met by “clear and convincing evidence.”

Alternative Massachusetts Standard – A rarely used alternative standard for an award of attorney’s fees has existed for years for Patent Act cases brought in Massachusetts.  Under the Massachusetts Little FTC Act, also known as Chapter 93A, a prevailing plaintiff – but not a prevailing defendant – is entitled to an automatic award of its attorney’s fees.   The Patent Act does not contain a provision automatically preempting equivalent state law claims, as does the Copyright Act.  Thus, at least non-equivalent 93A claims seeking an award of attorney’s fees, such as where the plaintiff alleges extra elements or extra damages beyond those in a standard Patent Act claim, can be brought in Massachusetts.  Equivalent claims seeking attorney’s fees under Chapter 93A, where nothing extra is alleged, may also be possible.  See M. Gilleran, Enhanced Remedies for Federal IP Claims under State Law, Intellectual Property Today (Oct. 2007).

New Supreme Court Standard: Octane Fitness – On April 29, 2014 the U.S. Supreme Court issued its ruling in the case of Octane Fitness v. Icon Health & Fitness in which it rejected the Federal Circuit’s Brooks Furniture standard for an award of attorney’s for claims under the Patent Act.  The Supreme Court re-interpreted the phrase “exceptional cases” to require only that the “case is simply one that stands out from others with respect to the substantive strength of the 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.”  The Supreme Court ruled that the “exceptional cases” test provides that district courts are to make the determination “in the case-by-case exercise of their discretion, considering the totality of the circumstances.”  The new Octane Fitness standard also eliminates any requirement that the evidence be clear and convincing. In giving some guidance as to the meaning of the new standard, the Supreme Court did cite favorably to pre-Brooks Furniture cases applying tests which included such factors as the plaintiff being aware of the obvious invalidity of its patent, the plaintiff engaging in fraudulent conduct before the PTO, and the defendant continuing to infringe after an injunction.  These factors, and others, justifying an award of attorney’s fees in patent disputes are set forth in M. Gilleran and B. Birke, Enhanced Remedies in Intellectual Property Disputes in Massachusetts under Chapter 93A, Massachusetts Lawyers Weekly (Sept. 2013).

Potential New Congressional Standard – The U.S. House of Representatives has already passed H.R. 3309 (the Innovation Act) which amends the Patent Act and provides for a presumption that attorney’s fees will be awarded to the prevailing party unless the district court finds that the losing party’s position was reasonably justified in law and fact or that special circumstances make an award unjust.  The U.S. Senate has not passed any related legislation yet, but had considered legislation that would provide for a presumption of an award of attorney’s fees to the prevailing party but only if the losing party’s conduct or position was objectively unreasonable.  However, on May 21, 2014 Sen. Patrick Leahy, (D-Vt.), Chair of the Senate Judiciary Committee, delayed consideration of the Senate version, and so a new Congressional standard amending the Patent Act is not likely any time soon.

Attorney’s Fees in Trade Secret Disputes

Common Law Standard – Currently there is no Federal cause of action for misappropriation of a trade secret.  Thus, awards of attorney’s fees for state law causes of action for misappropriation of trade secrets turn on whether such awards are provided for under state law.  Although Massachusetts has not done so, many states have enacted the Uniform Trade Secrets Act (UTSA), which does provide that the court may award the prevailing party its attorney's fees against the losing party for “bad faith or willful and malicious misappropriation.”  Legislation proposed by Massachusetts Governor Deval Patrick would adopt the UTSA and simultaneously repeal the current statutory scheme addressing liability and injunctive relief for trade secret misappropriation.

Alternative Massachusetts Standard – Since Massachusetts has not enacted the UTSA, yet, the only clear vehicle for an award of attorney’s fees in trade secret cases in Massachusetts is the Massachusetts Little FTC Act, Chapter 93A.  Under established Massachusetts case law interpreting Chapter 93A misappropriation of a trade secret is an unfair and deceptive act in violation of Chapter 93A, and gives rise to an automatic award of attorney’s fees regardless of whether the defendant’s conduct or position was willful, in bad faith or objectively unreasonable.

Potential New Congressional Standard – Just filed in the Senate on April 29, 2014, but nowhere near being enacted, is a bill entitled the Defend Trade Secrets Act (DTSA).  Along with creating a Federal cause of action for claims alleging misappropriation of trade secrets, the DTSA would create a Federal legislative standard for awards of attorney’s fees in trade secret cases.  The new standard would provide for an award of attorney’s fees to the plaintiff if the defendant willfully misappropriated the trade secret, and to the defendant if the plaintiff asserted a claim of misappropriation in bad faith.

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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