Two Supreme Court Decisions May Make Frivolous Patent Cases A Bad Bet

by McNees Wallace & Nurick LLC

In two unanimous decisions handed down yesterday, the United States Supreme Court has offered some encouragement to defendants who choose to litigate against so-called patent trolls that the cost of doing so may be recoverable if they prevail.

Section 285 of the Patent Act permits the award of "reasonable attorney fees" to the prevailing party in an "exceptional case." Since 2005, the definition of an exceptional case was supplied by the United States Court of Appeals for the Federal Circuit's decision in the Brooks Furniture case.

In the absence of some misconduct in securing the patent or in the conduct of the litigation, Brooks Furniture required that a case could be deemed exceptional only if the litigation both was brought in subjective bad faith and was objectively baseless. The latter prong of the test meant that the case had to be "so unreasonable that no reasonable litigant could believe it would succeed." To make the prevailing party's task even more difficult, it was required to prove a case was exceptional by clear and convincing evidence.

In Octane Fitness, LLC v. Icon Health & Fitness, Inc., the Supreme Court emphatically rejected the Brooks Furniture exceptional case formulation. Instead, it substituted a more liberal and flexible standard, defining an exceptional case as "simply one that stands out from others with respect to the substantive strength of a 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 court also eliminated the requirement that the prevailing party prove its entitlement to fees by clear and convincing evidence, noting that "Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one."          

The companion case, Highmark, Inc. v. Allcare Health Management System, Inc., involved the appeal of an award of fees and costs in excess of $5 million. Applying its holding in Octane Fitness, the court vacated the Federal Circuit's ruling that reversed an exceptional case finding, holding that the appellate court had improperly reviewed the district court's decision "without deference" to that court's findings.

Writing for the court, Justice Sotamayor concluded that the district court's fee-shifting determination should be reviewed under an "abuse of discretion" standard, a much narrower scope of review than the one previously applied. The Highmark decision is of particular interest in addressing the claims of patent trolls. There, as the district court described it, Allcare had "pursued this suit as part of a bigger plan to identify companies potentially infringing [its] patent under the guise of an informational survey, and then force those companies to purchase a license of [its] patent under threat of litigation," a typical troll strategy.

While the potential significance of these decisions isn't limited to the increasingly common claims of patent trolls, they at least may give some pause to those entities when deciding whether to sue after their licensing demands are rejected. Octane Fitness and Highmark won't do anything to reduce the high cost of patent litigation. But along with the potential to discourage some dubious patent claims, the decisions offer hope to companies who decide to stay the course against the questionable ones that they may not be stuck with substantial legal fees even after a decisive victory. 

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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