Supreme Court Agrees to Hear Two Cases on Attorneys' Fees in Patent Cases
OCTOBER 4, 2013
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PattonBoggs.com Client Alert: Supreme Court Agrees to Hear Two Cases on Attorneys’ Fees in Patent Cases 1
INTELLECTUAL PROPERTY GROUP CLIENT ALERT
SUPREME COURT AGREES TO HEAR
TWO CASES ON ATTORNEYS’ FEES IN
On October 1, the U.S. Supreme Court granted writs of certiorari and agreed to
hear two patent infringement cases regarding the award of attorneys’ fees to
prevailing parties. The Court’s rulings could result in more fee awards being
made, thus deterring the filing of infringement claims.
Under the “American Rule”, each party to a lawsuit typically pays its own
attorneys’ fees and expenses. There are exceptions, however. For example, a
party that brings a frivolous suit without a good faith basis in law or fact can be
sanctioned, including an award of the other party’s attorneys’ fees, under Federal
Rule of Civil Procedure 11. The U.S. patent statute also allows a court to award
attorneys’ fees to the winning party in “exceptional cases.” 35 U.S.C. § 285.
Once it is determined that the party seeking fees is a prevailing party,
determining whether to award attorneys’ fees under § 285 is a two-step process.
First, a prevailing party must establish by clear and convincing evidence that the
case is “exceptional.” Second, if the case is deemed exceptional, a court must
determine whether an award of attorneys’ fees is appropriate and, if so, the
amount of the award.
For the first prong of the test, a case brought by a patent holder can be deemed
“exceptional” when there is clear and convincing evidence that the claim was a
frivolous claim or there was inequitable conduct before the Patent and
Trademark Office or misconduct during litigation. Absent inequitable conduct or
litigation misconduct, sanctions may be imposed against the patent owner for
bringing a frivolous claim only if the litigation is objectively baseless and in
subjective bad faith. Because of this high standard, most cases are not found to
be exceptional and no fees are awarded.
In Octane Fitness, LLC v. ICON Health & Fitness, Inc., (No. 12-1184), the alleged
infringer asked the Supreme Court to review what it called the “rigid and
PattonBoggs.com Client Alert: Supreme Court Agrees to Hear Two Cases on Attorneys’ Fees in Patent Cases 2
exclusive” test that the Federal Circuit uses to determine whether a case is “exceptional” under the statute. In that
case, the District Court construed the claims of a patent drawn to elliptical exercise machines. It then granted
defendant Octane’s summary judgment motion that its products did not infringe plaintiff Icon’s patent. Octane then
sought to have the case declared exceptional as a frivolous case and requested payment of its attorneys’ fees. The
District Court applied the Federal Circuit’s “objectively baseless” and “subjective bad faith” tests and denied the
motion. ICON appealed the grant of summary judgment and Octane cross-appealed on the fees issue. Octane’s
argument sought a lower standard for exceptionality – “objectively unreasonable”. The Federal Circuit rejected the
argument, holding that “we have reviewed the record and conclude that the court did not err in denying Octane’s
motion to find the case exceptional. We have no reason to revisit the settled standard for exceptionality.” The
decision is available here.
Octane filed a petition for certiorari and phrased the issue for review by the Supreme Court as:
Whether 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 settlements from defendants.
In recent years, the Supreme Court has rejected rulings of the Federal Circuit that applied bright line rules in patent
law in favor of more flexibility. Examples include cases such as International Co. v. Teleflex Inc., 550 U.S. 398 (2007)
(adopting a more flexible approach to providing reasons for determining a patent invalid for obviousness); eBay, Inc. v.
MercExchange, LLC, 547 U.S. 388 (2006) (successful plaintiffs in patent infringement suits were no longer automatically
entitled to a permanent injunction, but must meet a four-factor test for obtaining an injunction); Festo Corp. v Shoketsu
Kinzoku Kogyo Kabushiki Co., 535 U.S. 722 (2002) (rejected Federal Circuit decision that any amendment to a patent
application that narrowed a patent claim created an absolute bar to equivalents for the particular claim limitation that
was narrowed by the amendment).Octane Fitness appears to be another case in line with this theme.
The second patent case before the Supreme Court deals with the standard of review for reviewing District Court
decisions on fee awards on appeal. In Highmark Inc. v. Allcare Health Management Sys. (No. 121163), the petition for a
writ of certiorari relates to whether, on appeal, the Federal Circuit should give any deference to the District Court’s
decision on whether to award fees. In that case, the District Court found the case exceptional because it concluded
that Allcare had pursued frivolous infringement claims against Highmark, asserted meritless legal positions during the
course of the litigation, shifted its claim construction positions, and made misrepresentations in connection with a
motion to transfer venue. The Federal Circuit affirmed-in-part and reversed-in-part. In doing so, it reiterated a 2012
decision holding that “the threshold objective prong . . . is a question of law based on underlying mixed questions of
PattonBoggs.com Client Alert: Supreme Court Agrees to Hear Two Cases on Attorneys’ Fees in Patent Cases 3
law and fact and is subject to de novo review.” Judge Mayer dissented on the ground that “[t]he court errs when it says
that no deference is owed to a district court’s finding that the infringement claims asserted by a litigant at trial were
objectively unreasonable.” A copy of the Federal Circuit panel opinion and dissent is found here. Highmark’s petition
for rehearing by the entire Federal Circuit was denied (see here).
In its certiorari petition, Highmark contended that the Federal Circuit erred in holding that a District Court's objective
baselessness determination is reviewed "without deference" and that the review standard for exceptional case findings
in patent cases that squarely at odds with the highly deferential review adopted by the Supreme Court and other
Circuit Courts in other areas of law. Thus, the issue before the Supreme Court will be whether a District Court’s
exceptional case finding under § 285, based on a judgment that a suit is objectively baseless, is entitled to deference.
The Supreme Court’s decisions on these cases could significantly affect patent litigation. If the Court ultimately rules
to expand the standard for the availability of attorneys’ fees award, it could reduce the number of cases would be filed
by so-called “non-practicing entities” (or “NPEs”), particularly those where NPEs file infringement cases against a
large number of defendants hoping for quick settlements. Knowing that they could obtain attorneys’ fees may
encourage accused infringer’s to fight infringement allegations on grounds of non-infringement, invalidity or
enforceability rather than to settle with the plaintiff for a modest amount.