The Supreme Court has recently issued two opinions relaxing the standards for awarding attorney’s fees against a patent enforcer in Octane Fitness v. ICON Health and Fitness and Highmark v. Allcare Health Management System.
In Octane Fitness, ICON Health and Fitness sued Octane Fitness, LLC for patent infringement. After the district court granted summary judgment in Octane’s favor, Octane moved for attorney’s fees under the Patent Act’s fee-shifting provision. Section 285 of the Patent Act allows a court to grant attorneys’ fees to the prevailing party in exceptional cases. The district court denied Octane its claim for fees finding that the lawsuit was not objectively baseless and that there was no evidence of subjective bad faith.
The Federal Circuit affirmed the denial of fees based on its rigid interpretation of exceptional cases. Prior to Octane Fitness, the Federal Circuit only found a case to be exceptional in two situations: (1) when there was material inappropriate conduct such as willful infringement, fraud, or misconduct during litigation; or (2) when the case was brought in subjective bad faith and was objectively baseless. The Supreme Court rejected this application and broadened the test used to determine an "exceptional case" within the Patent Act’s fee-shifting provision.
In its decision, the Court noted that "exceptional" was not defined in the Patent Act and therefore, should be construed according to its ordinary meaning. When Section 285 was amended to include the word "exceptional," the term was defined to mean uncommon, rare, or not ordinary. As a result, an exceptional case could include any situation that stands out from another, which should be decided on a case-by-case basis. The Court found the Federal Circuit’s test too rigid and too similar to the standard used for considering sanctionable conduct. Rather than applying the fee-shifting provision narrowly, the Court held that it should be a more flexible and fact-intensive consideration based on the totality of circumstances.
Additionally, the Court held that a party need not establish entitlement to fees by clear and convincing evidence. Rather, the party must only establish its entitlement by a preponderance of the evidence, making it more risky for patentees to enforce their patents though litigation.
In Highmark, after obtaining a summary judgment of non-infringement in its favor, Highmark, the accused infringer, moved for attorneys’ fees under Section 285 of the Patent Act, which allows a court to grant attorneys’ fees to the prevailing party in exceptional cases. The district court deemed Highmark’s case exceptional and awarded reasonable fees based on Allcare’s alleged pattern of vexatious and deceitful conduct during litigation.
The Federal Circuit affirmed the exceptional determination with regard to one claim of the patent and reversed with regard to another claim. The review of the district court’s award was conducted de novo (without deference) because the Federal Court deemed that the question of whether a lawsuit was objectively baseless was a question of law.
The Supreme Court reversed this decision based on its related opinion in Octane Fitness, which rejected a rigid interpretation of an exceptional case. In determining whether litigation was exceptional, the Court found that district courts had discretion in making a case-by-case decision considering all of the circumstances. Additionally, the Court held that although questions of law would be present in exceptional determinations, it was actually based in factual determinations.
As a result, a review of the district court’s decision should be conducted using an abuse of discretion standard. In other words, the district court's decision should not be reversed unless it was based on an erroneous view of the law or the evidence. In so holding, the Court gave district courts more deference in their discretion to award attorneys’ fees against patent enforcers.
By: Kristin Shusko