Supreme Court Lowers the Bar for Recovery of Attorneys’ Fees in Exceptional Patent Cases

April 29, 2014

Octane Fitness, LLC v. Icon Health & Fitness, Inc., – S.Ct. –, 2014 WL 1672251 (April 29, 2014) (Petition No. 12–1184)

HighMark, Inc. v. Allcare Health Management System, Inc. – S.Ct. –, 2014 WL 1672043 (April 29, 2014) (Petition No. 12–1163)

April 29, 2014 – The Supreme Court issued two opinions today that revised and loosened the test applied to determine when it is appropriate for the court to award attorneys’ fees to prevailing parties in "exceptional" patent infringement cases and the standard applied on appeal to review that decision.

Under the prior test established by the Federal Circuit in Brooks Furniture Mfg., Inc. v. Dutailier, Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), attorneys’ fees pursuant to 35 U.S.C. § 285 were available only upon a finding that there has been some material inappropriate conduct or if the litigation was found to be both objectively baseless and brought in subjective bad faith. In its Octane decision, the Supreme Court held that the Federal Circuit’s standard was overly rigid and inconsistent with the text of the patent act which gives the district court discretion to award fees in "exceptional" cases. The Supreme Court also rejected the Federal Circuit’s requirement that entitlement to fees must be established by clear and convincing evidence, instead applying the preponderance of the evidence standard that is the standard generally applied to civil cases.

After rejecting the Brooks test, the Supreme Court defined an exceptional case as "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 district court is granted discretion to make this determination based on the totality of the circumstances.

Similarly, in HighMark, the Supreme Court reversed the Federal Circuit’s application of de novo review to the district court’s determination of whether a case is "exceptional" under § 285. Because the Octane decision provided the district court with discretion to decide if a case is "exceptional," that discretionary decision may be reviewed only for abuse of discretion.

Cumulatively, these decisions give the district court broader discretion to award attorneys’ fees when the judge believes the case varies from the norm for any reason and makes it more difficult for the appeals court to overturn that award. This additional flexibility will give district courts the discretion to consider the individual behavior of the parties, including plaintiffs that have been frequently described as patent trolls, and should remove the need for further legislative reform of fee shifting in patent cases.

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