Supreme Court Broadens Ability to Obtain Attorney's Fees in Patent Cases

SPECIAL OFFER: Twitter, LinkedIn, Facebook and Google+ followers can get an online subscription to The Intellectual Property Strategist'for only $299. Click here, select Digital Only and use promo code IPSOL299 at checkout. This offer is valid for new subscribers only.

'

The Supreme Court has recently issued opinions relaxing the standards for awarding attorney's fees against a patent enforcer, beginning with its decision on April 29, 2014, in Octane Fitness, LLC v. ICON Health and Fitness, Inc., 134 S. Ct. 1749, 188 L. Ed. 2d 816 (2014).

In Octane Fitness, ICON Health & 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 attorney's fees to the prevailing party in exceptional cases. 35 U.S.C. '285. The district court denied Octane its claim for attorney's fees finding that the lawsuit was not objectively baseless and that there was no evidence of subjective bad faith. Octane Fitness, LLC, at 1755.

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 pursuant to Section 285 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. Id. at 1754. The Supreme Court's decision in Octane Fitness rejected this application and broadened the test used to determine an “exceptional case” within the Patent Act's fee-shifting provision. Id. at 1756.

In its opinion written by Justice Sotomayor, the Court began by outlining the history of the Patent Act, noting that attorney's fees were not authorized by the Act prior to 1946. Id.'at 1753. After the codification of 35 U.S.C. '70, the courts were statutorily authorized to award attorney's fees to the prevailing party in their discretion. Id. The trend was for courts to consider facts specific to each case and reserve an award of fees for extraordinary cases to address bad faith or unfairness. Id. Section 285 was amended in 1952 to include the word “exceptional” but the amendment was seen as mere clarification and courts continued to use their discretion in awarding fees after analyzing the totality of the circumstances for each individual case. Id. Not until 2005 did the Federal Circuit set forth the strict approach set forth above. Id. at 1754.

In redefining this strict approach, the Court recognized that “exceptional” was not defined in the Patent Act and therefore, should be construed according to its ordinary meaning. Id. at 1756. When Section 285 was amended in 1952 to include the word “exceptional,” the term was defined to mean uncommon, rare, or not ordinary. Id. 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. Id. The Court found that the Federal Circuit's test was too rigid and too similar to the standard used for considering sanctionable conduct under Federal Rule of Civil Procedure 11. 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. Id. at 1757'1758.

Additionally, the Court held that a party need not establish entitlement to fees by clear and convincing evidence. Id. at 1758. 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.

The Court's decision relaxing the standard for awarding attorney's fees in Octane Fitness was reinforced in its decision in Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 188 L. Ed. 2d 829 (2014). In Highmark, after obtaining a summary judgment of non-infringement in its favor, Highmark, the accused infringer, moved for attorney's fees pursuant 35 U.S.C. '285. Highmark at 1747. 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. Id.

The Federal Circuit affirmed the exceptional determination with regard to one claim of the patent and reversed with regard to another claim. Id. 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. Id.

The Supreme Court reversed this decision based on its 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. Id. at 1749. Additionally, the Court held that although questions of law would be present in exceptional determinations, the determination was actually dependent on factual issues. Id.

As a result, a review of the district court's decision should be conducted using an abuse of discretion standard. Id. 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 attorney's fees against patent enforcers.

On July 7, 2014, the District Court for the Central District Court of California applied this broadened standard in an order granting attorney's fees in Action Star Enterprise, Co. v. Kaijet Tech. Int's., Case No. CV 12-08074, Dkt. 108 (C.D. Cal. July 7, 2104). In Kaijet, the court awarded the defendant its attorney's fees under 35 U.S.C. '285 due to the “exceptional” nature of the case, but denied the defendant its attorney's fees under 28 U.S.C. '1927, which allows a court to award excess costs and attorney's fees against an attorney “who so multiplies the proceedings in any case unreasonably and vexatiously.”

In analyzing whether the case qualified as “exceptional,” the court acknowledged the lowered standard set forth in Octane Fitness and noted that a finding of bad faith was not required to award fees. In considering the totality of the circumstances, the court found that the patentee litigated its infringement claims in an unreasonable manner, which it deemed to qualify as “exceptional” under the broadened standard. Specifically, the court focused on the patentee's repeated violation of its discovery obligations and its terse and cryptic infringement contentions. Based on the factual circumstances of the case, the court found an award of attorney's fees in excess of $300,000.00 appropriate.

Conclusion

Potentially as a backlash against the perceived increase in patent trolls, these decisions indicate a trend in the courts to more freely award attorney's fees to a prevailing defendant. Subsequent to these relaxed standards, district courts appear to have more flexibility and authority to award defendants their attorney's fees against a patent enforcer who brings frivolous litigation. Such a trend exposes a patent enforcer to a greater risk of having to pay high fee awards in unsuccessful infringement claims, which will likely raise questions regarding the extent of a patent enforcer and its attorney's duties to conduct a pre-suit investigation prior to bringing an infringement action.

Kristin Shusko is an associate in the Tampa, FL office of GrayRobinson, P.A. She litigates patent, trademark, copyright, trade secret and other intellectual property disputes in federal and Florida state courts. She can be reached at [email protected].

'