Easing the Standard for Recovering Attorney Fees in Patent Cases

The United States Supreme Court recently issued decisions in both Octane Fitness LLC v. Icon Health & Fitness Inc. and Highmark Inc. v. Allcare Health Management Systems Inc., decisions that relate to the handling of requests for attorneys fees by the prevailing plaintiff under 35 U.S.C. § 285. In essence, the Supreme Court discarded the framework under which the Federal Circuit has handled attorney fees cases for the past decade.

In Brooks Furniture Mfg., Inc. v. Du­ tailier Int’l, Inc., 393 F. 3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that “[a] case may be deemed exceptional” under § 285 only in two situations: (1) “when there has been some material inappropriate conduct,” or (2) when the litigation is both “brought in subjective bad faith” and “objectively baseless.” The question put before the Supreme Court was whether the Brooks Furniture framework is consistent with the statutory text.

In unanimous decisions delivered by  Justice Sotomayor, the Supreme Court ruled that the Brooks Furniture framework was too restrictive and inconsistent with the text of § 285. With Octane Fitness the Supreme Court makes it easier for district courts to sanction plaintiffs for bringing meritless patent infringement suits, while Highmark makes it more difficult for the Federal Circuit to reverse district court decisions under the statute. Both cases were closely watched as both the private sector and Congress have been making efforts to quash the dramatic uptick in patent cases filed by non-practicing entities.

The statute at issue in both Octane Fitness and Highmark, 35 U.S.C. § 285, authorizes district courts to order losing parties to pay the prevailing party’s attorney fees in “exceptional” patent infringement cases. In fact, in its totality, § 285 states: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Without the term “exceptional” being defined in the statute this lead the Federal Circuit to over the years narrowly define the circumstances under which attorneys fees could even be awarded, thereby taking pretty much all discretion away from the district court judges. This lead to very few findings of exceptionality, and even fewer awards of attorneys’ fees.

In the immediate aftermath of these Supreme Court decisions a question still remains with respect to what, if anything, these decisions mean for the prospects of patent reform this Congressional term?

“The decisions give Congress an easy out from enacting any new patent reform legislation this term, ” says Elain Herrmann Blais, who is a patent litigation partner with Goodwin Proctor, working out of the firm’s Boston Offices.  “The patent reform bill that the House recently passed, which is currently under review in the Senate, puts the burden on the loser to prove that it should not be required to pay attorney fees – a remarkable departure from the current law.  People are curious to see if what the Supreme Court has done is a big enough step in the right direction, which may cause some to hesitate before enacting any game-changing laws.”

[PLI]

Personally, I think that the Supreme Court decision will be enough to prevent the so-called “patent reform” from gaining any traction in the Senate. The cynical view is that there is so much lobbying money flowing why would Congress want to turn that spigot off when it could easily flow into the next Congressional term? Further, there has been a growing and steady effort by those opposed to the pending patent legislation. Opponents were already making their case heard as the Senate continued to time after time postpone dissemination of the Manager’s Amendment, signaling the consensus that some Senators desperately wanted to reach was illusive, if not impossible. Now with the Supreme Court decisions in these two cases those on the Hill who were already skeptical have more than enough ammunition to slam on the brakes, at least for now, to see what the ultimate ramifications of the decisions will be on the reality of patent litigation.

Another interesting question for Capitol Hill watchers is whether district courts will now be more willing to award fees given they have broad discretion to do so?

“The Supreme Court’s recent endorsement of the district courts’ discretionary authority may very well lead to a noticeable increase in the number of attorney fees awards we see, particularly in the short term, as courts apply the new law to pending cases, says Josh Whitehill, a patent litigator with Goodwin Proctor.  “Octane Fitness considerably loosened the test by which courts determine whether a case is exceptional and discarded the Federal Circuit’s forbidding clear-and-convincing-evidence standard for proving exceptionality.” Whitehill also believes that the standard of review, which was addressed in Highmark may further embolden district courts to more broadly exercise powers under § 285, saying: “Highmark should make it very difficult for losing parties to overturn attorney fees awards and may embolden district courts, with little fear of getting reversed, to award attorney fees where they might not have before.  How punishing or forgiving individual district court judges are with their newfound discretionary authority, however, remains to be seen.”

Frankly I really don’t know what to think in terms of the likelihood that district courts will employ their new found discretion under § 285. We know that for the most part district court judges do not like awarding fees, which for the most part is an understandable philosophical point of view consistent with the long standing American Rule, where litigants pay for their own attorneys win, lose or draw. Having said that, there does seem to be a growing number of district court judges that are fed up with the abusive patent litigation tactics employed by the seedy element of the industry (i.e., patent trolls). I think it is likely that we will see some district courts avail themselves more fully of the discretion to police their courtrooms by handing out fees more readily, while others likely will remain reluctant.

Of course, even those that may be inclined to award fees more often will need to be presented with a prevailing party, which means that if Silicon Valley wants to stop patent litigation abuse and get fees awarded they need to start fighting rather than settling the garbage cases they face. The fact that most tech companies still want to settle garbage cases will likely be a far larger impediment to obtaining fees than any philosophical predisposition within the ranks of district court judges.

If you are interested in this topic, Blais and Whitehill will be conducting a 1-hour telephone CLE briefing sponsored by the Practising Law Institute, which will include discussion of the case and the ramifications for the future. The briefing will take place on Wednesday, May 7, 2014, from 1pm to 2pm Eastern. The briefing will further include the following:

• A review of the statutory history, case law, and legal proceedings leading up to these decisions
• The Supreme Court’s rejection in Octane Fitness of the Federal Circuit’s framework for determining exceptionality under Section 285
• The Supreme Court’s rejection in Highmark of the Federal Circuit’s application of a de novo standard of review of district court decisions under Section 285
• The potential impact of these decisions on future patent litigations and appeals

To register for the briefing CLICK HERE.