SCOTUS: District Courts Have Broad Discretion in Awarding Attorney Fees in Patent Litigation

By Dennis Crouch

Octane Fitness v. Icon Health (Supreme Court 2014)

The Patent Act allows district courts to award attorney fees to the prevailing party in “exceptional cases.” 35 U.S.C. § 285. However, the Federal Circuit has repeatedly limited district court discretion in determining whether a particular case is exceptional. See Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378 (Fed. Cir. 2005).

In a 9-0 decision, the Supreme Court has rejected the Federal Circuit’s Brooks Furniture test as “unduly rigid.” In its place, the Supreme Court returns discretion to the district courts in determining whether a case is exceptional based upon the general principle:

[A]n “exceptional” case is simply one that stands out from the 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. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances [and without any] precise rule or formula for making these determinations.

Even without Section 285, courts hold the inherent power to impose fees on parties for bad behavior. Here, the court made clear that Section 285 should be construed to go beyond that inherent power – otherwise it would be merely superfluous.

The decision here is balanced in that it does not expressly favor plaintiffs or defendants; patentees or accused infringers. However, it has eliminated an important safe-harbor created by the Federal Circuit to protect plaintiffs. In the past, attorney fees were not allowed based upon filing a losing case unless the case was “objectively baseless.” In patent cases, that standard is difficult to meet because of all the avenues for ambiguity. That safe-harbor is now gone.

Finally, and importantly, the Supreme Court rejected the Federal Circuit’s rule requiring clear and convincing evidence before an award of fees. Here, the court held that there is “no specific evidentiary burden.” Rather, as mentioned, the decision is “a simple discretionary inquiry.”

= = = = =

Highmark Inc. v. Allcare (Supreme Court 2014)

In the Octane Fitness companion case, the Supreme Court also rejected the idea that exceptional case determinations should be reviewed de novo on appeal. Rather, consistent with the discretionary standard offered above, the appeal standard should focus on whether the district court abused that discretion. Typically, that is a difficult threshold to meet on appeal.

Both opinions were penned by Justice Sotomayor and unanimous.

71 thoughts on “SCOTUS: District Courts Have Broad Discretion in Awarding Attorney Fees in Patent Litigation

  1. The real way to think about this is the following. The SCOTUS has just empowered judges to do whatever they want. More and more that is what the SCOTUS is doing with patent law. They have consistently moved from objective tests that can be understood and evaluated (and conveyed to clients) to subjective tests of “the judge can do whatever he pleases as long as he goes through the motions of writing down some junk findings of fact that any law clerk could easily generate.

    You guys just don’t get it. Lourie, Prost, Tarantula are doing the same thing. Just make rules where we can look at it with hindsight and our ignorance of science and we will proclaim the result. The test will be so loose that we can then tell our law clerks to generate some findings of fact to support our conclusion. (Just read off the elements and psychotically rant “no structure.”)

    1. And riddle me this: if Prost cared in her recent dissent about real patent law why didn’t she ask the following question: what other solutions to the heuristic element were known to a PHOSITA at the time of the invention. Why didn’t she address this issue. Outrageous.

      1. Night, I hope you would recognize with me that the time has come to call for repeal of §112(f). Would you support this request?

    2. “The SCOTUS has just empowered judges to do whatever they want.”

      This decision and the earlier DJ standing changes this year should create a race to file for venue. As long as some judges are known to be biased in places like East Texas, plaintiffs will be eager to get cases placed there. Defendants will be trying to generate any kind of cause of action from letters and negotiations to keep things in their home districts where they might be awarded fees if the patentee’s lawyers are unreasonable.

      The result will be an increase in case filings. Maybe it will even be a sea change in practice with filing preceding negotiations in most cases. After all, court filing fees are not so much and it usually pins down venue.

      If the Supremes remove de novo claim construction, it will make this even more important.

  2. You really have to take a step back and think about this. The SCOTUS consistently is refusing to allow the workable rules that the Fed. Cir. creates. But, really, aren’t these rules like TSM reasonable statutory interpretations for a court charged with getting the patent system working?

    Think about the big picture. If there were no SCOTUS common law cases, would a statutory interpretation of the 1952 Patent Act that used TSM so that the patent system could effectively function be unconstitutional? Or not a fair interpretation of the statute?

    No. TSM is fine. It makes the system work when there are 100′s of thousands of patents. The only reason the SCOTUS turned it over is they forced their federal common law into the 1952 Patent Act. Outrageous.

    1. If one does take a step back (and tries to take an objective look at what is going on), there is a clear power struggle going on.

      What people who want to toss stones at the CAFC do not seem to realize is why that lower court was created in the first place.

      The real power struggle here is not a judicial one. The CAFC is merely the proxy of Congress’s intent to reign in an activist, anti-patent Supreme Court, addicted to its ability to influence policy and ‘implicitly’ write the map.

      Rather, the real power struggle here is of epic proportions between the branches of the government. For crying out loud, Marbury involved the mere case of a single undelivered commission. Here we have a decades long battle over who gets to write patent law (explicitly and implicitly) that strikes to the very heart of the entire nation and our world leading innovation position.

      Hew to the Constitution.
      Heed exactly which branch of the government was given authority to write patent law.
      Realize fully what happened in the 1952 Act.
      Take the Royal fingers out of the nose of wax.

      4 is still not 5.

      1. This is a great post anon. And the SCOTUS consistently says the 1952 Patent Act merely codified their common law when this is simply not the intent of Congress. It is an outright misrepresentation.

      2. I tink you’re bowing this “power struggle” out of proportion. Probably because you really belieb that congress thinks of patent law as some sort of most important thing evar instead of a mere entitlement program for inventors.

        Be honest with yourself anon, if congress really gave two shts and was at all competent about the subject then they’d step in and clarify things instead of piddling with aia etc.

        1. Probably because

          No.

          You continue to underwhelm with your lack of understanding and propensity to project misguided views, 6.

          1. Christ sakes anon we just had a congresscritter being critical of the PTO for issuing “ridiculous” patents. We obviously have no law against issuing “ridiculous” patents, the word literally appears nowhere in our patent laws. If they wanted to correct this situation then they could, with the stroke of a pen and vote.

            1. No need to cuss or get angry 6 – you simply are not understanding the situation.

              Perhaps if you cared about the law you would not have these difficulties.

    2. I would add another thought: look back at the rather voluminous blowback that Prof. Sichelman received.

      I would posit a large portion of this blowback stems from the view that ‘policy’ is being attempted to be wielded in the wrong hands – and that the academics are driving this incorrect appropriation of power for their airy views.

      Look at all the amicus briefs urging the Royal Nine to either implicitly or explicitly re-write the law. It is far easier to try to influence nine individuals than a majority in Congress. Look at the aims of activist academics: to change the law by advocating certain policy positions.

      Never mind that policy drivers belong to the deliberations of Congress.
      Never mind that the Constitution dictates which branch of the government has been allocated the authority to write the map of patent law.

      Expediency and getting what they want, getting their ends – regardless of the means – overrides any sense of the law.

      What is especially distasteful about this is that these are the same people charged with the responsibility for teaching law, for inculcating a respect for the legal system, for the thought that the Constitution (not the royal nine) is the pinnacle and fountain of our law.

    3. Night, it is interesting how the Federal Circuit seems to think that it has the right to overturn the Supreme Court. There is that recent bit where anon posted a Wikipedia reference to the Supreme Court case Sakraida v. Ag Pro that had noted that the case was overruled by a later Federal Circuit decision.

      1. Ned,

        I posted that as a jab to the wiki. That view did not come from the CAFC.

        You continue down your path of worshipping the Royal Nine beyond any reasonable and objective view of their capabilities (or lack thereof). This is no doubt due in no small part to your vendetta against Judge Rich – a judge more qualified than anyone ever to understand what Congress did in 1952. That you reject such wisdom without a second thought speaks ill towards your credibility.

  3. Earlier today the United States Supreme Court shed significant light into the question of awarding attorneys fees under 35 U.S.C. § 285 to successful litigants in a patent infringement proceeding.

  4. I should note that the decision not entirely unanimous. In particular, Justice Scalia refused to join footnotes 1-3. Those footnotes referred to legislative history.

    1. Dennis,

      Not surprising that Scalia opted out of those footnotes. He views the “legislative history” as being completely irrelevant relative the “plain text” of the statute. He does have a point about whether the “legislative history” should be relied upon in all cases of interpreting statutes, but I think he goes overboard in that regard. For example, in Eli Lilly v. Medtronic, Scalia, who wrote the opinion in that case, ignored the comments by the two respective floor managers of the Hatch-Waxman that “patented invention” was intended to apply to drugs only and not other subject matter subject to FDA approval (such as biomedical devices).

  5. Carl Moy was behind In re Donaldson, a case that I strongly disagree with. But he has filed a very persuasive brief in Akamai that argues, as do I, that the courts should bring the “make” right and the multi-actor infringement of method claims into alignment by hold that the last actor in a method claim is the direct infringer.

    link to americanbar.org

    Really good job, Carl. And, something I have been arguing here for years. BMC is the problem and needs to be reversed. That is where the Court should focus its energy.

    Carl noted that BMC resources and a companion case involving RIM, were poorly reasoned, decided with authority in support — the very cases cited for support actually held to the contrary, and had thrown the law of direct infringement of method claims by multiple cooperating actors into chaos.

    IBM also noted that the problem was BMC resources, but recommended remand.

    1. Why settle on “last actor” and not join Lemley’s view of the modern world where team invention can be paralleled with team infringement?

      After all, the single actor rule is, um, where exactly in the statutory text….?

    2. the last actor in a method claim is the direct infringer.

      I was looking forward to a better argument in favor of this proposition than then one’s that you’ve provided, Ned (which I never found persuasive).

      But Carl’s brief is similarly defective and fails to address one massive logical problem: unlike composition claims, whose manufacture is objectively incomplete until some person completes the manufacture (i.e., the direct infringer makes the composition that meets all the limitations of the patent claim), method claims are comprised of steps that are individually unpatentable and/or in the public domain.

      Somebody gives me (or my computer) some information and, based on that information, I (or my computer) gives someone else some other information. Somehow I’m the “direct infringer” just because the information was obtained by steps that, completely unknown to me, infringe a method claim when combined with my perfectly legal actions?

      It’s just absurd, Ned. And the fact that Carl refuses to address this obvious issue in his brief just highlights the huge problem it represents for your “theory.”

      1. MM, you do have a point. The product by process case is simple.

        However, I think that if one adds some relationship between the actors such as a contract relationship, i.e., privity, that should be enough. If the last actor has contract with others who perform all the other steps, there should be no problem in imposing strict liability on the last person, direct or indirect liability on he other parties as the case may be.

        I think the Supreme Court might view Moy’s brief with approval, and remand to the Federal circuit for further consideration.

        The problem also is the posture of this case. Limelight is not a direct infringer under any theory. Akamai pursued only direct infringement against Limelight. The real direct infringer are the customers, but they were not sued to show direct infringement.

        Thus, even on remand, the Federal Circuit may not be able to resolve this case based on Moy’s recommendation.

        1. I think that if one adds some relationship between the actors such as a contract relationship, i.e., privity, that should be enough. If the last actor has contract with others who perform all the other steps, there should be no problem in imposing strict liability on the last person, direct or indirect liability on he other parties as the case may be.

          But if there’s bona fide privity, then why focus on the “last party”? Seems like the party who performs the first step, or the most steps, or who first formulated the contract setting forth who was going to perform each step, might be a better candidate for the “direct infringer”. Why should the person performing the last step in the method be named the “direct infringer”? What if the claim isn’t limited to the last recited step being carried out last? Does that affect your analysis? I can’t tell if it would or wouldn’t … can you?

          1. Well, the reason that the last actor is the direct infringer is that there is no infringement until he does that last act.

            Historically, the others who assisted by doing some of the steps in concert, but not the whole thing, were contributory infringers.

            The point of Moy’s piece was to bring Making products, product by process and method into congruity. Thus, those who do part of the invention and sell it to others in privity for completing the invention, are contributory infringer/inducers under the statutory framework.

            Also, this was the fact situation in Univis Lens cited with approval by Quanta. Straying beyond these facts too far may have unforeseen results.

            1. the reason that the last actor is the direct infringer is that there is no infringement until he does that last act.

              Last act, first act. All the steps are required for infringement of a method claim. And again: is it the last “act” committed, or the last step recited in the claim? Because in many cases the order of the claim steps isn’t critical.

              The bottom line is that here’s no good reason to make the “last actor” the “direct infringer”. At best it’s a random decision, at worst it’s a misguided attempt to “conform” a doctrine that makes some sense in the context of composition claims to a fundamentally different kind of claim.

        2. This is the wrong topic for this blog, but since it was raised, isn’t “only the last partial actor” as the infringer highly likely to be an ordinary individual end purchaser, and thus in many cases “judgment proof?” I suppose it is an attempt to avoid an “apportionment of damages” mess between different entities from a Fed. Cir. sua sponte creation of “joint” infringement, but isn’t that far more likely to get strangled in the cradle by yet another unanimous Sup. Ct. reversal?

    3. From Moy’s brief: “That approach would designate as the direct infringer the person who performed the last remaining step of the claimed method.

      Univis Lens comes back to mind…. The last step simply was not needed to have been performed for exhaustion to have occurred.

      While Univis Lens is dealing with the concept of exhaustion, the parallel is unmistakable.

  6. It only took the Supremes 2 months from the oral arguments for 2 more unanimous reversals of the Fed. Cir. here. [This is beginning to suggest to me a variant on an old joke, to wit: “how many unanimous Sup. Ct. reversals does it take to change a light bulb at the CAFC?”]
    These Supreme Court decisions may make it easier [or harder?] for the Senate to pass some version of its pending “objectively unreasonable losers pay” legislation that is in debate in the pending anti-toll bills. These 2 decisions are strongly anti-troll. Some lobbyists had been arguing the pendency of these decisions as a reason for Congress not to act on this issue. [One even wonders if perhaps the Supremes considered that in making such a speedy decision?] This ended that.
    But, as noted these decisions can also “bite” certain defendants [we know names, but won’t name them here] notorious for playing hardball with almost any arguable litigation defenses against almost any patent asserted against them [with high priced trial lawyers naturally happy to oblige, considering the large billing opportunities].
    Thus, independent O.C. opinions for non-infringement or invalidity from someone other than the attorneys trying the case might now be advisable? [I never understood anyway why companies demand a "second opinion" for major surgery for any employee, yet regularly charge off into patent litigation with advice only from the lawyers who will be trying the case?]

      1. What “ended” that I was referring to, was just the “wait for the Supreme Court to decide” [on attorney fee sanctions] arguments against taking any legislative action before then. Not other issues.

    1. Regarding: “how many unanimous Sup. Ct. reversals does it take to change a light bulb at the CAFC?”

      The riddle is a trick question. The CAFC will never change the light bulb while they are insisting on living in the dark.

      Metaphorically speaking, of course.

    2. This decision should also end the two part willfulness test and once again make that a plausible claim. The Fed Cir has effectively adopted a PRE standard for willfulness (with objective and subjective prongs). Defendants be careful what you ask for! This could be a major positive development for good quality patent plantiff cases.

    3. These 2 decisions are strongly anti-troll.
      Meh … these decisions are strongly anti-bad-litigating, which I believe you subsequently recognized in your post.

      Bad litigating can come from both plaintiffs and defendants. It is not endemic to one or the other.

    4. Paul,

      The Federal Circuit knows that the Supreme Court can’t reverse them all. That’s why they have CLS Bank in front of them. If they took more obviousness cases, I think they would find themselves having a similar reaction vis-a-vis KSR.

      The Ninth Circuit uses this trick too.

  7. Yessssssssssssss

    9 zip, and politically timed to perfection to head-off legislative fee shifting at the pass.

    Well played cj. Roberts

    Lordy would I love to see IBM pay my fees back, exactly as they morally should. A nice ray of light today.

  8. I wonder if Malcolm, 6 and Ned realize that this means (as Prof. Hricik and others like myself mentioned in the past) that existing tools are already present to combat any (trumped up overblown witch-hunt) “Troll” problem….

    (critical thinking – give it a try)

    1. Yeah, I don’t know what the whining was all about. Between 2005 and today, all a defendant had to do was take his claim for attorney’s fees to the Supreme Court.

    2. Prof. Hricik and others like myself

      I knew you guys sounded similar. Now at least one of you agrees with me.

      LOL.

      1. one of you agrees with me.

        LOL indeed – the number of times you turn around and agree is pretty interesting.

        I can think of a Myriad of examples where you would agree but spend countless hours mewling otherwise. ;-)

  9. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances [and without any] precise rule or formula for making these determinations.

    Nice! Also, there is no reason that such a finding should necessarily be rare or even unusual. Judges shouldn’t be concerned if they are awarding attorneys fees too often, as long as the particular cases warrant that sanction. After all, it’s entirely possible for a court to be inundated with a lot of junky cases.

    1. …courts very rarely award attorney fees in infringement cases.

      Perhaps that’s because the Federal Circuit told them that they couldn’t? I don’t know why district court judges would be culturally resistant to a new rule that grants them considerable discretion. But we’ll see, I suppose.

  10. “The Federal Circuit was established to bring about uniformity in patent law, but they seem to have a great deal of disagreement among themselves,” he said. District court judges often deal with whether a position is baseless in other types of cases, “so maybe they are more expert than the Federal Circuit,” he said.

    This is what comes from judicial activist being on the Fed. Cir. Lourie and Prost shame is on you.

    1. In 2005, however, the Federal Circuit abandoned that holistic, equitable approach in favor of a more rigid and mechanical formulation.

      Isn’t this what gets them in trouble every time? TSM, machine-or-transformation, eBay, …

      1. Bringing clarity to patent law necessarily is in conflict with judicial discretion.

        All that we are seeing here is really a tug of war battle between the judiciary and congress with the CAFC caught in the middle.

        That is why those seeking to merely blame the CAFC for the woes in the patent world do not understand the facts and feelings that constitute the real world.

        This is NOT to say that a question like “Is it time to repeal the CAFC? ” is without merit or worth discussing. But it is imperative in that discussion to take the blinders off, to see the big picture and to recognize exactly what is going on.

        Clarity always comes at the cost of discretion. There is no getting around that fact.

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