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.”
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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.