Fee Shifting: First the Supreme Court, Now Congress

By Dennis Crouch

In Octane Fitness, the Supreme Court gave discretion to district courts in determining whether to award attorney fees to the prevailing party. The court also lowered the bar for such a finding – both by removing the somewhat rigid limitations that had been imposed by the Federal Circuit and by rejecting the notion that clear and convincing evidence is a prerequisite foundation for such an award.

However, the decision will likely be seen as making an incremental change rather than being a watershed moment. The law remains that attorney fees should only be awarded in exceptional cases that involve misconduct or extreme behavior. Our long tradition in the US had avoided attorney fees except in rare cases and I do not see this court changing that tradition in any dramatic way. The point here is that even the new lower standards are a far cry from the presumptive award of attorney fees as have been proposed in Congress.

Enter Congress: Earlier this session, the House of Representatives passed H.R. 3309 (the Innovation Act) with broad bipartisan support. The bill includes a fee shifting provision that creates a presumption that fees will be awarded to the prevailing party unless the district court finds that the losing party’s position was “reasonably justified in law and fact or that special circumstances make an award unjust.” A parallel Senate proposal steps back slightly from the House version and would require a finding that the non-prevailing party’s conduct or position was objectively unreasonable.

The Senate version is intended to be a middle ground between the current law and what was passed in the House. As far as I know, Senator Leahy has not yet come-out in favor of either proposal but has stated his preference that discretion in the decision be given to district court in the decisionmaking process. One way to achieve Senator Leahy’s goals could be a simple modification of Section 285 – deleting “exceptional case” and adding “its discretion” as follows: “The court in exceptional cases
its discretion may award reasonable attorney fees to the prevailing party.”

The legislative proposals also have the creative element of helping ensure that the rule cannot be skirted by underfunding the patent enforcement entity. Rather, the proposal would allow for limited veil piercing in order to collect any attorney fees owed from investors and others with interests in the litigation.

One bottom line is that the proposed statutory changes would still push the law well beyond its (newly) current state. As such, I suspect that the push to include these provisions as key elements of patent reform will continue.

6 thoughts on “Fee Shifting: First the Supreme Court, Now Congress

  1. 5

    So lemme get this straight.

    On the one hand, Posner and others are concerned about how two courts render opinions in a case with such a huge difference. The problem is unconstrained court deference, which results in large differences in verdicts in comparable cases.

    On the other hand, many are concerned that district courts do not have enough discretion to impose additional fees in a case. The problem is overly limited court deference, which prevents judges from altering verdicts on a case-by-case basis, which in turn would result in large differences in verdicts in comparable cases.

  2. 4

    Dennis, that proposal is way too close to completely discretionary “loser pays” to be politically viable. There are vastly more tort lawyers outside of patent law than in it who would regard this as a bad precedent, and even patent law is developing a cadre of contingent fee [for patent owners only, of course] trial attorneys.

  3. 3

    Granting the courts too much discretion in awarding fees may lead to favoritism, which would never be admitted to and almost impossible to prove.

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