By Dennis Crouch
Octane Fitness v. Icon Health & Fitness (SCOTUS 2014); Highmark v. Allcare Health Mgmt. (SCOTUS 2014) (Transcripts: HighmarkTranscript; OctaneTranscript)
Today, the Supreme Court heard oral arguments in the paired fee-shifting cases of Octane Fitness and Highmark that focus on the proper standard for an exceptional case finding by a district court under 35 U.S.C. § 285 and the proper standard of review on appeal. In Octane Fitness, petitioner asks the Court to lower the standard for proving an exceptional case. In Highmark, petitioner asks for deference to lower court exceptional case findings. In both cases, the Federal Circuit sided with the patentees who lost their infringement actions. In Octane Fitness, the Federal Circuit confirmed that the case was not “exceptional” while in Highmark, a divided Federal Circuit reversed an exceptional case finding based upon a de novo appellate review that gave no deference to the district court’s finding that the lawsuit was objectively baseless.
In the U.S., each party to litigation ordinarily pays its own attorney fees regardless of the case outcome. In the patent litigation context, this changes as 35 U.S.C. § 285 provides an avenue for awarding “reasonable attorney fees to the prevailing party” in “exceptional cases” at the discretion of the lower court. However, discretion only goes so far, and the Federal Circuit’s standard for classifying an “exceptional case” has been critiqued as too rigid, tough, and pro-patentee.
The first case heard today was Octane Fitness. Arguing on behalf of Octane, Rudy Telscher’s main focus was on moving the away from the “objectively baseless” standard to something that is easier for a successful defendant to prove. However, the debate quickly descended into a theoretical discussion of the proper adjective – moving between whether the case was “meritless;” “objectively meritless;” “without substantial merit;” “low likelihood of success;” “unreasonable;” “unreasonably weak;” “a little bit lower than [the Rule 11] standard” and “something more than frivolous.”
Justice Scalia helped cut through the problem somewhat by noting that really what Octane is seeking is a totality of the circumstances test:
JUSTICE SCALIA: Mr. Telscher, it occurs to me that you really cannot answer the question of what adjectives should be attached to “meritless.” And the reason you can’t is, since it is a totality of the circumstances test, that is only one factor and it doesn’t have to be an absolute degree of meritlessness. Even in a I assume you would say that even in a very close case, if there has been outrageous litigation abuse by the other side, the court would be able to say: My goodness, I’ve never seen lawyers behave like this. You’re going to pay the attorneys’ fees for the other side. Couldn’t the court do that?
MR. TELSCHER: That’s absolutely correct, your Honor.
JUSTICE SCALIA: So then how can we possibly define “meritless”? We can’t, because it goes up and down, even in a case where it’s a close case. It could still be exceptional.
MR. TELSCHER: It’s the degree of the unreasonable nature of the case as one factor.
And, in this sense, Octane agrees with the US Government that fees should be awardable whenever the totality of the circumstances indicates that fees are “necessary to prevent gross injustice.”
In a colloquy with Justice Kagan, Octane identified what it sees as a non-exhaustive list of factors to be considered, including (1) whether the case is meritless; (2) bad faith; (3) litigation misconduct; (4) other equitable considerations; (5) anything else that “bears on the gross injustice and uncommon nature of the case.” In addition, Octane argued that the fact that the patentee “never made a product under [the] patent” should be considered as well. Arguing for the U.S. Government, Roman Martinez added that advancement of “objectively unreasonable legal arguments” should also be considered as a factor and, in its own, sufficient for a finding of exceptional case. In his summary, Mr. Telscher did a nice job of summing this up as saying that the exceptional case question is really about “how extreme” the conduct needs to be before it is considered exceptional.
One difficulty is that the Justices had difficulty squaring this laundry list of potentially sufficient factors with the legislative history that the statute is designed to prevent “gross injustice.” In the eyes of the justices (or at least in their questions), gross injustice seems to suggest something more serious than these more mundane factors. Although both parties and the US Government agree that the “exceptional case” standard should follow a gross injustice standard, Justice Scalia offered a predictable negative outlook on that standard since its establishment is largely based upon legislative history.
Ordinarily, the Supreme Court gives no deference to appellate court decisions. However, here Chief Justice Roberts jumped into the debate to consider the role of deference to the appellate panel in this case based upon the congressionally mandated role of the Federal Circuit in unifying patent law.
CHIEF JUSTICE ROBERTS: [W]hy shouldn’t we give some deference to the decision of the Court that was set up to develop patent law in a uniform way? They have a much better idea than we do about the consequences of these fee awards in particular cases. And since we’re just as Justice Kennedy pointed out dealing with adjectives, you know meritless, frivolous, exceptional why don’t give some deference to their judgment?
MR. TELSCHER: Well, I think we need to look at the basis of the judgment.
On that point, the Government responded favorably to the idea that the Federal Circuit could be given deference on some issues, but the internal inconsistencies on this particular issue mean that deference doesn’t make sense here:
MR. MARTINEZ: I think if the Federal Circuit had had a consistent view over its history or if the Federal Circuit were not internally divided on this issue, that may be a consideration. Deference might be more appropriate. But here there is no consistent history and the Federal Circuit, as we’ve seen in Kilopass, is divided.
Here, Chief Justice Roberts may be considering whether the Federal Circuit should be thought of more like an expert agency who would receive some amount of deference for its rulemaking (i.e., precedential decisions).
In the oral arguments, Justice Alito attempted to focus in on exceptionality and noted that, for most district court judges, all patent cases are unusual and – as such – may have no basis for determining whether a particular case is exceptional as compared with the ordinary patent case.
An important issue in the Octane fitness case that was only subtly discussed is also whether clear-and-convincing evidence is required to prove an exceptional case or is a preponderance of the evidence sufficient.
Carter Phillips argued on behalf of the respondent here; arguing that – absent other misconduct – that the case must have been “objectively baseless” in order to be deemed exceptional under Section 285.
One interesting aspect of the decision focused on the applicability of the Supreme Court’s decision in Prof’l Real Estate Investors v. Columbia Pictures Indus.,508 U.S. 49 (1993) and Noerr immunity.
MR. PHILLIPS: Well, I think you could argue that there is at least a First Amendment concern that’s in here;
CHIEF JUSTICE ROBERTS: First Amendment concern, what, to bring a patent case?
MR. PHILLIPS: Well, access to the courts, access to the courts. Any time you talk about imposing multimillion dollar fee awards at the end of the litigation, particularly if you do it on a fairly arbitrary basis.
JUSTICE SCALIA: Do you think Congress could not require the loser to pay in all cases?
MR. PHILLIPS: Well, I have no doubt that Congress could well, I’m not sure about in all cases.
JUSTICE SCALIA: I mean, if it can do that, there’s certainly no First Amendment problem.
MR. PHILLIPS: Well, I’m not sure I concede that in all cases. I do think in the run of the mill cases, but when you’re talking about a situation where the assertion is that the conduct of the litigation, the bringing of the litigation itself is inappropriate
JUSTICE SCALIA: That’s an English rule. It used to be our rule. I don’t see how you can possibly say that it’s unconstitutional to make the loser pay.
JUSTICE KENNEDY: This is not your best argument. (Laughter.)
MR. PHILLIPS: It is not my best argument, I appreciate that.
On the other hand, if you if you go back and look at Christiansburg. In that case the Court also didn’t treat it as a First Amendment issue, but it still recognizes an important policy of trying not to have too much interference with access to
When Justice Breyer entered the argument, he implicitly pushed Mr. Phillips to recognize that the USPTO has issued many bad patents but that the associated presumption of validity of the patents is a setup that makes it very hard to show a case is objectively baseless even when it is pretty clear that a patent is invalid. Philips responded simply that the filing of a frivolous claim should be seen as objectively baseless and that the present case was not such a case.
Phillips also gave his talk on how the “patent troll” debate is really nonsense and that there is nothing to see here:
MR. PHILLIPS: First of all, as I say, the plaintiff this you know, there’s a reason why you don’t see advertisements on television when Saiontz & Kirk says, If you think your patent has been infringed, call us. Why? Because there’s not a long line of people who can bring plaintiffs’ patent cases. They are expensive to litigate, and the ultimate effect and you have to get an expert, and at the end, you put your patent into validity [risk].
Apart from that, however, the court did not appear to focus on the “troll” issue in any depth.
= = = =
The Highmark argument came immediately following that of Octane Fitness. The second cases focuses on the standard of appellate review for the objectively baseless question and so, obviously depends upon the outcome in Octane Fitness. Certainly, if the court moves toward a “totality of the circumstances test” then more deference would be given to district court judges in their determination. That makes Highmark the trailing decision here and likely less important.
Neal Katyal argued on behalf of petitioner Highmark who is asking the court to give deference. Katyal is a former Acting Solicitor General of the US and also brother to Fordham Law School IP Professor Sonya Katyal. The basic argument that whether or not the party’s position is reasonable is a question of fact that, once decided, should be given deference on appeal. The US Solicitor’s office also supported Highmark here arguing for deference. Don Dunner argued on behalf of the respondent here