On April 29, 2014, the United States Supreme Court has made it
easier for a successful patent litigant to obtain an award of
attorney's fees based on two decisions: Octane Fitness LLC
v. ICON Health & Fitness Inc; and Highmark Inc. v.
Allcare Health Management System, Inc.. Accordingly, patent
trolls now face a significant risk of having to pay costs if
In Canada costs are customarily awarded to the successful
litigant (the "English" rule). In the U.S. each party
usually bears its own costs (the "American" rule). The
perception has been that low merit patent litigation, often
pejoratively termed "trolling", is encouraged by the
"American" rule, because the risk of a losing plaintiff
having to pay costs is low. Patent "trolling" is less
common in Canada.
Under U.S. patent law1, "a court in exceptional
cases may award reasonable attorney fees to the prevailing
In Brooks Furniture Manufacturing., Inc., v. Dutailier
International, Inc, 393 F. 3d 1378 (2005) the Court of Appeal
for the Federal Circuit had set a high standard, that a "case
may be deemed exceptional...only in two limited circumstances:
"where there has been some material inappropriate
conduct," or when the litigation is both "brought in
subjective bad faith" and "objectively
baseless"". Further, such a showing had to be by
"clear and convincing evidence". As a practical matter,
this standard could almost never be met. A troll could safely
commence speculative cases in the hope of extracting settlements
from risk-averse defendants, while facing only the most remote risk
of an adverse award of costs. The Supreme Court has now ruled that
the Brooks Furniture standard was unduly rigid and
impermissibly encumbered the statutory grant of discretion to the
court trying the case.
The standard applied by the U.S. Supreme Court in
Octane and Highmark, considers a case
"exceptional" where it stands out from the ordinary in
respect of the party's litigating position or the unreasonable
manner in which the case was litigated. What is
"exceptional" is to be left to the discretion of the
district court considering the totality of the circumstances. This
right of discretion may make it difficult to overturn a costs award
on appeal. The Supreme Court also held that the normal burden of
proof on the balance of probabilities is to apply, rather than the
more onerous "clear and convincing" standard.
Attorneys' fees may now be awarded more often. The
possibility of facing such an award may discourage speculative
cases. For example, the successful defendant's costs in
Highmark were U.S. $5.28 million.
Octane and Highmark may be seen in the context
of ongoing patent reform in the United States. Broad bi-partisan
consensus in Congress led to enactment of the America Invents Act
(AIA) in September 2012. The AIA dealt predominantly with USPTO
procedures. It left aside a number of unresolved
litigation-oriented issues often associated with patent
More recently, the Goodlatte-Scott amendment (HR 3309) would
amend the law to conform to the "English" rule (i.e., as
in Canada), and to require clear identification of the real party
seeking to enforce patent rights, such that a troll could not hide
behind a shell2. The intent would be substantially to
increase the risk faced by trolls. However, the corresponding
Senate bill, (S 1720) of Senator Leahy, has not yet obtained a
similar level of support, and these provisions are some distance
from being enacted.
By its decisions in Octane and Highmark the
U.S. Supreme Court has altered the balance of risk in patent
litigation, even as Congress continues to mull over reform.
1 35 USC 285
2 HR 3309 passed by a vote of 325 – 91 in the House
of Representatives on December 5, 2013.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).