United States: Supreme Court Relaxes "Exceptional" Case Standard In Pair Of Fee-Shifting Patent Cases

On April 29, 2014, the Supreme Court handed down decisions in two companion cases that relaxed the "exceptional" case standard under the fee-shifting provision of the Patent Act (35 U.S.C. § 285). In Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184 (2014) and Highmark Inc. v. Allcare Health Management System, Inc., No. 12-1163 (2014), the Court adopted a lower, more discretionary standard for determining whether a case is "exceptional." In Octane Fitness, the Court empowered the district court to determine that a case is "exceptional" if it is "simply one that stands out from others with respect to the substantive strength of a party's litigating position ... or the unreasonable manner in which the case was litigated." The district court can, therefore, determine whether a case is exceptional on a case-by-case basis given the totality of circumstances. Relatedly, in Highmark the Court held that the district court's § 285 determination should be reviewed under a deferential abuse-of-discretion standard. While these decisions are likely to be viewed as a victory for the defense bar, particularly those who have complained of abusive patent litigation from some non-practicing entities (NPEs), the decision may have broader implications for both patentees and accused infringers, resulting in more focused advocacy and less over-reaching. Also, both decisions will resonate loudly on Capitol Hill, where loser-pays fee-shifting is a central, albeit controversial provision in several patent reform bills, including H.R. 3309 that passed the House in December, and S. 1013 and S. 1612 now being debated in the Senate.

Octane Fitness

In reaching its unanimous decision in Octane Fitness, the Court relied on the statutory text of § 285 and further observed that under prior precedent following the creation of the Federal Circuit in 1982, district courts were instructed to consider the totality of circumstances in making fee shifting determinations under § 285. However, in its 2005 Brooks Furniture decision, the Federal Circuit abandoned "that holistic, equitable approach in favor of a more rigid and mechanical formulation." Under Brooks Furniture's two-part test, courts instead had to consider whether the litigation: (1) was brought in subjective bad faith; and (2) was objectively baseless. Further, per Brooks Furniture, the underlying improper conduct and the characterization of the case as exceptional had to be established by clear and convincing evidence.

In reversing the Federal Circuit and overturning the Brooks Furniture test, the Court first examined the text of § 285, which it found put only one constraint on the district court's discretion, namely a finding that the case was "exceptional." While the Patent Act does not define "exceptional," the Court looked to its ordinary meaning: "[i]n 1952, when Congress used the word in § 285 (and today, for that matter)," as "out of the ordinary course," "unusual," or "rare" in concluding that an exceptional case "is simply one that that stands out from others with respect to the substantive strength of a party's litigating position (considering the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."

The Court articulated four reasons for finding that the Federal Circuit's formulation was overly rigid.

  • First, limiting fee awards to only those category of cases where the ligation misconduct rises to the level of "independently sanctionable conduct" or where the litigation was brought both in subjective bad faith and was objective baseless, was too inflexible. Instead, under the Court's articulated standard, the district court could award fees in the rare case where a party's unreasonable conduct (while not rising to the level of independently sanctionable) was nonetheless so exceptional so as to justify an award of fees.
  • Second, the Court deemed the second category of cases under Brooks Furniture as likewise too restrictive, since either scenario—subjective bad faith on the one hand or exceptionally meritless claims on the other hand—may sufficiently set itself apart to warrant a fee award.
  • Third, the Court found the Brooks Furniture test so narrow and demanding as to render § 285 largely superfluous. In particular, the Court noted its history of declining to construe fee-shifting provisions narrowly such that they became superfluous in light of the district court's long recognized inherent power to award attorneys' fees.
  • Finally, the Court rejected the Federal Circuit's requirement of a heightened "clear and convincing" evidentiary burden, stating that "Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one."

Highmark

In this case, Highmark (appellant) sought reversal of the Federal Circuit's decision that "objectively baseless" is a question of law subject to de novo review. Following the reasoning in Octane Fitness, the Court in Highmark held that an appellate court (the Federal Circuit) should apply an abuse-of-discretion standard in reviewing all aspects of a district court's § 285 determinations. While the Court acknowledged that questions of law may in some cases be relevant to the § 285 inquiry, it found that the "inquiry generally is, at heart, 'rooted in factual determinations'" based on "the totality of the circumstances." The Court noted that "the text of the statute 'emphasizes the fact that the determination is for the district court,' which 'suggests some deference to the district court upon appeal.'"

Potentially Broad Implications for Both Parties

Although some predict that the pair of decisions will give companies an effective weapon against NPEs, the cases may have broader implications for both plaintiffs and defendants for at least three reasons.

  • First, neither decision addressed NPEs. The Court declined certain amici's invitation to directly address the so-called NPE problem.
  • Second, the Court articulated a single standard for § 285. Because § 285 is available to both prevailing patentees and accused infringers, both parties will be subject to the more relaxed standard. Although § 285 has been historically used most frequently by successful patentee plaintiffs to seek attorneys' fees, for example in cases where there was willful infringement, Octane and Highmark dealt with prevailing accused infringers (defendants) who sought fees from unsuccessful plaintiffs.
  • Lastly, these cases may have potentially broader implications for how litigants going forward will advocate their respective positions and conduct themselves over the course of the case. The lower, more discretionary standard allows the district court to consider conduct during the course of litigation that otherwise might not be sanctionable under the district court's inherent power or under Rule 11—including assertion of claims, defenses sought, claim construction positions, and discovery tactics that may be viewed as having questionable merit.

Implications for Pending Patent Reform Legislation

With Congress back in session this week, the Octane and Highmark decisions might blunt some of the urgency for sweeping patent reform legislation on Capitol Hill. Permitting more regular awards of attorneys' fees to prevailing parties has been seen by some as a way to deter abusive litigation. Indeed, loser-pays fee-shifting is a centerpiece of several bills, including H.R. 3309 which passed the House in December, as well as S. 1013 and S. 1612 now being debated in the Senate. On the other hand, opponents of more frequent fee-shifting have pointed to Octane and Highmark to show that the courts are addressing the issue of litigation abuse themselves, without the need for sweeping legislation. If, indeed, these decisions are seen to fix the problem, then Congress might decide to drop fee-shifting from the bills, which would greatly increase the likelihood that a narrower bill—focused on transparency, demand letters and customer stays—becomes law. Alternatively, if advocates of patent reform insist the Supreme Court did not go far enough to deter frivolous suits, we could see more gridlock—at least until the midterm elections in November.

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Bradley Arant Boult Cummings LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Bradley Arant Boult Cummings LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
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).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions