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Supremes Say Broad Discretion to District Courts to Award Attorneys Fees


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: April 29, 2014 @ 6:08 pm
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Justice Sonia Sotomayor delivered the opinion for the Court.

Earlier today the United States Supreme Court shed significant light into the question of awarding attorneys fees under 35 U.S.C. § 285 to successful litigants in a patent infringement proceeding. The decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., was the primary decision of the day simply because that case was treated first by the Court and formed the basis of the Court’s decision in Highmark, Inc. v. Allcare Health Management System, Inc. Essentially, in Highmark, the Supreme Court found that the ruling in Octane was dispositive that that “an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s § 285 determination.”

35 U.S.C. § 285, which is an extremely short statute, authorizes a district court to award attorney’s fees in patent litigation to the prevailing party. In its totality, § 285 states: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” With such a simple statute you might wonder how or why it was necessary for the Supreme Court to step in and provide clarity. Because in 2005 the Federal Circuit departed from three decades of case law and made it difficult, if not impossible, for prevailing parties to demonstrate entitlement to attorneys fees.

In Brooks Furniture Mfg., Inc. v. Du­ tailier Int’l, Inc., 393 F. 3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that “[a] case may be deemed exceptional” under § 285 only in two situations: (1) “when there has been some material inappropriate conduct,” or (2) when the litigation is both “brought in subjective bad faith” and “objectively baseless.” The question put before the Supreme Court was whether the Brooks Furniture framework is consistent with the statutory text.

In a unanimous decision delivered by  Justice Sotomayor, the Supreme Court ruled that the Brooks Furniture framework was too restrictive and inconsistent with the text of § 285. Justice Scalia joined in the decision, but not in the portion of the opinion relating to footnotes 1, 2 and 3, all of which related to discussion of legislative history and intent.

After going through a brief history of § 285 the Supreme Court pointed out that for “three decades after the enactment of § 285, courts applied it… in a discretionary manner, assessing various factors to determine whether a given case was sufficiently ‘exceptional’ to warrant a fee award.”

After a brief paragraph discussing the formation of the Federal Circuit, the Supreme Court arrived to 2005, and said:

In 2005, however, the Federal Circuit abandoned that holistic, equitable approach in favor of a more rigid and mechanical formulation. In Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378 (2005), the court held that a case is “exceptional” under § 285 only “when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions.” Id., at 1381. “Absent misconduct in conduct of the litigation or in securing the patent,” the Federal Circuit continued, fees “may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Ibid. The Federal Circuit subsequently clarified that litigation is objectively baseless only if it is “so unreasonable that no reasonable litigant could believe it would succeed,” iLOR, LLC v. Google, Inc., 631 F. 3d 1372, 1378 (2011), and that litigation is brought in subjective bad faith only if the plaintiff “actually know[s]” that it is objectively baseless, id., at 1377.

Finally, Brooks Furniture held that because “[t]here is a presumption that the assertion of infringement of a duly granted patent is made in good faith[,] . . . the underlying improper conduct and the characterization of the case as exceptional must be established by clear and convincing evidence.” 393 F. 3d, at 1382.

In this case, ICON ( a major manufacturer of exercise equipment) sued Octane (also a manufacturer of health equipment), alleging that the Octane Q45 and Q47 infringed several claims of the U. S. Patent No. 6,019,710 (’710 patent). The District Court granted Octane’s motion for summary judgment, concluding that Octane’s machines did not infringe ICON’s patent. Octane then moved for attorney’s fees under § 285, but was denied when the district court applied the Brooks Furniture standard. Essentially, the district court found neither frivolous nor objectively baseless pursuit of claims by ICON, and similarly found no bad faith.

The Supreme Court explained that the Patent Statute does not define the term “exceptional,” therefore in order to determine what is an “exceptional case,” requires the Court to construe the meaning of “exceptional,” which they did by relying on its ordinary meaning. The Court explained:

We hold, then, that an “exceptional” case is simply one that stands out from 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.

The Court explained that this would be consistent with the approach used to interpret similar text within the Copyright Act.

Perhaps the best argument raised by ICON was to rely on Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U. S. 49 (1993) (PRE), which involved an exception to the Noerr-Pennington doctrine of antitrust law. In that case the Supreme Court discussed that in order to be considered a sham lawsuit the case must be objectively baseless and for the purpose of thwarting competition (i.e., bad faith). The Supreme Court did not see the connection, however, because the sham litigation exception was carved out to avoid a chilling of the exercise of First Amendment rights to petition the government for redress of grievances, something not at issue in an ordinary patent infringement litigation and not enough to “seek immunity from a far less onerous declaration that they should bear the costs of that lawsuit in exceptional cases.”

The Supreme Court also explained that the Brooks Furniture standard was rejected for another, practical reason. The Court explained that under Brooks Furniture § 285 had been effectively rendered a nullity. Justice Sotomayor wrote:

We reject Brooks Furniture for another reason: It is so demanding that it would appear to render §285 largely superfluous. We have long recognized a common-law exception to the general “American rule” against fee- shifting—an exception, “inherent” in the “power [of] the courts” that applies for “‘willful disobedience of a court order’” or “when the losing party has ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons . . . .’” Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240, 258–259 (1975). We have twice declined to construe fee-shifting provisions narrowly on the basis that doing so would render them superfluous, given the background exception to the American rule, see Christiansburg Garment Co. v. EEOC, 434 U. S. 412, 419 (1978); Newman v. Piggie Park Enterprises, Inc., 390 U. S. 400, 402, n. 4 (1968) (per curiam), and we again decline to do so here.

Finally, the Supreme Court took issue with the Brooks Furniture standard because it required litigants to establish entitlement to attorneys fees by clear and convincing evidence. The Court explained:

We have not interpreted comparable fee-shifting statutes to require proof of entitlement to fees by clear and convincing evidence. See, e.g., Fogerty, 510 U. S., at 519; Cooter & Gell v. Hartmarx Corp., 496 U. S. 384 (1990); Pierce v. Underwood, 487 U.S. 552, 558 (1988). And nothing in §285 justifies such a high standard of proof.

What impact this case will have on the pending patent legislation is unclear, but this will certainly give great ammunition to those who have criticized the fee-shifting proposal by pointing out that it would take discretion away from the district court judges who are in the best position to determine whether a case is exceptional. By lessening the burden to obtain an award of attorneys fees we should see more attorneys fee awards. It would certainly be a wise and judicious move for the Congress to hold any further legislative tweaks for some time to see what, if any, impact the Supreme Court decision will have on patent litigation.

While I sympathize with the Federal Circuit’s desire to establish bright line rules that can actually be followed, I do think making it so difficult to obtain attorneys fees awards was a mistake. I understand and appreciate the American rule, which says that litigants must pay for their own attorneys, but it is impossible not to recognize that there is real and horribly abusive patent litigation. While I think the problem is blown out of proportion by the popular press and those in Silicon Valley pushing their own anti-patent agenda, it is clear that abusive patent litigation brought by unscrupulous litigants is a problem. The fact that we know for sure that there is unscrupulous and abusive litigation calls into question the wisdom of presuming a good faith basis for asserting patent infringement.

I am not saying that it should be made more difficult or costly to assert patent infringement, thereby punishing those who legitimately own and assert patents. Nevertheless, we have seen enough to know that district courts should be getting involved earlier in the patent litigation process to make sure that the patent owner is not engaging in an elaborate “extortion-like” game that relies on judicial inefficiencies to extract less than nuisance payment where the claim of liability is tenuous at best.

The America Invents Act is not even 3 years old and the most sweeping new changes, the new post-grant proceedings and change to first to file are respectively 19 months and 13 months old. Now that the Supreme Court has tilted the playing field relative to awarding fees prudence seems to demand that Congress take a step back and see what impact all of these changes will have. We already know that patent litigation is down in 2014, and use of the p0st-grant proceedings is far greater than expected. Now is not the right time to ask the system to absorb further changes.

 

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Posted in: Federal Circuit, Gene Quinn, Government, IP News, IPWatchdog.com Articles, Patent Litigation, Patents, US Supreme Court

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

2 comments
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  1. Gene,

    Nice article. I’m less concerned that SCOTUS did in the Brooks Furniture standard as 35 USC 285 cuts both ways: the “exceptional” conduct of infringers, not just patentees is subject to this new standard set forth in Octane Fitness and Highmark. And it’s more often infringers that have to worry about 35 USC 285. Also, I hope it’s pointed out to the Leahy’s and the Goodlatte’s in Congress that, with this new Octane Fitness/Highmark standard, the need for some of the nonsense in HR. 3309 and S. 1720 has greatly diminished.

  2. Thanks EG.

    I agree that this more open view of 285 should cut both ways and give district courts a lot more latitude to address the various abuses that go on all to often.

    -Gene