The Supreme Court Gave District Courts more Power to Award Attorney’s Fees in Patent Litigation

In two related decisions, the Supreme Court relaxed the standard to award attorney’s fees under Section 285 of the Patent Act (“§285”) and ruled that decisions on §285 are entitled to deference on appeal. In the first case, the Court found that the Federal Circuit’s test for §285, as described in Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1380 (Fed. Cir. 2005), is “unduly rigid” and inconsistent with the statutory language. Octane Fitness, LLC v. Icon Health & Fitness, Inc., 12-1184, Slip Op. at 7 (2014). The Court reasoned that the only constraint imposed by the text of §285 on a district court’s discretion to award attorney’s fees is that the case must be exceptional. Id. According to its ordinary meaning, the Court held, “an ‘exceptional’ case 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.”[1] Id. at 7-8. Further, district courts should consider the totality of the circumstances and make a case-by-case determination on §285 questions. Id. at 8. Finally, the Court held that the evidentiary burden for §285 is a preponderance of the evidence, not clear and convincing evidence as required by the Federal Circuit. Id. at 11.

In the companion case, the Court held that the §285 decisions will be reviewed on appeal for abuse of discretion. Highmark, Inc. v. AllCare Health Mgmt. Sys., Inc., 12-1163, Slip Op. 5 (2014). Under the Court’s holding in Octane, “§285 commits the determination whether a case is ‘exceptional’ to the discretion of the district court[.]” Id. at 4. Accordingly, the Court rejected the Federal Circuit’s previous de novo standard of review. Id. at 5.

These two brief and unanimous[2] decisions are significant for at least three reasons. First, by relaxing the test for “exceptional cases” and lowering the evidentiary standard, a prevailing party is more likely to seek[3] an attorney’s fees award. Litigants will likely exercise more diligence in bringing and maintaining claims to avoid an exceptional case finding. Second, by loosening the standard and giving district courts deference, the district court judges have more power to award attorney’s fees under §285 and their decisions are more likely to withstand appellate review. Finally, these decisions continue the trend of the Supreme Court to reject Federal Circuit decisions they believe are too rigid or inflexible and to bring patent law into accord with other areas of law.

These decisions have not changed the requirement that §285 awards are available only to the prevailing parties, i.e. parties cannot seek §285 awards where cases settle. It is yet to be determined whether winning the parallel proceedings in the PTO would afford a prevailing party status. And last but not least, it will be interesting to know how these decisions may impact the proposed patent-reform legislation.

[1] Under the Brooks Furniture standard, a case is “exceptional” only if it fits one of the two categories of cases. 393 F.3d at 1381. The first category of cases involve litigation misconduct or some other misconduct. Id. The second category of cases involve litigation that was brought in subjective bad faith and objectively baseless. Id. The Octane Court found that the first category is too restrictive because awarding attorney fees under §285 only requires “unreasonable conduct” not “sanctionable conduct[.]” Slip Op. at 9. The second category is also inappropriate because the subjective bad faith and objective baseless standard, imported from the PRE standard for a sham exception to antitrust liability, has “no roots in the text of §285, and it makes little sense in the context of determining” exceptional cases. Id. at 9-10. The Court also reasoned that the Federal Circuit’s standard would “render §285 largely superfluous” because courts have inherent power to sanction bad faith conduct. Id. at 11.

[2] Justice Scalia joined the Octane opinion except as to footnotes 1-3, which discuss the legislative history of §285.

[3] It is unclear whether the district court would find significantly more cases exceptional under the new standard. Indeed, the Octane Court stated that §285 awards are reserved for “rare case” where parties engaged in some kinds of “unreasonable conduct[.]” Slip Op. at 9.