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Supreme Court Reverses Federal Circuit's Rigid Fee Shifting Standard in Patent Cases
Practical Law Legal Update 3-566-4346 (Approx. 5 pages)
Supreme Court Reverses Federal Circuit's Rigid Fee Shifting Standard in Patent Cases
by Practical Law Intellectual Property & Technology
| Published on 29 Apr 2014 • USA (National/Federal) |
In Octane Fitness, LLC v. ICON Health & Fitness, Inc., the US Supreme Court held that a district court may determine fee-shifting under 35 U.S.C. § 285 in its discretion based on the totality of the circumstances, overruling an earlier decision of the US Court of Appeals for the Federal Circuit that set a rigid fee-shifting standard. In the companion case of Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., the court held that district court fee-shifting decisions should be reviewed for abuse of discretion.
On April 29, 2014 in Octane Fitness, LLC v. ICON Health & Fitness, Inc., the US Supreme Court held that district courts may award attorney's fees under 35 U.S.C. § 285 in their discretion in view of the totality of the circumstances (No. 12-1184, (S. Ct. Apr. 29, 2014)). The unanimous Supreme Court held that the fee-shifting standard set by the US Court of Appeals for the Federal Circuit in Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc. was too rigid and inconsistent with the text of 35 U.S.C. § 285 (393 F.3d 1378 (Fed. Cir. 2005)).
In a companion opinion issued on the same date in Highmark Inc. v. Allcare Health Mgmt. Sys. Inc., the Supreme Court reversed the Federal Circuit and held that a district court's fee shifting determination under 35 U.S.C. § 285 should be reviewed for abuse of discretion, not de novo (No. 12-1163, (S. Ct. Apr. 29, 2014)).
Background
ICON Health & Fitness, Inc. owns U.S. Patent No. 6,019,710 ('710 patent) directed to elliptical exercise machines. ICON sued Octane Fitness, LLC for infringement of the '710 patent in the US District Court for the District of Minnesota. The district court granted Octane's motion for summary judgment of non-infringement, and Octane moved for attorney's fees under 35 USC § 285, which permits a court to award a prevailing party attorney's fees in "exceptional cases."
The district court denied Octane's motion for attorneys' fees under the standard set by the Federal Circuit in Brooks Furniture, which held that:
- A case is "exceptional" only if the district court finds either:
- sanctionable litigation misconduct; or
- the litigation was both “brought in subjective bad faith” and “objectively baseless.”
- The moving party must show that it is entitled to fees by clear and convincing evidence.
Both parties appealed and the Federal Circuit upheld both the district court's summary judgment of non-infringement and denial of attorney's fees. The court rejected Octane's argument that the Brooks Furniture fee-shifting standard was too rigid and declined to revisit it.
Outcome
In a unanimous decision, the Supreme Court reversed the Federal Circuit and overruled Brooks Furniture, holding that:
- District courts may determine whether a case is "exceptional" on a case-by-case basis in their discretion, considering the totality of the circumstances.
- An "exceptional" case is simply one that stands out from others with respect to:
- the substantive strength of a party's litigation position (considering both the governing law and the facts of the case); or
- the unreasonable manner in which the case was litigated.
- A moving party does not need to show that it is entitled to fees by clear and convincing evidence.
The Supreme Court based its holding on the following reasons:
- Courts, including the Federal Circuit, have historically interpreted 35 U.S.C. § 285 and its predecessor statute to permit district courts to award attorney's fees in their discretion.
- The only restraint 35 U.S.C. § 285 places on district courts is that a case must be “exceptional,” which has the ordinary meaning of "uncommon" or "not ordinary."
- The Brooks Furniture standard was too restrictive in that it effectively required a showing of sanctionable conduct and therefore rendered 35 U.S.C. § 285 superfluous.
- Comparable fee-shifting statutes do not require a "clear and convincing" showing that a party is entitled to fees, and patent infringement litigation is generally governed by a preponderance of the evidence standard.
The court rejected ICON's argument that the Brooks Furniture standard should stand in view of the Supreme Court's decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., which held that Noerr-Pennington immunity to antitrust liability does not apply to a "sham" lawsuit that is both objectively baseless and brought in bad faith to interfere with competition (508 U.S. 49 (1993)). The court reasoned that there is no basis to impose the standard of that case in the context of 35 U.S.C. § 285.
In the companion Highmark opinion, the Supreme Court relied on its Octane Fitness decision to hold that all aspects of a district court's exceptional case determination should be reviewed under an abuse of discretion standard, vacating and remanding the Federal Circuit's de novo ruling on the district court's fees determination. The Supreme Court noted that, in view of its Octane Fitness ruling and the language of Section 285, an exceptional case determination turns on questions of fact, which are traditionally reviewed under an abuse of discretion standard.
Practical Implications
The Supreme Court's decisions should make it easier for patent infringement litigants to recover attorney's fees in cases based on tenuous claims or in which a party conducts the litigation unreasonably. This may be of particular importance to accused infringers litigating against a non-practicing entity with weak or unsubstantiated infringement claims by allowing the accused infringer to recover attorney's fees even if the plaintiff's claims are not "objectively baseless."