Octane Fitness, LLC v. ICON Health and Fitness, Inc. and Highmark, Inc. v. Allcare Health Mgmt. Sys. Inc.

The determination of whether a case is “exceptional” under the attorney fee-shifting provision of The Patent Act is left to a broad discretion of the District Court.

In two slip opinions rendered April 29, 2014, SCOTUS addressed issues regarding awarding attorneys fees under 35 U.S.C. § 285 to prevailing parties in “exceptional” patent infringement cases. Under 35 U.S.C. § 285, a District Court is authorized to award attorney’s fees to prevailing parties in “exceptional cases.” The CAFC had used a Brooks Furniture standard defining an “exceptional case as one which involves “material inappropriate conduct” or is both “objectively baseless” and “brought in subjective bad faith.” Under the Brooks Furniture standard, an exceptional case must be established by clear and convincing evidence.

 

OCTANE FITNESS

In the opinion delivered by Justice Sotomayor, the Court, in a 9-0 decision, construed the term “exceptional” in its plain and ordinary meaning and held that exceptional means “uncommon,” “rare,” and “not ordinary.” The Court held that the CAFC has applied too rigid of a standard in determining whether a case is an exception case and rejected the Brooks Furniture standard.

According to Justice Sotomayor, the § 285 statute is “patently clear” and imparts flexibility on the District Court to decide whether a case is exceptional. Octane, slip op. at 7. “[A]n ‘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.” Id. at 7-8. Therefore, the intent of the statute only requires that the litigation present either subjective bad faith or exceptionally meritless claims. Additionally, the Court held that a preponderance of the evidence standard is the appropriate standard to use to establish entitlement of fees, rather than a clear and convincing evidence standard. Id. at 11.

Reversed and Remanded

 

HIGHMARK

In this opinion, also delivered by Justice Sotomayor, the Court used the Octane case as precedent to unanimously hold that “an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s § 285 determination.” Highmark, slip op. at 5.

Vacated and Remanded

 

The Octane opinion can be found here and the Highmark opinion can be found here.

Note: The holdings in these cases, relaxing the standard required for district courts to determine whether a case is “exceptional” may aid in thwarting certain “patent trolls” from asserting patent claims that are meritless or brought in bad faith. Stay tuned to see how these rulings affect the litigation process, the legislative process regarding patent reform, and if the holdings will actually send the trolls back under the bridge or if the trolls will just find another way out.