Supreme Court Action: Attorney’s Fees Under the Patent Act

The Supreme Court issued three opinions this morning.  Two of them have related issues involving the award of attorney fees in patent cases.  The third upholds the Environmental Protection Agency’s regulations in combatting cross-state air pollution.  The two patent cases are Octane Fitness, LLC v. ICON Health & Fitness, Inc. (12-1184) and Highmark Inc. v. Allcare Health Management System, Inc. (12-1163).  Both cases interpret the Patent Act’s fee-shifting provision codified in §285 which allows the District Court to award attorney’s fees in “exceptional cases.”

The statute does not define the term.  The Court of Appeals for the Federal Circuit said in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378 (2005) that fees were appropriate “when there has been some material inappropriate conduct,” or when the litigation is both “brought in subjective bad faith” and “objectively base­less.”  Moreover, the Federal Circuit required clear and convincing evidence to establish a fee award.

Octane manufactures exercise equipment.  ICON sued Octane for patent infringement.  The District Court granted summary judgment to Octane, which then filed a motion for attorney’s fees under §285.  The District Court denied the motion under Brooks Furniture.  Both parties appealed – ICON for the grant of summary judgment, and Octane for the denial of fees.  The Federal Circuit denied both.  The Supreme Court reversed as to the denial of fees.

The Court held essentially that the Brooks Furniture standard was overly rigid and was not justified by the language of the statute:

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.6 As in the comparable context of the Copyright Act, “‘[t]here is no precise rule or formula for making these determinations,’ but instead equitable discretion should be exercised ‘in light of the considerations we have identified.’” Fogerty v. Fantasy, Inc., 510 U. S. 517, 534 (1994).   [footnote 6 omitted]

The Court further rejected the Brooks Furniture case as the standard would render §285 largely superfluous.  It also said that the “clear and convincing” standard for proof was not justified under its interpretations of comparable fee-shifting statutes.  The correct standard is preponderance of the evidence.   Justice Sotomayor delivered the opinion of the Court and was joined by all Justices.   Justice Scalia joined with the exception of footnotes 1-3, presumably because they made reference to various forms of legislative history.

The Highmark case highlighted a related issue as to the standard of review in a fee-shifting case.  Highmark moved for fees in its case against Allcare Health Management System, Inc.  The District Court found the case exceptional under the Brooks Furniture case.  The Federal Circuit reversed in part after reviewing the record de novo.  The Supreme Court vacated and remanded.

The Court said the review should be based on an abuse of discretion standard, citing the holding in Octane:

Our holding in Octane settles this case: Because §285 commits the determination whether a case is “exceptional” to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion. Traditionally, decisions on “questions of law” are “re­viewable de novo,” decisions on “questions of fact” are “reviewable for clear error,” and decisions on “matters of discretion” are “reviewable for ‘abuse of discretion.’” Pierce v. Underwood, 487 U. S. 552, 558 (1988). For rea­sons we explain in Octane, the determination whether a case is “exceptional” under §285 is a matter of discretion. And as in our prior cases involving similar determina­tions, the exceptional-case determination is to be reviewed only for abuse of discretion.

I’ll write about the third case, EPA v. EME Homer City Generation, L.P. (12-1182) on Wednesday.  There are plenty of news stories about the case, at least from a political context.  See CNN, Reuters, The Volokh Conspiracy (via the Washington Post), and the Washington Times. –Mark

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