New Test for Fee Shifting in Patent Law Suits

Posted on June 11th, 2014 by Legal Fee Advisors

In a set of recent decisions, the U.S. Supreme Court has changed the legal test for awarding attorney fees in patent cases.[1]

The current fee shifting provision of the Patent Act provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”[2]  Until recently, to shift attorney fees to a losing party under § 285, the court had defined an exceptional case as either one that involves “material inappropriate conduct,” or where the litigation was both “brought in subjective bad faith” and “objectively baseless.”[3]  After evaluating this interpretation, however, the Supreme Court in Octane Fitness, LLC v. ICON Health & Fitness, Inc., has found this formulation overly rigid, superimposing an inflexible framework onto an inherently flexible statutory text, noting that this interpretation of the statute was so narrow “that it would appear to render § 285 largely superfluous.”[4]

Thus, the Supreme Court held “that an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of the 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.” [5] The Court provided some guidance on the new test, noting that it had ruled in a case addressing a similar provision found in the Copyright Act that district courts may consider a “‘nonexclusive’ list of ‘factors,’ including ‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.'”[6]

Going even further, the Court rejected the requirement that patent litigants must have “clear and convincing evidence” in order to demonstrate an entitlement to attorney fees under the statute.  Noting that the statute does not impose a specific burden and that patent infringement litigation is generally governed by a “preponderance of the evidence” evidentiary standard, the Court found no justification for a higher standard.[7]

Afterwards, the court applied the newly revised test for attorney fees and clarified its standard of review, noting that “[b]ecause § 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.”[8]

This new test for evaluating an award of attorney fees under the fee shifting provision of the Patent Statute may result in a greater variance in the fee awards between districts.  Due to its more subjective nature, the baseline of what is “exceptional” may differ between jurisdictions.  Even further, because of the new abuse of discretion standard of review, trial court determinations on fees may be more difficult to reverse on appeal.  Though the results are still uncertain, however, one consequence of the new test may be that parties in patent litigation will rack up enormous fees for legal services.  Therefore, we must continue to closely watch for unreasonable fees and legal bills.

J. Clark

Legal Fee Advisors © 2014

[1] Brinks Gilson & Lione, United States: U.S. Supreme Court Empowers District Courts To Award Attorneys Fees – Lowers The Burden Of Proof And Standard Of Review, mondaq, http://www.mondaq.com/unitedstates/x/310460/Patent/US+Supreme+Court+Empowers+District+Courts+to+Award+Attorneys+Fees+Lowers+the+Burden+of+Proof+and+Standard+of+Review (last updated Apr. 30,2014).
[2] 35 U.S.C. § 285.
[3] Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005).
[4] Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014).
[5] Id.
[6] Id. at 1756 n.6 (quoting  Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994).
[7] Id. at 1758.
[8] Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1748 (2014).