Supreme Court Lowers the Bar for Awarding Attorney's Fees in Patent Cases

In two companion opinions issued on April 29, 2014, the United States Supreme Court eased the standard for awarding attorney's fees in "exceptional" patent cases, and also made it more difficult for an appellate court to reverse such awards. See Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. ____ (2014); Highmark Inc. v. Allcare Health Management Sys., Inc., 572 U.S. ____ (2014). 

Attorney's fees in patent cases are authorized by Section 285 of the Patent Statute, which states: "The court in exceptional cases may award reasonable attorney fees to the prevailing party." This fee-shifting provision (and a similarly-worded predecessor statute) has been law since 1946.  

Nearly a decade ago, the Federal Circuit formulated a test for what constitutes an "exceptional" case under § 285. See Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378 (Fed. Cir. 2005). The Supreme Court explained that under the Brooks Furniture standard, a case is "exceptional" only if a district court finds clear and convincing evidence of either (1) "litigation-related misconduct of an independently sanctionable magnitude" or (2) "that the litigation was both 'brought in subjective bad faith' and 'objectively baseless.'" Viewing the "objectively baseless" determination as a question of law, the Federal Circuit reviewed these decisions de novo and "without deference."

Finding the Brooks Furniture standard unduly rigid and impermissibly encumbering the discretion granted to the district courts by the statute, the Supreme Court in its two companion opinions held the following: 

• An "exceptional" case under § 285 "is simply one that stands out from the 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;"
• To determine whether a case is "exceptional," a district court should exercise its discretion on a case-by-case basis after considering the totality of the circumstances;
• Entitlement to attorney's fees under § 285 does not require proof by clear and convincing evidence; rather, it involves a simple discretionary inquiry by the district court under, at most, a preponderance of the evidence standard; and
• On appeal, all aspects of a district court's determination under § 285 should be reviewed for an abuse of discretion (as opposed to de novo or "without deference").

In Octane, the Supreme Court noted two important implications of its new "exceptional" case standard. First, it clarified that with respect to the first category (litigation-related misconduct), attorney's fees may be awarded even when the conduct does not rise to the level of being sanctionable. While the Supreme Court categorized this scenario as "rare," it acknowledged that a case could be "exceptional" and warrant attorney's fees based on a party's "unreasonable conduct" even though the conduct is "not necessarily independently sanctionable." Second, the Supreme Court explained that a case that is either objectively baseless or brought in subjective bad faith—not necessarily both—may be sufficiently "exceptional" to justify an award of attorney's fees. 

Although the ramifications of the Supreme Court's two opinions remain to be seen, their practical effect is to grant greater power to district court courts in awarding attorney's fees. District courts can more-easily impose attorney's fees under the lower, discretionary bar. And since appellate courts will now review a district court's attorney's fee award under the abuse of discretion standard, it is less likely to be reversed on appeal. 

The Supreme Court's opinions will foster discussion of the need for fee-shifting provisions in current efforts by Congress to draft legislation intended to curtail litigations brought by non-practicing entities (NPE) and patent-assertion entities (PAE). While the Supreme Court's two rulings will likely be relied upon by parties targeted by NPEs and PAEs, both opinions should have a much broader effect. For instance, attorney's fees are awarded to the "prevailing party," and could be awarded to either a patent owner or an accused infringer. Nor are the Supreme Court's opinions limited to the NPE or PAE context. Undoubtedly, certain competitors engaged in patent infringement suits will rely on these rulings as well.