In a move that may anticipate proposed reforms in Congress, the U.S. Supreme Court decided a pair of cases that will make it decidedly easier for prevailing parties in patent infringement lawsuits to recoup their attorney fees. The cases address the attorney fee-shifting provision of 35 U.S.C. § 285, which states only: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”
Before the Supreme Court’s rulings in Octane Fitness, LLC, v. Icon Health & Fitness Inc.and Highmark, Inc. v. Allcare Health Management Systems, Inc. on April 29, 2014, a case was “exceptional” only where there was “some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions.” Brooks Furniture Mfg., lnc. v. Dutailier lnt’l Inc., 393 F.3d 1378 (2005). In other words, a prevailing party needed to prove significant misconduct, by clear and convincing evidence, during either litigation or in the process of securing the patent at the United States Patent and Trademark Office.
In Octane, however, the Court held 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.” The Court further lowered the prevailing party’s burden of proof from “clear and convincing evidence” to the greater-than-50/50 “preponderance of the evidence” standard. Highmark added to the holding in Octane that appellate courts must accord greater deference to a district court’s determination as to whether a case is “exceptional,” reversing such determinations only where the lower court abused its discretion.
Accordingly, while only time and future litigation will tell, rather than having to prove intentional misconduct, a party may be able to recover its attorney fees—often amounting to $3-5 million—simply by showing that the opposing party’s case against it was not as strong as one would typically expect.
As the high court likely considered, these decisions should impact the willingness of so-called “patent trolls” or “non-practicing entities” to file patent lawsuits that barely pass the substantive sniff test against medium or large technology companies to hold them up for big settlements made to avoid the expense of full-scale patent litigation. Under Octane and Highmark, large patent defendants may be less inclined to settle such lawsuits when they are confident in the merit of their defenses and thus stand to recoup the cost of litigation. The decisions may thus deter patent troll lawsuits at a time when the U.S. Senate is considering fee-shifting legislation aimed at addressing the same problem.
One perhaps unintended consequence of these decisions may be that individual inventors and others without the resources to self-finance patent litigation may have a more difficult time finding representation by attorneys willing to take their cases on a contingency fee basis, particularly before the “stands out from others” standard has been applied in a predictable and consistent manner. Attorneys may fear misjudging the merits of a case and end up not just empty-handed, but facing a judgment of many millions in fees for the opposing party. The case is also feared to increase the incidence of forum-shopping with plaintiffs bringing cases in venues such as the Eastern District of Texas, perceived to be friendlier to patent holders.