Supreme Court Opens Door for More Fee Awards in Patent Cases

For nearly the past ten (10) years, recovering attorneys’ fees in patent cases, particularly for prevailing defendants, has been difficult. At least part of the reason for the difficulty has been the Federal Circuit Court of Appeals’ overly demanding standard for awarding fees. In Brooks Furniture Mfg., Inc. v. Dutalier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), the Federal Circuit determined that an “exceptional” case under 35 U.S.C. Section 285 (the patent fee statute) is one that involves “material inappropriate conduct” such as willful infringement, inequitable conduct in procuring the patent-in-suit, or other vexatious-type litigation conduct, or one that involves bringing and pursuing a claim that was objectively baseless and maintained in subjective bad faith. In one of two patent fee cases under review by the Supreme Court, the Federal Circuit reviewed a district court’s exceptional case determination de novo. As such, the Supreme Court was reviewing not only the definition of an “exceptional” case, but also the standard of review for an appeals court reviewing an exceptional case determination.

In one fell swoop, dealing with both cases together, the Supreme Court essentially eviscerated the Federal Circuit’s post-Brooks/post-Highmark standards and went back to the pre-2005 standards for awarding fees in patent cases. First, the Supreme Court, in Highmark, held that “an appellate court should review all aspects of a district court’s [35 U.S.C. Section] 285 determination for abuse of discretion, as opposed to the Federal Circuit’s recent use of de novo review. Highmark Slip Op. at 1. Second, in Octane Fitness, the Supreme 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.

Octane Fitness Slip Op. at 7-8.

The Supreme Court appeared to chide the Federal Circuit for the rigidity of its Brooks standard, and even went so far as to say that a case may be “exceptional” where there is either subjective bad faith or exceptionally meritless claims. Octane Fitness Slip Op. at 9. The Court further stated that “[s]omething less than ‘bad faith,’ we believe, suffices to make a case ‘exceptional.’” Octane Fitness Slip. Op. at 9.

Finally, the Supreme Court, in completing its “gutting” of the Federal Circuit’s standard, said that litigants need not prove that their cases are exceptional by clear and convincing evidence, but only by a preponderance of the evidence. Octane Fitness Slip Op. at 11.

What effects these twin rulings have on NPE’s, PAE’s, patent trolls, or whatever one wants to call them remains to be seen. It would seem that, going forward, fee awards in patent cases may not be as rare as they have been, particularly for prevailing defendants.