The Federal Circuit’s Christmas Present to Accused Patent Infringers

A number of years ago, after the Supreme Court had granted certiorari in the obviousness case of KSR v. Teleflex (June 26, 2006), but prior to the Supreme Court’s merits decision in KSR (April 30, 2007), the Federal Circuit appeared to begin adapting its obviousness jurisprudence to what it thought the Supreme Court was going to do with the obviousness standard in the KSR case.  Two prime examples of this are Dystar Textilfarben GMBH & Co. v. C.H. Patrick Co., 464 F.3d 1356, 1364-70 (Fed. Cir. 2006), and Alza Corp. v. Mylan Laboratories, Inc., 464 F.3d 1286, 1291 (Fed. Cir. 2006).

On December 26, 2013, in Kilopass Technology, Inc. v. Sidense Corp. (Case No. 2013-1193), the Federal Circuit appears to have adapted its jurisprudence on fee awards in patent cases in anticipation of two cases presently before the Supreme Court and set for oral argument on February 26, 2014 .  The cases are Highmark, Inc. v. Allcare Health Management Systems (U.S.S.C. Case No. 12-1163) and Octane Fitness v. Icon Health & Fitness (U.S.S.C. Case No. 12-1184).

The questions presented in the Highmark and Octane Fitness cases are:

(1)   Whether a district court’s exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference (Highmark).

(2)   Does the Federal Circuit’s promulgation of a rigid and exclusive two-part test for determining whether a case is “exceptional” under 35 U.S.C. § 285 improperly appropriate a district court’s discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court’s precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlements from defendants? (Octane Fitness).

In anticipation of what the Supreme Court may well do with respect to the Federal Circuit’s recent fee award jurisprudence in patent cases (see e.g., MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907 (Fed. Cir. 2012); iLOR, LLC v. Google, Inc., 631 F.3d 1372 (Fed. Cir. 2011)), the Federal Circuit, in the Kilopass case, vacated and remanded an order from the Northern District of California denying a fee award to a defendant who appeared to have clearly and convincingly prevailed on the merits.

In its December 26, 2013 opinion in Kilopass, the Federal Circuit (while citing constraints about overruling other panels of the court), essentially lessened, or sanctioned the lessening of, the standard of proof needed for a prevailing party to recover its attorneys’ fees in a patent case.  Among other things, the Federal Circuit stated that:

(1)   actual knowledge that one’s case was baseless was not a requirement for an award of fees, but a standard akin to recklessness was appropriate;

(2)   subjective bad faith as a requirement to show that a case is “exceptional” does not seem in line with the legislative history of 35 U.S.C. § 285 or Lanham Act case law regarding what constitutes an “exceptional” case; and,

(3)   clear and convincing evidence may be too high a standard for demonstrating that a case is “exceptional.”

These positions endorsed by the Federal Circuit appear to address the concerns raised in the Octane Fitness case pending before the Supreme Court.

In what also appears to be a departure from its recent jurisprudence on fee awards in patent cases is the Federal Circuit’s statement in Kilopass that, “trial courts retain broad discretion to make findings of exceptionality under § 285 in a wide variety of circumstances.”

This endorsement of broader trial court discretion in determine whether a given case is “exceptional” appears to address the concerns raised in the Highmark case pending before the Supreme Court.

So, just as with KSR and obviousness about seven years ago, the Federal Circuit appears to be adapting its fee award jurisprudence to what it expects the Supreme Court will do with the fee cases pending before it.

The end result of the Federal Circuit’s “pivot” seems to be a Christmas present for accused patent infringers.