October 8, 2013

The Supreme Court Agrees to Review the Award of Attorneys’ Fees in Patent Cases

On October 1, 2013 the Supreme Court granted certiorari in two cases relating to the standard used by the Federal Circuit in deciding whether a patent case is “exceptional” under 35 U.S.C. §285 to warrant an award of attorneys’ fees.  In Highmark Inc. v. Allcare Health Management Sys. Inc., the question presented is whether a district court’s “exceptional case” finding is factual and entitled to deference on appeal.  In Octane Fitness, LLC v. Icon Health and Fitness, Inc., the question presented is whether the two-part objective/subjective test for an exceptional case under 35 U.S.C. §285 improperly restricts the district court’s discretion to award fees.  These cases have the potential to rebalance patent litigation, making it easier for those improperly accused of patent infringement to recover their attorneys’ fees, and discouraging non-practicing entities from making specious allegations of patent infringement.

Harness Dickey attorneys Rudy Telscher and Kara Fussner, with assistance from associate, Daisy Manning, wrote the Petition that prompted review of the Federal Circuit’s two-part test for determining whether a case is “exceptional” under 35 U.S.C. § 285.  After winning summary judgment of non-infringement for client Octane, their request for an award of attorneys’ fees was denied, without hearing, because in the absence of litigation misconduct, the trial court said that fees may only be awarded if the patent infringement allegations are both objectively baseless and there is clear and convincing evidence of subjective bad faith.  In the words of the district court, to justify a fee award, “the plaintiff’s case must have no objective foundation, and the plaintiff must actually know this.”

While 35 U.S.C. § 285 was intended as a deterrent to unwarranted suits for patent infringement, Harness Dickey’s appellate team explained to the Court that this statutory provision, as interpreted by the courts, has strayed from the original intent of preventing “gross injustice” to an accused infringer to a standard that is near impossible for an accused infringer to meet no matter the unreasonableness of the litigation.  They pointed out that the standard for a patentee to recover attorneys’ fees — a showing “that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” – is significantly lower than the standard that applies to accused infringers.  Harness Dickey argues, among other things, that this disproportionate application of the same statute to patentees versus accused infringers conflicts with Supreme Court precedent requiring equal application of neutrally-phrased fee statutes, and sets the bar disproportionately high for prevailing accused infringers.

A more balanced approach, restoring discretion to the district courts would not impact legitimate assertions of patent rights, but would be a significant deterrent to the improper assertion of a patent to harass a competitor, or the indiscriminate assertion of a patent by a non-practicing entity.