The U.S. Supreme Court, in Octane Fitness LLC. v. Icon Health & Fitness Inc., case no. 12-1184 (Apr. 29, 2014) (available here), overturned a decade of Federal Circuit law by redefining when a case is exceptional under the Patent Act. A prevailing party in patent litigation may obtain its attorneys fees if the “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.” opn. pg. 7-8.
“Section 285 of the Patent Act authorizes a district court award attorney’s fees in patent litigation. It provides, in its entirety, that ‘[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.’ 35 U.S.C. §285. In Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378, 1381 (2005), the United States Court of Appeals for the Federal Circuit held that ‘[a] case may be deemed exceptional’ under §285 only in two limited circumstances: ‘’when there has been some material inappropriate conduct,’ or when the litigation is both ‘’brought in subjective bad faith’ and ‘objectively baseless.’” opn. pg. 1.
The trial court and later the Federal Circuit Court had determined that the accused infringer Octane, who won the infringement action below, could not show that (i) ICON’s patent infringement claim was objectively baseless or (ii) ICON had brought the action in subjective bad faith.
The Supreme Court found that the Federal Circuit had “abandoned” the “holistic, equitable approach” when it issued its Brooks Furniture decision. In Brooks, the trial courts were to find material inappropriate conduct such as willful infringement, fraud or inequitable conduct.
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.” opn. pg. 7-8.
As for the Federal Circuit’s concepts that exceptional case findings be based upon litigation which is objectively baseless and brought in subjective bad faith, the Supreme Court pointed to Noxell Corp. v. Firehouse No. 1 Bar -B-Que Restaurant, 771 F.2d 521 (CADC 1985). In Noxell, the appeals court stated “we think it fair to assume that Congress did not intend rigidly to limit recovery of fees by a [Lanham Act] defendant to the rare case in which a court finds that the plaintiff ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons’ …. Something less than ‘bad faith,’ we believe, suffices to mark a case as ‘exceptional”‘.
Lastly, the Supreme Court lowered the evidentiary standard to find exceptional case. “[W]e reject the Federal Circuit’s requirement that patent litigants establish their entitlement to fees under §285 by ‘clear and convincing evidence,’ Brooks Furniture, 393 F. 3d, at 1382. Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.”
As a practice note, counsel for patent owners and accused infringers should be wary of the new, lower standard for attorneys fees.