The United States Supreme Court issued two opinions today that eliminated the Federal Circuit’s rigid two-part test a prevailing party must meet in order to recover attorney’s fees in a patent case, and heightened the appellate standard of review of a district court’s determination to award attorney’s fees.
In patent cases, district courts are allowed to award attorney’s fees to the prevailing party in “exceptional cases.” 35 U.S.C. § 285. Over the past decade, the Federal Circuit has marginalized the district court’s discretion in making the determination whether a case is exceptional. In Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005), the Federal Circuit held that, absent litigation misconduct or misconduct in securing the patent, an “exceptional case” is one that is both (1) “objectively baseless” and (2) “brought in subjective bad faith.” Brooks Furniture also established a “clear and convincing evidence” burden of proof for the party seeking fees. Subsequent Federal Circuit decisions clarified and solidified the test and reflected the exceedingly high bar faced by the prevailing party.
In Octane Fitness LLC v. Icon Health & Fitness, Inc. (12-1184), a unanimous Court eliminated the Brooks Furniture test and established a more general “totality of the circumstances” test, stating:
[A]n “exceptional” case is simply one that stands out from the others with respect to the substantive strength of a party’s litigating positions (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.
Importantly, the Supreme Court also rejected the clear and convincing evidence standard and held that there is “no specific evidentiary burden,” noting that the exceptional case determination is “a simple discretionary inquiry.” In a related decision, Highmark Inc. v. Allcare Health Mgt. Sys., Inc. (12-1163), the unanimous Court held that all aspects of a district court’s exceptional case determination should be reviewed for abuse of discretion, rather than de novo as had been the practice of the Federal Circuit under Brooks Furniture.
The upshot of the opinions is the Supreme Court’s emphasis on affording the district courts greater discretion to observe the manner in which a given proceeding is being handled and to make the determination whether fees should be awarded based on an intimate knowledge of the factual record. These decisions will make it much more difficult to disturb a district court’s determination, rendering it imperative that parties develop the record early in the case and throughout discovery in order to convince the court that fees are warranted.
If you would like to discuss these Supreme Court decisions, or other patent litigation issues, please contact John Morrow, Barry Herman, Tryn Stimart, Preston Heard, or another member of the IP Litigation Team.
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