The United States Supreme Court recently issued two much-anticipated decisions on fee shifting in patent litigation. While any cases issued by the Supreme Court are important and relevant, these two decisions have the potential to significantly impact pending patent legislation in Congress. Fee shifting has been articulated as one of the chief driving forces for more patent legislation so quickly after the massive America Invents Act (AIA) changes.
The decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., was the primary decision because the Court explained that the ruling formed the basis of their decision in Highmark, Inc. v. Allcare Health Management System, Inc. In other words, the Supreme Court decided Octane Fitness and then applied that decision, together with the new law, to resolve Highmark.
In a nutshell, with Octane Fitness, the Supreme Court changed the law as previously announced by the Federal Circuit to make it easier for district courts to sanction plaintiffs for bringing meritless patent infringement suits, while Highmark makes it more difficult for the Federal Circuit to reverse district court decisions under the statute. Both cases were closely watched by both the private sector and Congress, which has been pursuing efforts to quash the perceived problem of patent cases filed by non-practicing entities.
The statute in question in both of these cases was 35 U.S.C. § 285, an extremely short statute, which authorizes a district court to award attorney fees in patent litigation to the prevailing party. In its totality, § 285 states: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” With such a simple statute, you might wonder how or why it was necessary for the Supreme Court to step in and provide clarity. The answer is because, in 2005, the Federal Circuit departed from three decades of case law and made it difficult, if not impossible, for prevailing parties to demonstrate entitlement to attorney fees.
In Brooks Furniture Mfg., Inc. v. Du tailier Int’l, Inc., 393 F. 3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that “[a] case may be deemed exceptional” under § 285 only in two situations: (1) “when there has been some material inappropriate conduct,” or (2) when the litigation is both “brought in subjective bad faith” and “objectively baseless.” As the result of Octane Fitness and Highmark, the Brooks Furniture standard lives no more.
Justice Sotomayor wrote:
We reject Brooks Furniture for another reason: It is so demanding that it would appear to render §285 largely superfluous. We have long recognized a common-law exception to the general “American rule” against fee-shifting—an exception, “inherent” in the “power [of] the courts” that applies for “‘willful disobedience of a court order’” or “when the losing party has ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons . . . .’” Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240, 258–259 (1975). We have twice declined to construe fee-shifting provisions narrowly on the basis that doing so would render them superfluous, given the background exception to the American rule, see Christiansburg Garment Co. v. EEOC, 434 U. S. 412, 419 (1978); Newman v. Piggie Park Enterprises, Inc., 390 U. S. 400, 402, n. 4 (1968) (per curiam), and we again decline to do so here.
Finally, the Supreme Court took issue with the Brooks Furniture standard because it required litigants to establish entitlement to attorney fees by clear and convincing evidence. The Court explained:
We have not interpreted comparable fee-shifting statutes to require proof of entitlement to fees by clear and convincing evidence. See, e.g., Fogerty, 510 U. S., at 519; Cooter & Gell v. Hartmarx Corp., 496 U. S. 384 (1990); Pierce v. Underwood, 487 U.S. 552, 558 (1988). And nothing in §285 justifies such a high standard of proof.
Whether the Supreme Court decision will be enough to prevent “patent reform” from gaining traction in the Senate remains to be seen. Opponents to this round of patent reform were already aggressively making their case as the Senate continued to postpone moving forward with patent reform in Committee. This continued postponing of further action in Committee was in order to attempt to build a consensus that the Senate could get behind. No one seems all that interested in moving forward with patent legislation if it could come back to haunt them in the future, so without a consensus on one or more issues, getting anything done this term may be nothing more than a dream.
Now, with the Supreme Court decisions on fee shifting…a major aspect of the pending patent legislation…those on the Hill who were already skeptical have more than enough ammunition to slam on the brakes, at least for now. Of course, the exact opposite could happen as well: With one thorny issue removed courtesy of the Supreme Court, the Senate may excise the fee shifting provisions altogether and proceed with their other suggested reforms. That still wouldn’t likely be enough to create a consensus, but it would quiet at least some complaints.
Tags: "exceptional case", fee-shifting, patent, Patent Reform, patents, SCOTUS, Supreme Court
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