New Standard for Awarding Attorneys’ Fees in a Patent Case Could Deter Frivolous Lawsuits

In a move likely to keep patent trolls awake at night, the United States Supreme Court recently changed the standard for awarding attorneys’ fees in infringement cases, giving district courts greater latitude to award fees, and making it less likely that those awards will be overturned on appeal.

Patent law permits the award of legal fees to a lawsuit’s winning party only in “exceptional cases.” 35 U.S.C. § 285. How courts should determine whether a case is exceptional recently came before the Supreme Court in Octane Fitness, LLC v. Icon Health & Fitness, Inc. There, Octane, a Minnesota maker of exercise equipment, had successfully defended against a patent infringement lawsuit and asked the district court to declare the case exceptional and force Icon to pay Octane’s attorneys’ fees. Despite e-mails between Icon officials produced during discovery showing that Icon’s patent infringement lawsuit was nothing more than a “commercial strategy,” the district court denied Octane’s fee petition. On appeal, the Federal Circuit agreed that the case was not exceptional and affirmed the denial of fees. Octane appealed to the Supreme Court.

The district court and Federal Circuit had applied the rule as to what qualified as an exceptional case set forth in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d. 1378, 1381 (Fed. Cir. 2005). In Brooks, the Federal Circuit enunciated a clear and strict instruction that “[a] case may be deemed exceptional” only if there was some “material inappropriate conduct” during the litigation or in securing the patent at issue, or when the litigation was both brought in “subjective bad faith” and “objectively base­less.”

In Octane, the Supreme Court declared that the Brooks framework “is unduly rigid” and “impermissibly encumbers the statutory grant of discretion to district courts.” The Court instead defined an “exceptional” case as “simply one that stands out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Court further held that a district court judge has discretion to determine whether a case is “exceptional” by “considering the totality of the circumstances,” rather than applying a formulaic set of legal elements. Additionally, the Supreme Court reduced the standard of proof for a party attempting to show that they should be reimbursed for legal fees from “clear and convincing evidence” to a “preponderance of the evidence.”

Without question, this decision makes it easier for the winner of a patent lawsuit to get its legal fees paid by the losing party. Put simply, the Octane decision gives district court judges more leeway to award attorneys’ fees in cases that they determine should not have been brought in the first place.

Additionally, once a decision awarding fees is made by a district court, it will now be harder to overturn the award on appeal. In a companion case to Octane, the Supreme Court held in Highmark Inc. v. Allcare Health Management System, Inc., that attorneys’ fees decisions under § 285 should be reviewed under an abuse of discretion standard, not the de novo standard that the Federal Circuit had previously applied. This means that the Federal Circuit will not have carte blanche when revisiting a district court opinion awarding (or denying) attorney’s fees, and will instead be limited to reversing a § 285 award only in cases where the district court’s decision is clearly erroneous.

It seems likely that the increased risk of paying the opposition’s attorneys’ fees will deter some of the more egregious patent troll activity and reduce frivolous assertion of patents in court. The Supreme Court’s new standard for awarding attorneys fees in a patent case should make every litigant think twice before asserting a patent infringement claim, and increases the importance of a patent-holder’s thorough pre-suit investigation.