Loser Pays: US Supreme Court Gives District Courts Greater Discretion to Award Attorney’s Fees in Frivolous Patent Suits

ImageBy Peter Montine

The United States Supreme Court has made it easier for district courts to award attorney’s fees in frivolous patent infringement cases. In two different cases, the Court held that the decision to award attorney’s fees to the prevailing party was within a court’s general discretion, and that a review of such a decision was analyzed under an “abuse of discretion” standard.

In the first case, Octane Fitness, LLC v. Icon Health & Fitness, Inc., Octane had been sued by ICON for infringing on ICON’s patent for adjustable elliptical machines. Octane succeeded on a summary judgment motion in district court to dismiss the suit. However, when Octane moved for attorney’s fees, the court denied the motion, following the standard set forth in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc. That standard requires that a court find the claim to be either (1) objectively baseless or (2) brought in subjective bad faith. Finding neither of these things to be true, the court dismissed the motion for attorney’s fees. Octane appealed, but the Federal Circuit, which issued the Brooks standard, upheld the district court’s decision.

The Supreme Court held that the proper source for granting fee-shifting was not Brooks, but § 285 of the Patent Act. Section 285 states that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Rather than adhere to the rigid framework of Brooks, the Supreme Court held that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” The case was remanded for a new inquiry using the “exceptional” standard.

In a second related case, Highmark, Inc. v. AllCare Health Management System, Inc., Highmark sued AllCare for infringing on its patent for a “utilization review” in a “managed health care system.” The district court found that Highmark had not infringed and also granted Highmark’s motion for attorney’s fees under § 285. AllCare appealed and the Federal Circuit affirmed that AllCare’s patent was invalid and unenforceable. However, after reviewing the award of attorney’s fees de novo, the Federal Circuit found that AllCare’s actions did not satisfy the requirements of Brooks and reversed the district court’s decision to allow fee-shifting.

The Supreme Court, using its new standard from Octane, found that the district court’s grant of attorney’s fees did not have to meet the Brooks test in order to be upheld. Furthermore, since the district court used its discretion to determine whether the patent litigation was “exceptional,” its decision is reviewed on an “abuse of discretion” standard. This case was remanded to determine whether the district court had abused its discretion in granting attorney’s fees to Highmark.

Although not the most exciting part of patent litigation, fee-shifting can have a significant impact on the strategies of patent-holders. These decisions are designed to make patent trolls think twice before engaging in frivolous patent litigation. Now that district courts have more discretion in granting attorney’s fees, they will be more likely to use this power against non-practicing entities seeking to threaten potential infringers. Octane and Highmark will probably also affect the patent reform bill currently being developed in Congress by addressing some of the issues of patent trolls and frivolous litigation that the bill is targeting.

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