On April 29, 2014, the Supreme Court made it significantly easier for the prevailing party in a patent lawsuit to be awarded its attorneys’ fees from the losing party. In Octane Fitness, LLC v. ICON Health & Fitness, Inc., Dkt. No. 12-1184 (Apr. 29, 2014), the Supreme Court rejected the Federal Circuit’s strict standard for awarding attorney fees and established a much more lenient standard. Now, attorney fees can be awarded in an “exceptional” case, which “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position … or the unreasonable manner in which the case was litigated.”
The Patent Act provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. Prior to the Supreme Court’s decision, the Federal Circuit applied a strict standard for awarding attorneys’ fees in patent cases. “Absent misconduct in the conduct of the litigation or in securing the patent, sanctions [could] be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005). This two-step process was based on the Supreme Court’s test for “sham” litigation under antitrust law.
The Supreme Court’s Octane Fitness decision rejected the Federal Circuit’s standard and clarified what qualifies as an “exceptional case.” Octane Fitness was a patent litigation between exercise equipment manufacturers. After Octane defeated ICON’s infringement claims on summary judgment, Octane sought its attorneys fees under Section 285, arguing “that the judgment of noninfringement ‘should have been a foregone conclusion to anyone who visually inspected’ Octane’s machines.” However, the district court denied Octane Fitness’s request for attorneys’ fees, reasoning that “although it had rejected ICON’s infringement arguments, they were neither ‘frivolous’ nor ‘objectively baseless.’” Octane Fitness appealed the denial of attorneys’ fees and the Federal Circuit affirmed the denial based on its stringent standard.
The Supreme Court held that the Federal Circuit had misconstrued the language of Section 285 as to what constitutes an “exceptional case.” The Court found that “[i]n 1952, when Congress used the word [“exceptional”] in §285 (and today, for that matter), ‘[e]xceptional’ meant ‘uncommon,’ ‘rare,’ or ‘not ordinary.’” Based on dictionary definitions, the Court held that an “exceptional case” for purposes of the Patent Act “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.”
The Court reached its conclusion, in part, because the Federal Circuit’s interpretation of an “exceptional case” largely rendered Section 285 superfluous. First, the Court found that “litigation misconduct” is independently sanctionable in most cases, even without the attorney fee provision of Section 285. With regard to objectively baseless claims brought in subjective bad faith, the Court stated that it has “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 . . . .’” Thus, Section 285 would not be needed to award fees under either of the circumstances found in the Federal Circuit’s two-part test for an “exceptional” case.
While it remains to be seen exactly how district courts and the Federal Circuit will apply the Supreme Court’s holding in Octane Fitness, the decision breathes new life into Section 285 of the Patent Act. Parties should expect that more motions for attorneys’ fees will be filed and granted under the new standard, and district courts will have more flexibility in determining whether attorneys’ fees are warranted based on the positions taken in the litigation and the manner in which the case was litigated. Defendants in questionable patent infringement lawsuits are more likely to request their attorneys’ fees. Octane Fitness should also alter the cost-benefit analysis for patentees who are considering asserting weak infringement claims, and provide them with another reason to carefully and honestly assess the merits of their case before accusing someone of patent infringement.