Recent Supreme Court decisions highlight attorney fees issue in patent troll cases

By: Brian Lefort Wednesday May 28, 2014 0 comments Tags: attorney fees, Brian Lefort, Innovation Act, patent cases, patent trolls

By Brian Lefort

During the last month, there have been positive developments in the courts related to potentially reducing patent troll activity, even though Congress has run into an impasse regarding this topic.

The specific topic addressed by the courts, namely the Supreme Court -- and attempted to be tackled by Congress -- concerns the shifting of attorney fees to the non-prevailing party in patent litigation.

The current default regarding attorney fees is that each party pays its own attorney fees in litigation, unless the case is "exceptional." If the case is exceptional, the court may award reasonable attorney fees to the prevailing party (35 U.S.C § 285).

Late last year, the House of Representatives passed a new bill called the Innovation Act (H.R. 3309), which would change the default position regarding attorney fees from one in which both parties pay their own to one in which the non-prevailing party must pay for the prevailing party's attorney fees.

Specifically, the Innovation Act requires courts to award prevailing party's reasonable fees and other expenses incurred in connection with such actions unless: (1) the position and conduct of the non-prevailing party was reasonably justified in law and fact, or (2) special circumstances (such as severe economic hardship to a named inventor) make an award unjust (H.R. 3309 Sec. 3(b) at § 285(a)).

This fee-shifting approach is intended to reduce the number of lawsuits by patent trolls.

The Senate, earlier this term, introduced the Patent Transparency and Improvements Act of 2013 (S.1720). The original language of the Senate's Patent Transparency and Improvements Act did not include any fee-shifting language, but the Senate was apparently attempting to add a fee-shifting provision. Last week, Senator Patrick Leahy (D-VT), who introduced the bill, pulled it from the Judiciary's committee agenda because lawmakers were unable to reach a consensus on controversial aspects, such as the fee-shifting provisions of the House bill.

In his press release regarding the recent development regarding his bill, Sen. Leahy stated that "[w]e have heard repeated concerns that the House-passed bill went beyond the scope of addressing patent trolls, and would have severe unintended consequences on legitimate patent holders who employ thousands of Americans."

For example, certain opponents of the bill argued that various provisions would make protecting their intellectual property more expensive. So, it is unlikely Congress will pass this patent reform this year.

Notwithstanding Congress' inactivity, the Supreme Court decided two cases in April 2014 that make it easier for the prevailing party to recoup its attorney fees. One case is Octane Fitness, LLC v. Icon Health & Fitness, Inc., and the other case is Highmark v. Allcare Health Management System, Inc.

As mentioned above, 35 U.S.C. § 285 provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party." Under the judicially created standard established in 2005, a district court could find a case as "exceptional" only if the litigation-related misconduct was independently sanctionable or the litigation was both "brought in subjective bad faith" and "objectively baseless."

In Octane Fitness, the Supreme Court unanimously rejected that standard as being too rigid and held that an exceptional case "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 stressed that a district court should use its discretion and determine whether a case is exceptional on a "case-by-case" considering the totality of the circumstances.

In Highmark, which was decided on the same day as Octane Fitness, the Supreme Court decreased the likelihood that an appellate court can disturb a district court's "exceptional" finding. Prior to Highmark, an appellate court applied de novo review to such findings. Under de novo review, the appellate court acts as if it were considering the "exception" question for the first time, thereby affording no deference to the district court's decisions below.

In Highmark, the Supreme Court changed the appellate court's standard of review for these matters to an abuse of discretion standard, thereby preventing the appellate court from reversing the district court's decision unless the district court's decision is "plain error." The Supreme Court reasoned that the text of 35 U.S.C. § 285 "suggests some deference to the district court upon appeal" and the district court is better positioned to decide whether a case is exceptional because it lives with the case over a prolonged period of time.

Viewing the Octane Fitness and Highmark decisions in unison, district courts now have considerably more discretion and flexibility in awarding attorney fees to the prevailing party, and practically safeguard the district court's use of its discretion from reversal on appeal.

Although Congress was unable to agree upon a legislative fee-shifting solution, judges deciding cases at the district court level may now be better equipped to award the prevailing party its attorney fees upon successfully defending a patent troll case.
Brian Lefort

About the Author: Brian Lefort

Brian Lefort is a Boulder-based intellectual property attorney who specializes in helping innovative startup and emerging businesses identify and protect their valuable technology assets. Brian has more than 15 years of legal experience building and enforcing strategic patent and trademark portfolios for innovative products in the medical device, telecommunications, software and other high technology industries. He can be reached at [email protected] or 303-447-7723.