The Supreme Court today issued opinions in Octane Fitness v. Icon Health and Highmark v. AllCare. Together, these two decisions provide sweeping reform to the award of attorney’s fees in patent cases. Going forward, it will be much more likely that district courts will grant fees in patent cases and be upheld on appeal.
In Octane Fitness v. Icon Health, the Supreme Court rejected the “unduly rigid” test that “impermissibly encumbers the statutory grant of discretion to district courts.” The Court found that the plain language of the statute is “patently clear. It imposes one and only one constraint on district courts’ discretion to award attorney’s fees in patent litigation: the power is reserved for ‘exceptional’ cases.” 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.” District courts going forward will simply look at the totality of the circumstances.
The Supreme Court also separately rejected the bases underlying Federal Circuit precedent. First, it said the Federal Circuit’s overly restrictive standard for awarding fees “appears to extend largely to independently sanctionable conduct” under rule 11. “But sanctionable conduct is not the appropriate benchmark.” Second, the two-part test of requiring a suit be both objectively baseless and brought in subjective bad faith has been rejected. This test is “too restrictive.” From this, we can see that the Supreme Court clearly envisions increased awards of attorney fees under the new formulation. Third, the Supreme Court said the Federal Circuit’s test is “so demanding that it would appear to render the statute largely superfluous.” In other words, it is so complicated and demanding that it raises the bar for finding a case to be “exceptional” beyond what Congress intended. Fourth, the Supreme Court rejected the notion that entitlement to fees must be established with clear and convincing evidence. “[N]othing in section 285 justifies such a high standard of proof. Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.” The proper evidentiary threshold is therefore a preponderance of evidence. Octane Fitness therefore rejected the entirety of the Federal Circuit’s complicated test, leaving the determination as to when to award fees within the discretion of a district court considering the circumstances of each case.
In HighMark v. Allcare, the Supreme Court also rejected the Federal Circuit’s de novo review of determinations relating to attorney fees. Appellate review going forward will give deference under an abuse of discretion standard. In doing so, the Supreme Court has rejected the argument the Federal Circuit has specialized experience as to the award of attorney fees in patent cases. The decision rests its logic on the fact that “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.” All aspects of a district court’s attorney fee determination are to be reviewed for an abuse of discretion, even though “questions of law may in some cases be relevant” because “that inquiry generally is, at heart, rooted in factual determinations.”
We are excited that these cases provide what we believe will play out as significant reform to fee awards. It remains to be seen how district courts will handle fee awards against patent trolls that are insolvent. Still, these two decisions provide a much-needed tool to combat baseless litigation and decrease the inclination to simply pay off trolls.