Supreme Court Loosens Standards for Fee Shifting in Patent Infringement Cases

The Patent Act provides, in 35 U.S.C. § 285, that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  In 2005, and the Federal Circuit restrictively interpreted the statute in Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., holding that a case is “exceptional” only where (1) “there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation . . . or like infractions,” or (2) the litigation was brought in bad faith and is objectively baseless.  The Federal Circuit also required clear and convincing evidence to establish entitlement to attorneys’ fees under the statute.

With its unanimous April 29, 2014, decisions in Octane Fitness v. ICON Health & Fitness and Highmark v. Allcare Health Mgmt. System, the Supreme Court changed these rules.

In Octane, the Court rejected the “rigid and mechanical formulation” of Brooks Furniture and held that an “exceptional” case is “simply one that,” based on the totality of the circumstances, “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 [i]s litigated.”  A district court may, in its discretion, award fees in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify attorneys’ fees.  A district court also may find a case exceptional if it evinces either subjective bad faith on the part of the plaintiff or exceptionally meritless claims.  Finally, the Court rejected the clear and convincing evidence standard of proof, holding that § 285 instead requires proof of an exceptional case only a preponderance of the evidence.

In Highmark, the Federal Circuit, applying a de novo standard of review, had partially reversed the district court’s grant of attorneys’ fees under § 285.  The Supreme Court vacated and remanded, holding that an appeal of an award of fees under § 285 is reviewable only for abuse of discretion.