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Supreme Court Changes Standards for Attorneys' Fees Awards in Patent Cases

May 1, 2014

By: Brian T. Moriarty

Hamilton Brook Smith Reynolds Alert

  • "Exceptional case" statutory threshold for awards of attorneys' fees is to be judged by "totality of the circumstances"
  • District courts invested with wide discretion
  • Limits appellate review of lower court decision

In a pair of 9-0 rulings, the Supreme Court reviewed Section 285 of the Patent Act, which allows for the awarding of attorneys' fees in patent litigation to a "prevailing party" in "exceptional cases."  The Court rejected existing Federal Circuit precedent, lessening the standards and the burden of proof required for awarding fees.  The Court also limited the scope of appellate review of these awards.

In the first case, Octane Fitness, LLC v. ICON Health and Fitness, Inc., the Court rejected as "unduly rigid" the Federal Circuit's existing test for granting attorneys' fees to a prevailing party.  Under Federal Circuit precedent, a case could be only considered "exceptional" -- and fees awarded to the prevailing party -- if there was (a) "material inappropriate misconduct" or (b) the litigation was brought in "subjective bad faith" and the case was "objectively baseless."  The Court reviewed the history and purpose of the statute, and found that it did not support the Federal Circuit's tests.  Instead, the Court held that "an 'exceptional' case is simply one that stands out from others with respect to substantive strength of a party's litigating position (considering both governing law and the facts of the case) or the unreasonable manner in which the case was litigated."

The Court further ruled that the district court may determine whether a case is "exceptional" on a "case-by-case exercise of their discretion considering the totality of the circumstances."  For example, under the "totality of the circumstances" test, a case that was brought in "subjective bad faith" or was "objectively baseless," but not both, could still be found to be "exceptional."  Finally, the Court rejected the Federal Circuit's requirement that a party had to establish an "exceptional case" by "clear and convincing" evidence.  Instead, the Court ruled that there was no specific burden of proof, and that the matter would be left to the discretion of the district court.

In the second case, Highmark Inc. v. Allcare Health Management Systems, Inc., the Court considered the question of the standard of appellate review of "exceptional" case determinations.  The Court rejected the current Federal Circuit standard that provided for de novo review.  Instead, because the award of an exceptional case was committed to the discretion of the district court, appellate review is to be based on an "abuse of discretion." 
How long these new standards will exist is an open question.  Congress is currently considering amending Section 285.

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