An analysis of the first few decisions following Octane Fitness – watershed or water under the bridge?

September 2014 | PROFESSIONAL INSIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

In the United States, litigants are generally responsible for their own attorneys’ fees, win or lose. The patent statute provides a limited exception to this so-called ‘American Rule’ allowing a court to award “reasonable attorney fees to the prevailing party” in “exceptional cases” under 35 U.S.C. § 285. Over time, the US Court of Appeals for the Federal Circuit developed increasingly rigid requirements for awarding such fees. In particular, in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), the Federal Circuit held that in the absence of “material inappropriate conduct”, attorneys’ fees under Section 285 could only be awarded upon a showing that the litigation was both “brought in subjective bad faith” and “objectively baseless”.

On 29 April 2014, the US Supreme Court issued two decisions rejecting the existing standard for awarding attorneys’ fees to prevailing parties in patent litigations. Octane Fitness, LLC v. ICON Health & Fitness, LLC, 134 S. Ct. 1749 (2014), and its companion decision, Highmark, Inc. v. Allcare Health Management System, Inc., 134 S. Ct. 1744 (2014), provided district courts with greater discretion to award fees in cases deemed “exceptional” and mandated a more deferential standard of review of such determinations on appeal. Regarded as a watershed decision by many, the long-term ramifications of Octane Fitness remain to be seen. However, the district court decisions that have begun to address this issue post-Octane Fitness do not indicate that a drastic change is underway.

Octane Fitness

In Octane Fitness, ICON Health & Fitness sued Octane Fitness for infringement of US Patent No. 6,019,710. Octane Fitness moved for attorneys’ fees under Section 285 after it had successfully moved for summary judgment of non-infringement. Despite evidence suggesting that ICON had brought suit as part of a larger commercial strategy, the court found that Octane Fitness could not meet the Brooks Furniture standard. The Federal Circuit affirmed, declining to revisit the existing standard for exceptionality. The Supreme Court granted review and reversed.

The Supreme Court defined an “exceptional” case under Section 285 as “simply one that stands out from others with respect to the substantive strength of the party’s litigation position...or the unreasonable manner in which the case was litigated”. Rejecting the prior standard that required showings of both objective baselessness and subjective bad faith, the Court noted that “a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award”.

The Court also rejected the existing requirement that a movant prove entitlement to attorneys’ fees by clear and convincing evidence. Noting that Section 285 “demands a simple discretionary inquiry”, the burden of proof was thus lowered to the “preponderance of the evidence” standard.

A companion decision, Highmark, further held that since Section 285 determinations required district courts’ discretion, such rulings should not be reviewed anew pursuant to a de novo standard of review, but instead should be reviewed under the abuse of discretion standard, i.e., the most deferential standard of review.

Exceptional case determinations post-Octane Fitness

As Octane Fitness rejected the demanding Brooks Furniture standard and gave district courts leeway to award attorneys’ fees in any situation they deem exceptional, an overall increase in claims for fees under Section 285 and an increase in the variety of improprieties alleged in those claims is thus likely.

Although the long term ramifications of this ruling are not yet apparent, district courts have already begun to issue decisions on fees motions post-Octane Fitness. Despite the increased discretion granted by the Supreme Court, however, the rationales behind the fee awards determinations do not appear to differ drastically from those prior to Octane Fitness. Indeed, courts have continued to rely on the objective baselessness and subjective bad faith considerations discussed in the prior Brooks Furniture standard to drive their analyses of fees motions under Section 285.

In Cognex Corp. v. Microscan Systems, No. 13-cv-2027, 2014 U.S. Dist. LEXIS 91203 (S.D.N.Y. June 30, 2014), attorneys’ fees were awarded where the Court had previously concluded that there was an “objectively high likelihood” that the accused conduct was infringing and where the defendants were found to have engaged in “unreasonable litigation tactics” such as filing post-trial motions on issues that had already been litigated.

The district court in Precision Links Inc. v. USA Products Group, Inc., No. 3:08-cv-00576-MR, 2014 U.S. Dist. LEXIS 85694 (W.D.N.C. June 24, 2014), similarly considered both the objectively baseless and subjective bad faith prongs of the prior standard when awarding attorneys’ fees. Specifically, this court found both that certain claims were “clearly frivolous and objectively baseless” and that the plaintiff had engaged in exceptional litigation misconduct. However, the court limited the award to two-thirds of the amount requested on the basis that the litigation misconduct occurred during two out of the three major litigation phases of this case.

Other courts have adopted a slightly more liberal approach, awarding fees based only upon a finding of objective baselessness or subjective bad faith (as opposed to both). In Home Gambling Network Inc. v. Piche, No. 2:05-cv-610-DAE, 2014 U.S. Dist. LEXIS 71071 (D. Nev. May 22, 2014), the court deemed the case “exceptional” based upon the relative weakness of the party’s litigation position, i.e., an apparent finding of objective baselessness. In addition, a district court in the Northern District of Illinois awarded fees in Intellect Wireless, Inc. v. Sharp Corp., No. 10-c-6763, 2014 U.S. Dist. LEXIS 73653 (N.D. Ill. May 30, 2014), as a result of the plaintiff’s inequitable conduct in making false statements to the US Patent and Trademark Office during patent prosecution. Nevertheless, this court acknowledged that its finding might have been appropriate under the prior, more stringent Brooks Furniture standard, as well.

District courts have also continued to deny motions for attorneys’ fees following Octane Fitness and many such decisions similarly consider the individual prongs of the Brooks Furniture test of objective baselessness and subjective bad faith. The Eastern District of Texas, in Bianco v. Globus Medical, Inc., No. 2:12-cv-00147, 2014 U.S. Dist. LEXIS 64805 (E.D. Tex. May 12, 2014), for example, found that because the plaintiff satisfied neither of the Brooks Furniture prongs, the case failed to stand out from others, and a grant of attorneys’ fees was unwarranted.

Fee-shifting legislation tabled

The latest patent litigation reform, H.R. 3309, titled the ‘Innovation Act’, which passed in the US House of Representatives prior to Octane Fitness, included a presumptive fee-shifting provision, making the non-prevailing party in patent litigations responsible for attorneys’ fees absent certain exceptions, such as where the conduct of the non-prevailing party was reasonably justified or where such an award would be unjust. However, this legislation has since been tabled by the US Senate.

By striking a middle ground between the Brooks Manufacturing standard and awarding fees to prevailing parties as a matter of course, the US Supreme Court’s ruling in Octane Fitness may have tempered the drive for immediate fees reform. However, it remains to be seen whether this ruling and its progeny will galvanise those seeking more extreme changes on fee shifting to push for further legislative action in the future.

Stacey L. Cohen is counsel and Devin A. Kothari is an associate at Skadden, Arps, Slate, Meagher & Flom LLP. Ms Cohen can be contacted on +1 (212) 735 2622or by email: stacey.cohen@skadden.com. Mr Kothari can be contacted on +1 (212) 735 2932 or by email: devin.kothari@skadden.com. The authors would like to thank Scott M. Flanz, a summer associate, for his assistance with this article.

Stacey L. Cohen and Devin A. Kothari

Skadden, Arps, Slate, Meagher & Flom LLP