In the United States, each party generally pays their own attorney fees. Shifting attorney fees to the non-prevailing party is permitted in certain circumstances. For example, in patent litigation, fee shifting is permitted for exceptional cases. 35 U.S.C. Section 285 states that “the court in exceptional cases may award reasonable attorney fees to the prevailing party.” The threat of fee shifting forces the parties to avoid unsavory tactics and helps keep parties on good behavior. Unfortunately, prior to the Supreme Court’s opinion in Octane Fitness (S.Ct. 2014), which I’ve previously discussed, the standards were so difficult to meet that fee shifting rarely occurred even though U.S. Patent laws expressly allowed it.
Thefollowing case, Highmark v. Allcare Health (S.Ct. 2014), together with Octane Fitness gives power back to the district courts to stop abusive litigation tactics by patent owners and Non practicing entities (e.g., patent trolls), and even infringers with meritless defenses. Octane Fitness lowered the standards for awarding attorney fees and thus increased the types of situations (e.g., litigation tactics) that a judge could deem exceptional and award attorney fees. Highmark changes the review standard on appeal and reduces the likelihood that the award of attorney fees would be overturned on appeal. In other words, the award of attorney fees to the prevailing party is now much more likely to be upheld on appeal. This means that if the offending losing party utilizes abusive litigation tactics that are out of the ordinary, then the district court has the power to reign in such behavior by awarding attorney fees to the prevailing party.
In Highmark, theSupreme Court raised the standard by which an appellate court (i.e., Federal Circuit) can overturn a district court’s determination that a case is exceptional and fee shifting appropriate. Previously, the lower court’s determination that a case was exceptional and fee shifting appropriate was reviewed de novo. The appellate court gave no deference to the lower court’s determination about the strength of the case and the litigation tactics of the non-prevailing party. They reviewed the decision based solely on the documentation through the lens of their own personal views as to what conduct warranted an award of attorney fees. The downside to de novo review is that the personalities of the parties are difficult to gage on paper and essentially takes away the advantage the lower court has from personally interacting with the parties over a longer period of time.
Under Highmark, theCourt held that all aspects of the district court’s determination on fee shifting should be reviewed under an abuse of discretion standard. Great deference is now given to the district court’s ruling. It will now be very difficult to overturn a lower court’s determination on fee shifting, and that should encourage parties to behave a more civilly, or at least avoid clearly abusive conduct.
Specifically, in Highmark, the District Court granted Highmark’s motion for attorney fees against the patent owner Allcare Health Management System, Inc. The District Court reasoned that Allcare had engaged in a pattern of “vexatious” and “deceitful” conduct throughout the litigation. Specifically, it found that Allcare had pursued the current lawsuit as part of a bigger plan to identify companies potentially infringing the patent at issue under the guise of an informational survey, and then to force those companies to purchase a license for the patent at issue under threat of litigation. Also, the District Court found that Allcare had maintained infringement claims against Highmark even though its own experts and attorneys knew that the claims were without merit and frivolous. The Federal Circuit reversed the award of sanctions. The Supreme Court vacated the Federal Circuit decision and remanded it to the Federal Circuit for further review under the “abuse of discretion” standard..
This opinion also revisited the issue what types of misconduct are suitable for fee shifting, an issue also recently discussed by the Court in Octane. In particular, this case reemphasizes that an exceptional case is simply one that stands out from others with respect to the strength of the claims and the litigation tactics employed by the parties. With this type of broad classification of exceptional cases, parties need to make a better assessment as to the quality of the claims being asserted, to avoid disfavored litigation tactics, and to treat others more civilly. Also, there is now a strong incentive to bring cases and use litigation tactics that are within what judges normally see in their court room.
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