The Supreme Court has made fee shifting (i.e., award of attorney’s fees) easier in patent cases reversing the framework laid out in Brooks Furniture for determining when a case is “exceptional”. Now, under Octane Fitness, LLC v. ICON Health & Fitness, Inc., (S.Ct. 2014), an exceptional case in which the court may, in its discretion, award attorney’s fees 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.” The Supreme Court charged the district courts to exercise their equitable discretion in awarding attorney’s fees on a case-by-case manner based on a totality of the circumstances and a preponderance of the evidence.
The normal “American Rule” in the United States is that each litigant must pay his/her own attorney’s fees, win or lose. Section 285 of the Patent Act provides that the court in exceptional cases may award reasonable attorney fees to the prevailing party.
In Brooks Furniture. Mfg., Inc. v. Dutailier Int’l, Inc. (Fed. Cir. 2005), the Federal Circuit laid out a framework for determining when a case is exceptional. In particular, the Federal Circuit held that a case is exceptional only upon a showing, by clear and convincing evidence, of one of the following circumstances:
(A) when there has been some material inappropriate conduct related to the matter in litigation (e.g., willful infringement, fraud, inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates FRCP 11 or like infractions); or
(B) if both (a) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.
The Supreme Court found that the Federal Circuit’s framework laid out in Brooks Furniture is unduly rigid and mechanical. It required a very high evidentiary level of proof, namely, clear and convincing evidence. It only allowed for fee shifting in very specific scenarios. As a result, it rarely resulted in an award of attorney’s fees. It excluded situations where a case could be exceptional under the statutory language of Section 285. For example, a case brought with gross subjective bad faith may set itself apart as being exceptional justifying an award of attorney’s fees, but not under the Brooks Furniture framework. The Supreme Court indicated that acting in bad faith, vexatiously, or wantonly could also justify an award of attorney’s fees. These situations would have been excluded from being found exceptional under Brooks Furniture framework. The Brooks Furniture standard made the fee shifting provisions essentially powerless because the bar was too high for a court to award attorney’s fees.
In comparing the standard for determining an exceptional case by the Supreme Court and in Brooks Furniture, the Supreme Court lowered the bar for awarding attorney’s fee. The new standard for awarding attorney’s fees has opened up the potential number of cases and types of cases that might be implicated (e.g., patent trolling behavior). Given the national debate going on with respect to Non Practicing Entities, it appears that this is another tool that could be used by accused infringers to defend against non-practicing entities and/or patent assertion entities. In the immediate future, the district courts may be emboldened and possibly encouraged by this decision to take action against abusive litigation and settlement tactics (trolling behavior) with an award of attorney’s fees.
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