On April 29, the U.S. Supreme Court issued its decisions in Octane Fitness, LLC v. ICON Health and Fitness, Inc. and Highmark Inc. v. Allcare Health Management System, Inc., giving district courts more flexibility to award attorney’s fees in patent cases.  Copies of the decisions are available here:  Octane Fitness Decision, Highmark Decision.

In Octane Fitness, Octane obtained a summary judgment of noninfringement, and then moved for an exceptional case finding and an award of attorney’s fees under 35 U.S.C. §285.  The district court, applying the standard established by the Federal Circuit in Brooks Furniture Mfg., Inc. v. Dutailer Int’l, Inc., found that Octane had not established that ICON’s infringement arguments were frivolous or objectively baseless, or that ICON acted with subjective bad faith.  On appeal, the Federal Circuit affirmed the district court’s findings, and rejected Octane’s invitation to “revisit the settled standard for exceptionality.” 

The Supreme Court rejected the Federal Circuit’s Brooks Furniture standard as being “overly rigid,” and adopted a new test for evaluating whether a district court can find a case exceptional and award attorney’s fees.  The Supreme Court held “that an ‘exceptional case’ 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 Court noted that this determination is to be made by district courts on a case-by-case basis, in the exercise of the judge’s discretion.  The Supreme Court also determined that a litigant’s entitlement to attorney’s fees does not need to be proven by “clear and convincing evidence,” noting that §285 “imposes no specific evidentiary burden, much less a high one.” 

In Highmark, the district court granted summary judgment of noninfringement in favor of Highmark, found the case to be exceptional, and awarded Highmark attorney’s fees of approximately $4.7M, $209K in costs, and $375K in expert fees.  The Federal Circuit partially reversed the district court, and in so doing used a de novo standard of review.  The Supreme Court applied the analysis of its Octane Fitness decision and reversed the Federal Circuit’s judgment, concluding that “the determination of whether a case is ‘exceptional’ under §285 is a matter of discretion” for the district court, and determining that the district court’s findings in this regard are entitled to deference on appeal and reviewed for abuse of discretion. 

Although the Supreme Court’s decisions in Octane Fitness and Highmark are notable for their potential effects on patent trolls and the ability of district courts to award attorney’s fees for baseless lawsuits brought by non-practicing entities, the new standard adopted by the Court impacts all patent litigation.  District judges clearly have far greater flexibility and should be more willing to make exceptional case findings and award attorney’s fees in appropriate circumstances.  Patent owners should be especially wary of advancing or maintaining assertions that might be viewed as questionable in the event that an accused infringer obtains a judgment in its favor.  Perhaps most importantly, accused infringers now have a potentially very significant weapon — the real threat of obtaining an award of attorney’s fees — in defending baseless lawsuits brought by patent trolls, and others.