Supreme Court to evaluate appellate standards for fee-shifting in patent cases

In patent litigation, as in American litigation generally, litigants typically bear their own legal expenses. However, the Patent Act empowers courts to "shift" fees—e.g., to require the plaintiff to bear the defendant's expenses, or vice versa—€”in "exceptional cases." 35 U.S.C. § 285. On October 1, 2013, the Supreme Court granted certiorari in two patent cases concerning the standards that should apply in reviewing district courts' treatment of fee-shifting motions under this section.

The first case, Highmark Inc. v. Allcare Health Management Systems, Inc., No. 12-1163 (U.S. cert. granted Oct. 1, 2013), concerns the legal standard applied by the Court of Appeals for the Federal Circuit in evaluating a district court's decision to shift fees under § 285. In Highmark, Judge Terry R. Means of the U.S. District Court for the Northern District of Texas determined that the plaintiff Allcare's claims of patent infringement against Highmark were frivolous. The district court thus awarded Highmark nearly $5 million in attorney fees and expenses.  The Federal Circuit affirmed in part and reversed in part. It held that one of the infringement claims brought by Allcare was "not objectively unreasonable." In doing so, the Federal Circuit gave no deference to Judge Means' contrary finding, but reviewed the matter de novo. Highmark sought en banc rehearing. Sitting en banc, the Federal Circuit denied rehearing over dissents filed by Circuit Judge Moore (joined by Chief Judge Rader and Circuit Judges O'Malley, Reyna, and Wallach) and by Circuit Judge Reyna (joined in part by Chief Judge Rader and joined in full by Circuit Judges Moore, O'Malley, and Wallach). The Supreme Court's grant of certiorari over the case creates an opportunity for that court to address the proper appellate standards for reviewing a district court's fee-shifting decision.

The second case, Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184 (U.S. cert. granted Oct. 1, 2013), also touches on § 285. In Octane Fitness, Judge Ann Montgomery of the U.S. District Court for the District of Minnesota entered summary judgment that Octane Fitness did not infringe patent claims asserted by its competitor Icon. Judge Montgomery also denied Octane's motion for a fee-shifting order under § 285. On appeal, the Federal Circuit affirmed the district court's judgment. The Federal Circuit's treatment of Octane's § 285 cross-appeal was brief, stating simply that the district court "did not err in denying Octane's motion" and that there was "no reason to revisit the settled standard for exceptionality." The Supreme Court's grant of certiorari suggests that it plans to reexamine that conclusion.

The Supreme Court's decision to grant certiorari to two § 285 cases comes after several prominent voices this summer drew attention to that section's fee-shifting provisions. In June of this year, the Obama administration called on Congress to give district courts more discretion to order fee-shifting under § 285. Just a few days later, Chief Judge Randall Rader of the Federal Circuit co-authored an opinion piece citing § 285 as a tool judges could use to discourage "frivolous" patent suits.