Reining in Patent Trolls? Supreme Court to Address Standards for Fee Awards and Challenges to Fee Awards in Patent Disputes

October 07, 2013

Federal patent law allows courts to award attorneys’ fees to prevailing parties in “exceptional cases.” The U.S. Supreme Court recently announced it will hear two cases about the standards for awarding and reviewing fee awards in patent disputes — Octane Fitness, LLC v. Icon Health and Fitness, Inc. and Highmark Inc. v. Allcare Health Management Systems, Inc. The cases could serve to rein in suits by non-practicing entities (NPEs), known more commonly as patent trolls.

The Two Cases
Both cases before the Supreme Court involve the Federal Circuit’s interpretation and application of 35 U.S.C. § 285, the statute that provides for fee-shifting in patent disputes. The Federal Circuit has interpreted Section 285 to require a prevailing party seeking fees to show both that the opponent’s case was “objectively baseless” and that it was “brought in subjective bad faith.” Octane presents the question whether that interpretation is too demanding; the petitioner in Octane contends that district courts can award fees when a patentee unreasonably pursues a case with an objectively low likelihood of success.

After fees have been awarded by a district court under Section 285, the Federal Circuit reviews the fee award on appeal without deference. Highmark presents the question whether more deferential review — of the kind other courts of appeal employ when reviewing fee awards in all other contexts — is required.

Implications for NPEs
Attorneys’ fee awards are a significant deterrent to suits brought by NPEs, so both cases before the Court are likely to affect NPE litigation. If the Court in Octane lowers the bar for awarding fees in the first instance, prevailing defendants may have an easier time obtaining fees in a range of patent cases. That, in turn, may embolden defendants to litigate and discourage NPEs who want only to extract an early settlement.

The implications of the Court’s review-standard decision in Highmark are more complicated. As Judge Mayer noted in dissent, the Federal Circuit’s un-deferential review of district court fee awards makes the lower court proceeding “a mere dress rehearsal for the command performance” at the appellate court. If the Supreme Court in Highmark aligns the Federal Circuit’s review of patent-dispute fee awards with that of other circuits, it will give more power over fee awards to district courts. For NPEs, then, the question is whether the Federal Circuit or district courts will be more inclined to award fees against them. Because the Federal Circuit reviews all patent disputes, it is frequently confronted with questionable patent assertions by NPEs and could be more likely to want to award fees to deter NPEs across the board. District courts, however, spend more time with each case (and with the particular NPE plaintiff in the case), so they are better positioned to award fees as punishment against particular NPEs who make baseless patent assertions. Indeed, Federal Circuit Chief Judge Rader often encourages district court judges to use their fee-shifting authority to help discourage frivolous NPE lawsuits. District courts’ resulting tendencies to give fee awards may influence NPEs’ choice of forum.

Other NPE Developments
The Supreme Court is not the only branch of federal government considering NPEs. Federal lawmakers, including Senate Judiciary Committee Chairman Patrick Leahy, announced recently that they plan to introduce new legislation to combat NPEs by increasing the transparency of patent ownership. This would add to the efforts of the White House task force on high-tech patents, announced in the past few months. In addition, the Federal Trade Commission recently announced that it would begin a formal “study” of NPEs under Section 6(b) of the Federal Trade Commission Act to develop a better understanding of how they impact innovation and competition. This study will reportedly include exercise of the Commission’s subpoena powers to determine their financial operations.



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This article was originally published by Bingham McCutchen LLP.