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Supreme Court Relaxes Standards for Awarding Attorney’s Fees in Patent Litigation

Posted on May 5, 2014 in Blog

Two recent Supreme Court decisions have changed the standards under which attorney’s fees may be awarded in patent infringement cases.

In patent litigation cases, a court may award attorney’s fees to the prevailing party in “exceptional cases.” (35 U.S.C. § 285). Until now, the award of attorney’s fees has been relatively rare, since the test the Federal Circuit devised as to whether a case rose to the level of “exceptional” was fairly stringent. Under the old Federal Circuit standard, to find a case exceptional required a finding that there had been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions. Absent misconduct in the conduct of the litigation or in securing the patent, fees were only imposed only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. See Brooks Furniture Mfg. Inc. v. Dutailier Int’l, Inc. 393 F.3d 1378 (Fed. Cir. 2005).

For example, see Takeda Chem. Indus., Ltd. v. Mylan Laboratories, Inc., 549 F.3d 1381 (Fed. Cir. 2008), rehearing denied (2009). In this Hatch-Waxman case, Takeda was the NDA holder of the anti-diabetic drug pioglitazone, which is covered by U.S. Patent No. 4,687,777. Both Mylan and Alphapharm filed Abbreviated New Drug Applications with the FDA, certifying that the ‘777 patent was invalid for obviousness, and provided Takeda with the requisite Paragraph IV notification letters to that effect. Takeda sued both Mylan and Alphapharm for infringement of the ‘777 patent. After a lengthy bench trial, the district court found that the ‘777 patent was nonobvious and enforceable, which was affirmed by the Federal Circuit. Takeda then moved for attorney’s fees under §285. The district court granted the award of attorney’s fees in the amount of $16,800,000, citing the weakness of both Alphapharm’s and Mylan’s Paragraph IV certification letters, and the defendants’ shifting theories of the alleged obviousness of the ‘777 patent. The Federal Circuit upheld the award.

However, the Supreme Court overturned the rather restrictive Federal Circuit standard. In Octane Fitness, LLC v ICON Health and Fitness, Inc. 572 U.S. ____ (2014) the patent owner ICON had sued Octane for infringement of a patent covering exercise equipment. The district court granted Octane’s motion for summary judgment of non-infringement and Octane moved for attorney’s fees under §285. The district court applied the Brooks Furniture standard and declined to award attorney’s fees. On appeal, the Federal Circuit affirmed the judgment of non-infringement, and denial of attorney’s fees.

The Supreme Court granted certiorari on the issue of attorney’s fees and reversed. The Court held that the Federal Circuit test was “unduly rigid”, and replaced it with the standard wherein 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 also held that district courts may determine whether a case is “exceptional” in a case-by-case exercise of their discretion, considering the totality of the circumstances. See Octane Fitness, LLC v ICON Health and Fitness, Inc., 572 U.S. ____, at page 7 (2014).

In a decision issued on the same day, Highmark Inc. v. Allcare Health Management System, Inc. 572 U.S. ____ (2014) the Supreme Court changed the standard under which a district court’s award of attorney’s fees under §285 should be reviewed. Highmark had sued patent owner Allcare Health Management in a declaratory judgment action, alleging that Allcare’s patent was invalid and not infringed. Allcare counterclaimed for patent infringement.

The district court found the patent was not infringed, which was affirmed on appeal. The district court then granted Highmark’s motion for attorney’s fees under §285, finding that the case was “exceptional.” The Federal Circuit reversed the district court’s finding in part, reviewing the district courts’ finding under the “de novo” standard. The Supreme Court granted certiorari, and vacated the Federal Circuit’s decision. The Court remanded the case for further proceedings, holding that a district court’s award of attorney’s fees under §285 should be reviewed for an “abuse of discretion”.

Given the relative loosening of the standard by which a district court can find a patent case rises to the level of “exceptional”, it seems likely that awards of attorneys’ fees in patent cases will become more common.


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