(Note: the subject matter of this post is a bit off-topic for this blog, but with all of the attention being paid to non-meritorious patent lawsuits and potential solutions, we thought this warranted mentioning.)
Patent litigation, like most litigation in this country, is generally controlled by the “American Rule” — the general rule that each party pays its own litigation-related costs and attorneys’ fees. This stands in contrast to the rules in other countries such as England, where the losing party generally pays the other’s attorneys’ fees. There are exceptions to the American Rule in various jurisdictions and types of litigations, including the patent-related provision in 35 U.S.C. § 285.
Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” However, it’s well-known that courts rarely award fees under Section 285 except in the most egregious circumstances (in fact, we recently posted a patent alert about a denial of fees). Under current Federal Circuit precedent, cases are only deemed exceptional if there has been litigation misconduct or fraud in securing the patent, or if an infringer’s claim is both objectively baseless and brought in subjective bad faith. See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1308 (Fed. Cir. 2012).
In a recent petition for certiorari, Octane Fitness LLC has asked the U.S. Supreme Court to overturn this precedent and make it easier for prevailing patent infringement defendants to recover attorneys’ fees from infringement plaintiffs.
Fee-shifting in patent litigation has been quite a hot topic lately. The recently reintroduced SHIELD Act includes a fee-shifting provision, albeit one that would be limited to forcing certain non-practicing entity patent infringement plaintiffs to pay defendants’ costs and attorneys’ fees upon a finding of non-infringement, unenforceability, or invalidity of the patent. This legislation has been well-received by some, while others have decried it as unfair and unnecessary. Still others have proposed that the “loser pays” rule apply equally to all parties in patent litigation.
Octane takes note of this debate over fee-shifting and NPEs in its cert petition. But first, a bit of background on the case. Octane, a fitness company which makes elliptical exercising machines, was sued in 2008 by Icon Health and Fitness, a larger competitor, over two patents relating to linkage systems for elliptical machines. According to Octane, Icon used an “old patent it had sitting on the shelf as a way of hampering an upstart competitor.” In 2011, the district court granted summary judgment of non-infringement in favor of Octane, finding several elements of the asserted claims were not met. But the district court then denied Octane’s motion for attorneys’ fees under Section 285, finding that Icon’s claims were neither objectively baseless nor brought in subjective bad faith. Octane asked the Federal Circuit on appeal to lower the exceptional case standard to include infringement claims that are “objectively unreasonable.” In affirming the district court, the Federal Circuit explained that it has “no reason to revisit the settled standard for exceptionality.” (For more info, see Patently-O’s October 2012 post on the case).
Octane’s Petition for Certiorari [Link]
In its petition, Octane calls the Supreme Court’s attention to the “proliferation of weak patent cases by those who did not invent,” an issue that Octane argues “has garnered national attention.” Octane specifically cites the SHIELD Act’s fee-shifting provision, but argues that Section 285 itself is sufficient to deter non-meriorious claims — if not for the Federal Circuit’s narrow interpretation of what constitutes an exceptional case. Octane argues that the Federal Circuit “has made it near-impossible for prevailing accused infringers to recoup attorney fees, and it has guttered the otherwise deterring-effect of the statute on the assertion of spurious patent claims.” Octane cites a study finding attorneys’ fees are granted in only 1% of patent cases, with plaintiffs twice as likely to receive fees than defendants. Octane claims that this imbalance is because fees are normally awarded to plaintiffs on a finding of willful infringement by defendants — a much lower standard than the “objectively baseless” / “in subjective bad faith” standard applied to plaintiffs.
To restore this balance to the application of Section 285, Octane urges the Court to adopt a standard that would allow a district court to award fees in cases where a patentee “unreasonably pursues a case having an objectively low likelihood of success.” Octane argues that Section 285 neither requires proof of bad faith nor proof of a Rule 11 violation. But if bad faith is required, Octane asserts that the Court adopt a “subjective bad faith” standard more akin to recklessness or gross negligence, similar to willful infringement.
Given the already-low chances for grants of certiorari and the added fact that the Federal Circuit’s disposition of the case was non-precedential, it’s likely a long shot that Octane will be successful is getting the Court to take the case. But with all of the attention being paid to non-meritorious patent lawsuits and potential solutions, there is at least some chance, so this is certainly a case worth keeping an eye on.