The Court on Tuesday morning issued the first two opinions from its February sitting, Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management Systems. Those opinions resolve the twin patent cases on the topic – dear to the concerns of law firm partners but perhaps a little too boring for ordinary dinner-table conversation – of when prevailing parties can recover attorney’s fees in patent cases. Collectively, the cases sternly rein in the Federal Circuit’s role in deciding when fees are appropriate, adopting a regime that will give federal district courts an almost entirely free hand in determining when fees are appropriate. This is important, because it represents a sea change from the regime of the last decade, in which the Federal Circuit has articulated a set of steadily more stringent standards that have made fee awards in patent cases quite uncommon.
Both cases (to quote Octane) “begin and end with” the language of Patent Act § 285: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” The first case, Octane, assesses the substantive standard that the district court should use in deciding whether to award fees. The Federal Circuit has adopted a framework that permits fees only in the event of “material inappropriate conduct” or in a case that is both “brought in subjective bad faith” and “objectively baseless.” Justice Sotomayor’s succinct opinion adopting a much more lenient standard is unanimous except for Justice Scalia’s unwillingness to join three trivial footnotes discussing the legislative history of Section 285.
The error of the Federal Circuit’s constrictive standard seems so clear to the Court that the substantive portion of the opinion is barely five pages long. Because Section 285 does not define “exceptional,” the Court offers its “ordinary” meaning as including cases that are “uncommon,” “rare,” or “not ordinary.” Specifically, the Court describes a case “that stands out from others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.” District courts are to determine whether a case is exceptional “in the case-by-case exercise of their discretion, considering the totality of the circumstances.”
After a little more than a page articulating that apparently self-evident reading, the rest of the opinion consists of a point-by-point summary of the four errors the Court saw in the Federal Circuit’s “overly rigid” reading of Section 285.
Justice Sotomayor found it even easier (in her unanimous opinion in Highmark) to elucidate the error in the Federal Circuit’s highly intrusive review of district court decisions awarding fees under Section 285. In this case, the analytical portion of the opinion amounts to not even two pages – shorter than the statement of facts! Explaining that Octane (announced a few minutes earlier) obligated district judges to assess the propriety of fees in the “exercise of their discretion,” considering “the totality of the circumstances,” it was enough to say that “Octane settles this case: Because § 285 commits the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision to be reviewed on appeal for abuse of discretion.”
With a few brief paragraphs noting that a district court that “lives with a case for a prolonged period of time” is “better positioned” to make that decision, and adding the obvious qualification that abuse of discretion permits an appellate court to correct a legal error, the Court was done with its patent work for the month.
One final tidbit: The two opinions in this case are Justice Sotomayor’s fifth and sixth majority of the opinion of the Term. Nobody has more, and only Justice Scalia has as many.
PLAIN LANGUAGE: A provision of the federal patent law allows district judges to award attorney’s fees in cases that are “exceptional.” The appeals court that hears patent cases adopted a rule under which, as a practical matter, it is almost impossible to obtain fees, even in truly outrageous cases. The Supreme Court unanimously disagreed, explaining that district courts should use their “discretion” to decide whether fees are appropriate, and obligating the appeals court to respect the discretion of the district courts.
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