What Octane Fitness Means for Determining “Exceptional” Patent Cases

While many argue that the U.S. Supreme Court’s recent opinion in Octane Fitness LLC v. Icon Health & Fitness Inc. means bad news for so-called patent “trolls” (i.e., entities that buy patents solely for the purpose of suing others for infringing the claims of the patent), the reality may be that the new, relaxed standard for proving an “exceptional” patent case will result in little change to the legal landscape.

The Patent Act, specifically 35 U.S.C. § 285, authorizes district courts to award attorneys’ fees to prevailing parties in “exceptional” cases.  In 2005’s Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., the U.S. Court of Appeals for the Federal Circuit defined an “exceptional” case as one that involves material misconduct related to litigation, or misconduct related to securing the patent.  Absent such misconduct, sanctions could be “imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.”  The parties must also establish the “exceptional” nature of the case by “clear and convincing evidence.”

On April 29, however, the Supreme Court rejected the standard set by the Federal Circuit, finding it unduly rigid.  Instead, the Supreme Court found that “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.  District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”

The Supreme Court also rejected the “clear and convincing evidence” burden on the movant, finding that “Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.  Indeed, patent-infringement litigation has always been governed by a preponderance of the evidence standard.”

In Highmark Inc. v. Allcare Health Mgmt. Sys., 134 S.Ct. 1744 (2014), a Supreme Court opinion issued the same day that is in line with the notion that district courts are to be given more discretion in determining § 285 issues, the high court found that district courts’ § 285 decisions must be reviewed by appellate courts under an “abuse of discretion” standard rather than a de novo standard.

In Octane Fitness and Highmark, the Supreme Court remanded the cases in light of the new standards.

While the district court presiding over Octane Fitness adopted the prior, more rigid standard under Brooks Furniture, nothing in its Sept. 6, 2011, decision denying attorney’s fees and costs under § 285 indicates that the district court would change its mind under the new Octane Fitness standard.  Although the district court ultimately found the infringement theory unpersuasive, it did not find the claims frivolous.  The district court was unmoved by the fact that the patentee never commercialized the patent at issue (though the patentee appears to have commercialized other fitness equipment). The district court also was unmoved by email records from stray employees stating that the lawsuit would bring a competitive advantage, as patentees are entitled to exclude all infringers, and “[s]imply bringing suit to gain a competitive advantage is not evidence of bad faith.”  Therefore, even under the new, less rigid standard, the court may nevertheless find that the Octane Fitness case is not “one 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.”

Indeed, courts, having been given more rather than less discretion, may very well arrive at the same result under the old and new standard.  On May 12, a U.S. District Court in Texas was unwilling to modify its pre-Octane Fitness decision that denied attorney’s fees under § 285.  In Bianco v. Globus Med., Inc., Case No. 2:12-CV-00147-WCB, 2014 U.S.Dist.LEXIS 64805 (E.D.Tex. May 12, 2014), the court had previously found that the plaintiff should not be listed as a co-inventor of certain patents. However, the plaintiff’s claims regarding co-inventorship were not frivolous, nor did the case otherwise “set itself apart”: The plaintiff did provide a set of drawings reflecting his ideas to the defendant, and the defendant admitted receiving and examining them.  Further, the court found that “[i]t is common ground between the parties that the drawings, in the context in which they were submitted, constitute the contribution [plaintiff] made to the development of the disputed products.”  The defendant’s claim for § 285 “exceptional” fees as to the co-inventorship issue also was likely unconvincing given that a jury had found the defendant otherwise liable for misappropriating the plaintiff’s trade secrets.

Legal experts and commentators have opined that the relaxed standards of Octane Fitness may apply mostly to lawsuits filed by patent trolls.  Given the White House’s stance on such trolls, and the heightened joinder requirement for patent lawsuits under the America Invents Act (targeting the fact that patent “trolls” were filing one lawsuit against multiple, unrelated defendants), it’s not unreasonable to think that the Supreme Court feels similarly wary (and weary) of patent trolls.  But if the Supreme Court does feel that way, Octane Fitness does little to propel patent troll lawsuits to “exceptional” cases warranting attorneys’ fees.  Cases must still stand 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.”  In other words, what’s at issue is still the strength of the case or other misconduct.  Absent a commercial use requirement for patentee-plaintiffs (which would present its own set of problems), patent trolls appear to be held to the same standards as any other patentee-plaintiffs.

Given the relaxed standards of proof, and the Supreme Court’s reiteration of the district court’s ability to decide § 285 issues with discretion, the real impact of the Octane Fitness decision may simply be that fewer parties will decide to appeal § 285 rulings.  Time will tell if Octane Fitness will affect patent trolls more so than other patentee-plaintiffs.