April 29, 2014

Supreme Court Decides Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management System, Inc.

Section 285 of the Patent Act provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." On April 29, 2014, the Supreme Court unanimously held in Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, that an "exceptional" case is "simply one that stands out from the 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 matter in which the case was litigated." District courts should make this determination on a "case-by-case exercise of their discretion, considering the totality of the circumstances."

The Court rejected the Federal Circuit's framework for analyzing the "exceptional cases" standard, as set forth in Brooks Furniture Mfg., Inc. v. Dutailer Int'l., Inc.,395 F.3d 1378 (2005), as being inconsistent with the statutory text, overly rigid, and so demanding that "it would appear to render §285 largely superfluous." Brooks Furniture had held that a case was "exceptional" only when there was some material inappropriate conduct or when the litigation was both brought in subjective bad faith and objectively baseless. The Court explained that the first Brooks Furniture category appeared to largely cover independently sanctionable conduct; "[b]ut sanctionable conduct is not the appropriate benchmark." The Court further found that the second category was also too restrictive—"a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award."

Brooks Furniture also required "clear and convincing evidence," but in Octane Fitness, the Court instead adopted a preponderance-of-the-evidence standard because "nothing in §285 justifies such a high standard of proof." "Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less a high one."

In a companion case, Highmark Inc. v. Allcare Health Management System, Inc., No. 12-1163, the Court further unanimously held that, "[b]ecause §285 commits the determination whether a case is ‘exceptional' to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion."

Justice Sotomayor delivered the unanimous opinion of the Court in both cases (except that Justice Scalia did not join the Octane Fitness opinion as to footnotes 1-3).

Download the Octane Fitness Opinion

Download the Highmark Opinion

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