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Supreme Court Makes it Easier to Penalize Misbehaved Patent Litigants

By Stephen B. Schott

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Yesterday, the Supreme Court invited district courts to use more discretion in awarding attorney fees in “exceptional” patent cases. This 9-0 decision delivered by Justice Sotomayor in a case involving elliptical machines will help judges penalize misbehaving patent litigants.

The law governing exceptional patent infringement cases reads in total:

The court in exceptional cases may award reasonable attorney fees to the prevailing party.

Following this statute, in order to get your attorney fees in a patent case, you need to meet two standards:

1. You must win.
2. The case has to be exceptional.

Winning is usually clear. What is less clear is the meaning of “exceptional.”

Before 2005, district courts could find a case exceptional using their discretion to weigh case law and certain factors. But in 2005, the Federal Circuit set the standard for “ exceptional” when the defendant is the prevailing party, holding that a case is exceptional “when there has been some material inappropriate conduct” or when the litigation is “brought in subjective bad faith” and is “objectively baseless.”

This set a high standard for attorney fee awards and made attorney fees particularly hard to secure in a case where a defendant prevailed against a nearly baseless lawsuit.

In yesterday’s Octane Fitness v. Icon Health decision, the Court reviewed the Federal Circuit’s high standard and found it wanting.

The Supreme Court’s Decision

In defining “exceptional,” the Court looked to dictionary definitions, and in particular noted two dictionary definitions before 1952 when Congress wrote the statute.

From these definitions, the Court concluded that district courts should exercise their own discretion to decide when a case is exceptional, and offered this guidance for determining whether a case meets the exceptional standard.

We hold then, 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.

The Court went on to chastise the Federal Circuit’s previous standard as too rigid.

Given the Congressional and Executive push to curb improper patent litigation, this newly found court discretion to award attorney fees should be a welcome decision to patent infringement defendants.

Interestingly, Senator Leahy has suggested an amendment to the exceptional attorney fee award statute:

The court in exceptional cases its discretion may award reasonable attorney fees to the prevailing party.

I am not sure if Congress will pass this but I will watch its progression and report back with updates.

If you have questions, contact me.

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