The House Judiciary Committee held a hearing on February 12 that examined recent Supreme Court cases and their impact on patent reform. (You can find my summary of the hearing here.) Although the discussion was wide-ranging, the Innovation Act’s fee-shifting provisions and the impact of Octane Fitness received the most attention. The Committee members and witnesses provided several reasons why they believe a complete overhaul of 35 U.S.C. §285 is still necessary, which can be boiled down to three main points:
- District courts will be more likely to award fees under the Innovation Act
- The Innovation Act provides a clearer standard that will create more consistency and predictability
- District court judges will have less discretion to deny fee motions under the Innovation Act
When the Innovation Act was first introduced in 2013, most commentators would have agreed with the first argument (and maybe all three). But after Octane Fitness, it’s a much closer question. The fate of the Innovation Act’s fee-shifting provisions may very well turn on whether these arguments are correct.
The “Exceptional Case” Standard under §285 & Fee Awards under the Innovation Act
When the House initially introduced the Innovation Act, the standard for awarding attorney fees under §285 was governed by the Federal Circuit’s holding in Brooks Furniture. Under the Brooks Furniture framework, the district court could only deem a case “exceptional” in two circumstances: (1) where there has been some material inappropriate conduct, or (2) when the litigation is both brought in subjective bad faith and objectively baseless. Later, in iLor v. Google, the Federal Circuit clarified that a litigation is objectively baseless only if “it is so unreasonable that no reasonable litigant would believe it would succeed,” and that litigation is brought in subjective bad faith only if the plaintiff “actually knows that it is objectively baseless.” The Federal Circuit further required that the underlying conduct and characterization of the case as exceptional must be established with clear and convincing evidence.
The Innovation Act provided a far less restrictive standard for awarding fees. Under the Act’s amended version of §285, a court shall award reasonable fees and expenses “unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances … make an award unjust.”
Nine months ago, in Octane Fitness, the Supreme Court rejected the Brooks Furniture framework. The Court held 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.” The Court also eliminated the requirement of “clear and convincing” evidence and, instead, adopted a “preponderance of the evidence” standard.
Nevertheless, when the Innovation Act was re-introduced in the House earlier this month, the bill’s fee shifting provisions remained unchanged. The bill’s supporters did not believe that the Octane Fitness standard went far enough to promote fee shifting and curb abusive litigation.
Will Fee Shifting Really Be More Likely Under the Innovation Act?
Reports have shown an uptick in fee awards after Octane Fitness. For example, Lex Machina reported that fee motions were granted at a 40% rate in the six months that followed. But during the February 12 Judiciary Committee hearing, Krish Gupta from EMC Corp. testified that the increase in granted fee motions was minimal. According to EMC’s analysis of decisions in the nine months since Octane Fitness, fee motions were denied 58% of the time (compared to a 62% rate previously).
But will the Innovation Act really increase the number of granted fee motions? That’s nearly impossible to predict. The difference between a position that is “reasonably justified” and one that is so lacking that it “stands out from others” cannot be quantified. Based on the language alone, it is hard to say that one standard or the other would lead to more fee awards.
Several Committee members and witnesses at the February 12 hearing expressed a different view. They believe that the Innovation Act will provide for more fee shifting, but did not explain how the bill will achieve that result. In some instances, this support appeared to be based on a characterization that is not supported by the bill’s actual language. For example, in his prepared remarks, Mr. Gupta stated that the Innovation Act would “level the playing field” by requiring that fees be awarded unless the losing party’s position is “substantially” justified. The bill, however, only requires that the position be “reasonably” justified. Herb Wamsley’s prepared remarks include a similar description. He expressed support for fee shifting unless “the position and conduct of the non-prevailing party were objectively reasonable and substantially justified or exceptional circumstances make an award unjust,” which also fails to track the bill’s language.
If there is a clear-cut reason why the Innovation Act will lead to more fee shifting, it was not articulated by the House Judiciary Committee or the witnesses.
Will the Innovation Act Really Make Fee Shifting More Consistent and Predictable?
Rep. Goodlatte and several witnesses remarked about the consistency and predictability of the Innovation Act’s fee-shifting provision. Here again, it is not clear how the actual language of the bill will bring about this result. Many commentators have criticized Octane Fitness because it does not provide guidance as to what type of case “stands out from others” to warrant a fee award. But the same criticism can be leveled at the “reasonably justified” standard in the Innovation Act. The problem that both standards face is that patent litigation is not predictable. Unless fee-shifting becomes mandatory in every case (without exception), no litigant will be able to assess a case at the outset and determine with any certainty that a fee award will be granted. And even if fee shifting was mandatory, there would still be uncertainty. The high number of reversals at the Federal Circuit only proves this point.
Does the Innovation Act Really Provide Less Discretion to District Court Judges?
The witnesses at the February 12 hearing also claimed that the Innovation Act will provide less discretion to district court judges in awarding fees. Unlike the other arguments, this view appears to be based in the language of the bill. The bill provides that the court “shall” award fees “unless” the court finds that the position and conduct of the losing party was reasonably justified. Mr. Wamsley, for example, characterized this framework as “presumptive fee shifting” in his prepared remarks. He later repeated this during his testimony, and another witness made a similar comment.
Rep. Goodlatte, however, strongly disagreed with Mr. Wamsley’s characterization. And for good reason. The bill’s language does not presume that the losing party’s position is unreasonable or unjustified. But more to the point, the fee award will still depend on the district court’s findings. A court can only award fees if it determines that the losing party’s position was not reasonably justified. Thus, the district court has the same amount discretion in awarding fees under the Innovation Act as it does under the Octane Fitness standard.