The Supreme Court's unanimous decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc. addresses when to award attorneys' fees in patent cases. The Patent Act provides for an award of attorneys' fees in "exceptional cases”. 35 U.S.C. § 285. The rules developed by the Federal Circuit Court of Appeals required a successful defendant to prove by clear and convincing evidence either (1) "material inappropriate conduct" during the litigation or (2) assertion of a claim both "objectively baseless" and "brought in subjective bad faith."
Under Octane Fitness:
[A]n "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 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 Court went on to note:
Under the standard announced today, a district court may award fees in the rare case in which a party's unreasonable conduct – while not necessarily independently sanctionable – is nonetheless so "exceptional" as to justify an award of fees.
The Court also noted:
[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.
In Octane the Supreme Court concluded the rules that had been developed by the Federal Circuit - including the requirement of the elevated "clear and convincing" burden of proof - were too restrictive and inflexible to implement the statutory standard of an "exceptional” case.
A companion Supreme Court case unanimously ruled the exceptional case determination by a District Court can only be reversed for abuse of discretion. Highmark Inc. v. Allen Health Management Systems, Inc. Thus the District Court is entitled to a high degree of deference when determining whether a case is exceptional.
Taken together these two cases will: (1) allow District Courts to develop flexible and case specific standards for awarding attorneys' fees in patent cases; and (2) reduce appellate review of fee awards.
Some commentators have suggested this flexibility may be used to award fees against "patent trolls" who bring suit to extract settlements based on high litigation costs rather than the underlying merits. It will take some time, however, for predictable case specific standards to emerge. District Courts will need to apply their discretion to limit fee awards to exceptional cases. The threat of attorneys’ fees should not discourage the assertion of a colorable claim merely because the claim is unsuccessful.