The number of lawsuits concerning patents continues to skyrocket. A recent study by PricewaterhouseCoopers LLP revealed that between the years 1991 and 2013 the number of patent-related lawsuits, filed in US courts annually, grew upwards of 600% (from approximately 1000 in 1991 to over 6000 in 2013). Further, the number of cases filed doubled between 2009 and 2014. A driving force behind this litigation flood is the proliferation of patent assertion entities (‘PAE’), also known as patent holding companies, non-practicing entities, and patent trolls. In essence, the business of such entities is asserting their patent portfolios against others engaged in commerce.
In US courts, the aptly named American Rule governs attorney’s fees. Each party in a patent suit pays his own costs – win or lose. The reasoning behind this construct is to insure that everyone has his day in court regardless of his ability to pay and that a defendant should not be saddled with paying for an opponent's frivolous lawsuit. However, this also means that PAE's can sue for patent infringement with little risk other than its own legal costs and the risk that the patent utilized to bring suit could be declared invalid. For an accused infringer there are two options when presented with a patent infringement threat or suit: (1) agree to license the PAE’s “technology”; or (2) fight the accusations through litigation. This choice is difficult for any business. Patent litigation often involves complex discovery, pricey experts, and experienced attorneys. In the end, after fending off a PAE, a trial often leaves businesses with a hefty tab for their troubles.
Luckily, 35 U.S.C. §285 exists. This section in the Patent Act permits limited cost shifting to prevailing parties in a patent suit-as an exception to the American rule described above. Pursuant to §285, a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” Though, until recently, there were few exceptional cases. Between 2003 and 2013, the number of patent suits awarding costs was just over 200. However, the Supreme Court’s ruling in Octane Fitness v. Icon Health & Fitness may change things.
Prior to Octane Fitness, the Federal Circuit used a rigid framework to determine whether a case was extraordinary, thus warranting fee shifting. Under this framework, extraordinary cases occurred when there had “been some material inappropriate conduct related to the matter in litigation.” This included willful infringement, fraud or inequitable conduct before the USTPO that led to the contested patent’s grant, misconduct during litigation, “vexatious or unjustified litigation,” or violations of Rule 11 of the Federal Rules of Civil Procedure. Further, unless misconduct occurred, fees could only be awarded if the litigation was brought in bad faith, and the litigation was objectively baseless. The “bad faith” prong proved exceedingly difficult to prove.
In Octane Fitness, the Supreme Court scrapped this framework. Rather, it stated, “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.” Bad faith may be considered, but is not a requirement. Instead, a court must look at each case individually, while using a holistic approach.
So has anything changed? It’s tough to say, but maybe… A recent Westlaw™ search for cases citing Octane Fitness revealed fifteen containing §285 decisions relating to a prevailing party (several other cases determined that a party was not prevailing, thus not entitled to fees). Of these fifteen, ten were held to be extraordinary cases warranting fees. Moreover, within these ten decisions, four appeared to be against PAE or a similar entity.
However, recovering fees may leave little room for error as Intel found in a recent decision coming from the Eastern District of Texas, Stragent, LLC v. Intel Corp. In a recent order, Judge Dyk, sitting by designation from the Federal Circuit, declined to award the prevailing party fees. This order came despite the hallmarks of a frivolous case – Stragent LLC, a PAE, had its asserted patents invalidated and ruled not-infringed by Intel. In making his decision, Judge Dyk seemed to place a heavy emphasis Intel’s failure to move for summary judgment on either the validity or infringement issues. While acknowledging the weakness of Stragent’s arguments, Dyk also appeared to place blame on Intel for allowing the case to proceed to trial:
“Stragent’s argument was certainly a weak one, but despite the alleged implausibility of Stragent’s position, Intel never sought summary judgment of non-infringement…This suggests that Intel did not always view Stragent’s infringement position as frivolous. There is little injustice in forcing Intel to bear its own attorney’s fees for defending a claim it did not challenge on summary judgment. Disposing of a frivolous claim on summary judgment would avoid a trial and have the effect of saving both parties a substantial portion of their litigation costs.”
It will certainly be worth following to see if Intel chooses to appeal this case – and with $9,000,000 in fees at stake, they may try. Additionally, the Eastern District of Texas holds the dubious distinction of being the court PAE’s use most frequently use assert their portfolios. As Judge Dyk appeared to consider how Intel perceived the strength of Stragent’s arguments, best practice may include using summary judgment to indicate and memorialize the apparent weakness in an opponent’s argument.
So the Supreme Court appears to have tried to make it easier for some patent defendants to recover costs for exceptional cases. The trick will now be to see how exceptional these cases need to be.