Since 1952, courts in the United States have had the authority to award attorney’s fees to the prevailing party in “exceptional” patent infringement cases. This authority, which is codified at 35 U.S.C. § 285, is a departure from the typical rule in U.S. courts that each party must pay its own fees.
In 2005, the Federal Circuit held in Brooks Furniture that a case is only “exceptional” under § 285 if it involves “material misconduct” or was both objectively and subjectively baseless. As a result of this high standard, it became nearly impossible for a prevailing party to obtain fees under § 285. On April 28, 2014, the Supreme Court decided two cases which changed the rules for fee shifting in patent cases.
In a 9-0 decision in Octane Fitness v. Icon Health, the Supreme Court held that the Brooks Furniture test was “unduly rigid.” Instead, the Court held that a case is “exceptional” under § 285 when it is “uncommon,” “rare,” or “not ordinary.” The Court further explained 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.”
In a companion case, Highmark Inc. v Allcare, the Supreme Court held that determinations of ”exceptional cases” by the district courts should be reviewed on appeal under an abuse of discretion standard. The Court thus rejected the practice of reviewing such awards de novo.
The Supreme Court has now sent a clear message to District Courts that: (i), fees should be shifted in more cases and, (ii), that District Court decisions will not be subject to de novo second-guessing by the Federal Circuit. It remains to be seen, however, whether the district courts will respond to the Supreme Court’s guidance by awarding fees in a larger number of cases given the historical reluctance to award fees.