In Highmark, Inc. v. Allcare Health Management Systems, Inc., 701 F.3d 1351 (Fed. Cir. 2012) (No. 2011-1219), the Federal Circuit denied rehearing en banc, with a concurrence and two lengthy dissents, on what level of review to give the determination that a case is “exceptional” under 35 U.S.C. § 285.  Section 285 allows the court to award attorney fees to the prevailing party if the case is “exceptional,” which requires a determination that the “position of the sanctioned party is (1) objectively unreasonable, and (2) asserted in subjective bad faith.”

Allcare appealed the district court’s order finding its case exceptional and awarding attorney fees and costs to Highmark and the Federal Circuit panel affirmed in part, reversed in part and remanded the case.  Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300 (Fed. Cir. 2012).  In that decision, the Court evaluated whether Allcare’s infringement counterclaims were objectively baseless as a question of law based on underlying mixed questions of law and fact, subject to de novo review.  The Court affirmed the district court’s finding that one of Allcare’s accusations of infringement was objectively baseless because a limiting preamble prevented its application to Highmark and that it was asserted in bad faith because Allcare made no showing at any point in the litigation that its baseless claim construction was supportable.

The concurrence for the denial of rehearing en banc, written by Judge Dyk and joined by Judge Newman, argued that the objectively reasonable prong of the inquiry warrants de novo review because it was based on claim construction, which is a question of law and Supreme Court precedent mandates review of such legal questions under a de novo standard.

The first dissent, written by Judge Moore and joined by Chief Judge Rader and Judges Reyna, O’Malley and Wallach, disagreed and argued the exceptional case finding is entitled to a deferential clear error review standard, even if it is mostly based on a finding of objective baselessness.  The second dissent, written by Judge Reyna and joined by Chief Judge Rader (in parts I-II) and Judges Moore, O’Malley and Wallach, similarly used various Federal Circuit and Supreme Court precedent to support the position that a more deferential “clear error” standard is a better approach to a district court’s finding of an exceptional case than the new “de novo” standard set forth by the panel in Highmark.  Part III of Judge Reyna’s dissent takes particular issue with the majority’s reliance on changes to the willful infringement standard to support a less deferential standard of review in Section 285 cases.