In OCTANE FITNESS, LLC v. ICON HEALTH & FITNESS, INC., Appeal No. 12-1184, the Supreme Court reversed and remanded the Federal Circuit’s affirmance of the district court’s denial of attorney’s fees under 35 U.S.C. § 285.

Icon sued Octane for patent infringement.  After the District Court granted summary judgment of non-infringement to Octane, Octane moved for attorney’s fees under § 285.  Octane’s motion was denied under the Federal Circuit’s framework of Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005).  Under Brooks, a case may be deemed “exceptional” under § 285 in only two circumstances: when there has been some material inappropriate conduct, or when the litigation is brought in subjective bad faith and is objectively baseless.  Additionally, Brooks required that entitlement to fees under § 285 be proved by clear and convincing evidence. The Federal Circuit affirmed the district court’s holding and declined to revisit its settled standard for exceptionality from Brooks.

The Court held that the text of § 285 is clear and 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 reversing the Federal Circuit, the Court found the Federal Circuit’s Brooks framework to be “overly rigid.”  First, the Court found Brooks’s first category of sanctionable conduct to be an inappropriate benchmark—conduct that is exceptional (and deserving of fees) need not rise to the level of material inappropriate conduct that is independently sanctionable.  Second, the Court found that Brooks’s second category’s dual requirement of subjective bad faith and objective baselessness had been improperly imported into § 285 by the Federal Circuit (from Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993) (“PRE”)).  The Court noted that the concerns justifying that dual requirement in antitrust cases (as in PRE) do not justify its application to “the mere shifting of attorney’s fees.”  Third, the Court rejected Brooks because it renders § 285 largely superfluous.  Finally, the Court held that preponderance of the evidence is the proper standard for establishing exceptionality under § 285, not clear and convincing evidence as required by the Federal Circuit.

In HIGHMARK INC. v. ALLCARE HEALTH MANAGEMENT SYSTEM, INC., Appeal No. 12-1163, the Supreme Court vacated and remanded the Federal Circuit’s partial reversal.

Highmark sued Allcare seeking a declaratory judgment of invalidity, unenforceability, and non-infringement.  After the District Court granted summary judgment of non-infringement to Highmark, Highmark moved for fees under § 285.  The district court found the case to be “exceptional” and granted Highmark’s motion.  On appeal, the Federal Circuit reviewed the district court’s determination de novo and reversed in part.  The Federal Circuit held that its de novo review was justified because whether a claim is “objectively baseless” under Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), is a mixed question of law and fact.  

The Supreme Court considered Highmark alongside Octane Fitness, LLC v. Icon Health & Fitness, Inc. and applied its reasoning in Octane to vacate and remand Highmark.  The main issue considered by the Court inHighmark was the appropriate standard of review for a determination of exceptionality under § 285.  The Court held that § 285 commits the determination of exceptionality to the discretion of the district court and that the district court is better positioned to decide whether a case is exceptional because it lives with the case over a prolonged time period.  Therefore, all aspects of a district court’s § 285 determination must be reviewed on appeal only for abuse of discretion.