During the last term, the Supreme Court issued a number of opinions related to patents. One of these opinions was Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 188 L. Ed. 2d 816 (2014), a case dealing with attorneys’ fees under statutory Patent Act claims. In a unanimous opinion, the high court lowered the standard in patent cases insofar as it (1) redefined the meaning of “exceptional case” in the fee-shifting provision of the Patent Act; and (2) lowered the burden of proof for those wishing to establish an entitlement to fees under this provision.
Specifically, Justice Sonia Sotomayor, writing for a unanimous court, held first that the previous standard for the award of attorneys’ fees “exceptional cases” was “unduly rigid, and encumbers the statutory grant of discretion to district courts.” After this decision, a prevailing party is now entitled to attorneys’ fees if the litigation is either objectively baseless or brought in subjective bad faith. Previously, both of these elements were required in order for a case to be deemed “exceptional.”
Second, the court also reduced the burden of proof in the context of establishing an entitlement to fees under the Patent Act, lowering it from the stringent “clear and convincing evidence” standard, to the less rigorous “preponderance of the evidence” threshold.
Commentators hailed the Octane Fitness decision as a significant setback for non-practicing entities (NPEs), entities also known in everyday parlance as “patent trolls.” NPEs are persons or companies that enforce patent rights they own against alleged infringers in an attempt to collect licensing fees, all the while abstaining from use of the patents to manufacture products or supply services. The thinking is now that it is easier for victorious parties to obtain attorneys’ fees, PAEs may be disincentivized from filing frivolous, thereby “fundamentally altering” their approach to litigation.
In the months since, a number of courts have construed the holdings in Octane Fitness to produce interesting outcomes:
- On remand from the Supreme Court, the Federal Circuit in Icon Health & Fitness, 576 Fed. Appx. 1002 (Fed. Cir. 2014), after taking into consideration the change in the law as a result of the Supreme Court’s decision, vacated the original District Court ordered that had denied the request of the prevailing party for attorneys’ fees and remanded to the same court for analysis of the prevailing party’s claims in light of the new standards for burden of proof and “exceptional cases.”
- In Gametek LLC v. Zynga, Inc., No. CV 13-2546 RS, 2014 WL 4351414 (N.D. Cal. Sept. 2, 2014), the District Court denied the prevailing party motion for attorneys’ fees, even in light of the “more expansive standard” announced by the Supreme Court four months prior. Although the non-prevailing party was described as an NPE, the case was nonetheless unexceptional for the purposes of the attorneys’ fees provision of the Patent Act because while the NPE utilized an aggressive litigation strategy, it was not one that rose to warranting sanctions even under a preponderance of the evidence standard.
- Finally, in Yufa v. TSI Incorporated, No. 09-cv-01315-KAW, 2014 WL 4071902 (N.D. Cal. Aug. 14, 2014), the prevailing party was entitled to attorneys’ fees under the lower standard, as the other party that instigated the patent infringement suit prolonged the suit despite no admissible evidence and failed to conduct an adequate investigation prior to filing the first amended complaint.
The Octane Fitness decision, coupled with the Alice Corp. case discussed in this blog recently, could be evidence that the Supreme Court is now attuned to the problems intrinsic to NPEs. As these entities continue to purportedly drain billions of dollars from legitimate patent users in the form of litigation expenses and rent seeking, it is unsurprising that the high court has weighed in to perhaps stem the tide of non-meritorious NPE instigated lawsuits.