U.S. Supreme Court: Federal Courts Have Discretion to Award Attorney Fees in Patent Lawsuits

April 30, 2014

On April 29, 2014, in Octane Fitness, LLC v. ICON Health & Fitness, Inc., No. 12-1184, 572 U.S. ___ (Apr. 29, 2014), the U.S. Supreme Court issued an effectively unanimous decision giving federal courts greater discretion to award attorney fees to prevailing parties, albeit on a case-by-case basis.

The Patent Act provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." (35 U.S.C. § 285.) Prior to 2005, this provision had been interpreted as giving federal district courts discretion in determining whether the circumstances of a patent case justify the award of attorney fees to the victor.

However, in 2005, the Federal Circuit (which hears nearly all appeals in patent cases) changed the rule. In Brooks Furniture Manufacturing., Inc. v. Dutailer International, Inc., 393 F.3d 1378, the Federal Circuit introduced a new framework that allowed fee shifting only in limited circumstances, and that raised the standard of proof for justifying such fee shifting. This change not only limited the circumstances under which fee shifting was available, but raised the bar on how persuasive the evidence of those circumstances must be.

On April 29, 2014, the Supreme Court rejected the Federal Circuit's framework. Writing for an effectively unanimous Court, Justice Sotomayor characterized the Brooks holding as imposing "a more rigid and mechanical formulation" that was "so demanding that it would appear to render [the fee shifting provision] largely superfluous." (Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184, slip. op. at 4, 7.) The Court concluded that the only limitation on a district court's discretion provided by the statute is that attorney fees may be awarded in "exceptional" cases. The Court held that the "ordinary meaning" of an "exceptional" case is "simply one that stands out from others with respect to the substantive strength of a party's litigation position" in light of various factors, such as the "governing law and the facts of the case" or the "unreasonable manner in which the case was litigated." The Court held that district courts may "determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances." Justice Sotomayor also noted that "patent-infringement litigation has always been governed by a preponderance of the evidence standard" and reversed the Federal Circuit's higher "clear and convincing evidence" standard.

Although this decision appears to restore some discretion to federal district courts, Congress is currently considering a proposed amendment to the Patent Act that would remove that discretion entirely. H.R. 3309, also known as the Innovation Act, includes an amendment to 35 U.S.C. § 285 that could effectively require the federal district court to award attorney fees to the victor in patent litigation cases. Currently, H.R. 3309 has passed the U.S. House of Representatives and is being considered by the Senate Committee on the Judiciary.