A recent NLJ story by Scott Graham, “Federal Circuit Weighs $1.4M Fee Award in the Original ‘Octane Fitness’ Case,” reports that the original Octane Fitness v. Icon Health & Fitness is now before the Federal Circuit. That was the 2014 case the Supreme Court used to ease the standard for awarding “exceptional case” attorney fees in patent litigation.
The decision definitely made an impression on U.S. District Judge Ann Montgomery of Minnesota. Back in 2011, she’d brushed aside Octane Fitness LLC’s complaints about its competitor’s unreasonable claim construction and unfair litigation tactics and declined to award fees. After the Supreme Court decision, she awarded $1.4 million in fees and costs, saying that, in her 22 years as a judge, the case “stands out as a particularly and unusually weak case on the merits.”
The parties were back at the U.S. Court of Appeals for the Federal Circuit. This time, Morrison & Foerster partner Deanne Maynard argued for Icon Health & Fitness Inc. that, while it might have had a losing case, the company had not acted unreasonably. “Hard fought, to be sure, but that’s typical in patent cases, especially competitor-on-competitor suits,” Maynard told the judges. “Not extraordinary. Not rare. Like many this court sees every day.”
Maynard faced two obstacles: One is that the Supreme Court also has said that the Federal Circuit should generally trust trial judges to make the call on attorney fee awards under Section 285 of the Patent Act. The second is that one of the three Federal Circuit judges, Todd Hughes, sounded inclined to further lower the standard for awarding fees.
“All those typical patent cases” that Maynard was describing “arise from a regime in which it was incredibly hard to get attorney fees,” Hughes told her. “So we don’t have a baseline yet for what is the new standard. So how do we know whether this complies with the new standard or not?”
The case, now styled Icon Health and Fitness v. Octane Fitness, is a battle between two fitness machine companies over the style of an elliptical trainer—including whether Octane’s has a “stroke rail” that “extends from a foot rail to a frame” in the manner described by Icon’s patent. Octane argues that its elliptical is nothing like this and that Icon executives joked with each other in emails about how the company found this 10-year-old patent gathering dust in its portfolio and asserted it to just mess with smaller competitor Octane.
In her original 2011 opinion, Montgomery called these “stray comments by employees with no demonstrated connection to the lawsuit.” But following the Supreme Court decision—and additional discovery—she concluded that Icon general counsel Everett Smith probably was the source of the executives’ opinions.
Morrison & Foerster formally joined the case just after Montgomery awarded fees in 2015. Maynard argued to the Federal Circuit that just this last June, well after the Supreme Court reset the standard, the Federal Circuit threw out a fee award in a case where executives spoke much more brazenly about stomping on their competition. Maynard didn’t mention it, but two of the three judges on that opinion--Pauline Newman and Alan Lourie—were presiding over her case with Hughes.
“What is a competitor supposed to do?” she asked the judges. “A competitor in the marketplace not surprisingly often has a large patent portfolio, often monitors what its competitors are doing, and if it sees a new competitor in the marketplace who seems to be copying their invention, sues them.” “You’re going to overdeter—overdeter—if you award fees on facts like these,” she told the court.
Rudolph Telscher of Harness Dickey has been representing Octane Fitness since the beginning of the case—all the way up to the Supreme Court and back. He told the Federal Circuit that not only should Octane keep its $1.4 million award, it also should get another $1.5 million for having to litigate the attorney fee issue before Montgomery, the Federal Circuit and the Supreme Court. “Do we appreciate that award? We of course do,” he said. “But we’re still out $1.5 million, which means the net effect is our client has gotten no fee award.”
The Federal Circuit did not sound likely to expand the award. The judges suggested that, until the Supreme Court changed the rules, it was not unreasonable for Icon to oppose attorney fees.
Whether to affirm the underlying $1.4 million award sounded like the closer issue. “There does seem to be at least misapprehensions by the district court” about claim construction, Hughes said. Montgomery’s characterization of Icon’s argument is “not right. That’s not what they argued,” he told Telscher.
Telscher said Icon should have known better. Suppose "I was Icon’s management, and somebody said, ‘Yeah, we’ve got this 10-year-old patent. It doesn’t work. We’ve never used it.' And we’re going to say that’s the basis for a claim against Octane, a small startup company who’s taking market share with a completely different product?” Incredibly, he said, “the red flags didn’t go off.”