The U.S. Supreme Court ruled today in two cases concerning attorney fees in patent litigation, including one cast as an avenue to deter frivolous litigation by patent trolls.  The opinions ease the way for attorney fees to the prevailing party in patent cases deemed “exceptional.” 

In Octane Fitness v. ICON Health and Fitness, the court considered the standard to determine exceptional cases.  In a unanimous opinion (pdf), the court said the U.S. Court of Appeals for the Federal Circuit had hindered the award of attorney fees with its standard set in a 2005 case, Brooks Furniture Manufacturing v. Dutailer International Inc.

In Brooks, the Federal Circuit said fees could be awarded only if there was misconduct in the litigation or if two criteria were met: the lawsuit was brought in subjective bad faith and the litigation was objectively baseless.  In her opinion for the court, Justice Sonia Sotomayor said that formulation “superimposes an inflexible framework onto statutory text that is inherently flexible.”  The court was interpreting Section 285 of the Patent Act, which said a court “in exceptional cases may award reasonable attorney fees to the prevailing party.”

Sotomayor said “exceptional” cases should be construed in accord with the word’s traditional meaning.  “We hold, then, 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.  District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”

Sotomayor said the Federal Circuit also erred when it said patent litigants must prove their entitlement to fees with “clear and convincing evidence.”  Nothing in Section 285 requires such a high standard of proof, Sotomayor said.

The second case, Highmark v. Allcare Health Management System Inc., involved a patent for “utilization review” in managed health-care systems.  In another unanimous opinion (pdf) by Justice Sonia Sotomayor, the Supreme Court said courts reviewing an award of attorney fees should use an abuse-of-discretion standard.  The Federal Circuit had used de novo review and overturned a district court’s award of attorney fees to health insurer Highmark.

The cert petition by Highmark had said Allcare existed only to license a patent through threats of litigation, and such entities are sometimes characterized as patent trolls.  The petition said the threat of attorney fees can be a crucial deterrent to meritless suits designed to extort licensing fees.

NALFA also reported on these cases in Supreme Court Considers Attorney Fee Shifting in Patent Litigation.