Based on recent Supreme Court decisions in Octane Fitness LLC v. Icon Health & Fitness Inc. and Highmark Inc. v. Allcare Health Management Systems Inc. may not have large tech companies popping champagne, but they might be toasting with a bit of wine.
These two cases stand to have a significant effect on the near-term future of patent litigation. They both focus on one particular aspect of patent litigation, what has come to be known as “fee shifting.” In England, for example, there is a “loser pays” model, where the loser of lawsuit pays the attorney’s fees for both parties. In the United States, each party is traditionally responsible for its own attorneys’ fees, except in special circumstances. These two cases have helped to clarify those circumstances.
Prior to Octane, the Federal Circuit had implemented requirements that were unnecessarily rigid. Its test centered on terms such as “objectively baseless” and “bad faith,” which narrowed the scope of “exceptional cases” that were eligible for fee-shifting to a very tiny percentage.
“For a practical matter, those requirements made it nearly impossible to get attorney fees,” Kimberly A. Warshawsky, partner at Ballard Spahr LLP explains. But, in a unanimous decision, the Supreme Court decided that these stipulations were outside the bounds and eliminated that standard.
Now, says Meredith “Mimi” Addy, partner at Steptoe & Johnson LLP, the courts must “use discretion to say what is ‘exceptional behavior.’ To figure out what it is, they must look at the merits of a case, the facts of a case, what went on in the case, and an analysis of all that needs to be done.”
Now that the previous test is gone, some might imagine that fee shifting could become the norm. But Warshawsky cautions that companies should not expect it to become as common as they might wish. “It makes fee shifting easier, but it is still a high hurdle. They relaxed the standard, but it is still going to be a high burden.” She notes that, until we see how the courts are applying this it will be hard to see if they can overcome the bias they have against fee shifting in general.
Still, says Addy, “It will allow the district courts to feel more comfortable with sanctioning abusive behavior, though I am hopeful that they do not go too far and sanction a party just because of its designation as an NPE.”
The Highmark case also concerns fee shifting, as it affects the relationship between the Federal Circuit and the district courts. “It used to be that the district court made a decision and the Federal Circuit could have de novo review,” explains Warshawsky. But now the power to determine the awarding of attorney’s fees lies almost exclusively in the hands of the district courts.
Of course, fee shifting is one of the matters Congress is debating as it considers legislation to reform the patent system. “The legislation will be interesting to watch,” says Addy. “The distric courts will use their discretion, as they are trained to do, with every case being different, they are better prepared to deal with this. I hope that gets through to Congress.”