The Federal Circuit, in a recent opinion in Homeland Housewares, LLC v. Sorensen Research and Development Trust, affirmed the lower court’s award of $250,000 in attorneys’ fees to a defendant in a patent case on the grounds that this was an “exceptional case” under 35 U.S.C. § 285.
In affirming the district court’s award of attorneys’ fees, the Federal Circuit agreed with the district court that the patent holder’s failure to “produce admissible evidence of infringement” rendered the case exceptional, historically a very high bar for prevailing defendants to meet. However, in reaching this decision, the Federal Circuit relied upon two recent U.S. Supreme Court decisions, Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., both of which significantly relaxed the standard for what is deemed an “exceptional case” under § 285.
This decision will likely impact pioneer drug companies. Because such companies have an enormous incentive to file ANDA suits to obtain a 30 month stay, even when the patent claims are doubtful, this new standard creates an opportunity for ANDA defendants to recover attorneys’ fees in those cases which are baseless. The increased threat of attorneys’ fees means two things: If you are a potential defendant in an ANDA litigation, the probability of being named in a frivolous suit should decrease. It also means that if you are embroiled in an existing lawsuit, you may be able to take advantage of the new ruling to recover your attorneys’ fees.
Under 35 U.S.C. § 70 (1946), the “court may in its discretion award reasonable attorney’s fees to the prevailing party upon the entry of judgment on any patent case.” This was amended by 35 U.S.C. § 285 (1952) which stated that the “court in exceptional cases may award reasonable attorney fees to the prevailing party.” In Brooks Furniture Mfg., Inc. v. Dutailier Int’l., Inc., the Federal Circuit held that a case may be deemed exceptional, to authorize an award of attorneys’ fees under § 285, in only two limited circumstances: when there is “some material inappropriate conduct,” or when the litigation is brought both in “subjective bad faith” and is “objectively baseless.” The Federal Circuit further held that proof of these elements must be made by clear and convincing evidence. The Supreme Court overturned Brooks Furniture in Octane Fitness and Highmark.
In Octane Fitness, the question presented to the Supreme Court was what determines whether a case is an exceptional case meriting the award of attorneys’ fees. The Court held that an exceptional case is “simply one that stands out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Court also held that district courts may determine whether a case is exceptional “in a case-by case exercise of their discretion, considering the totality of the circumstances.” The Court also struck down the Federal Circuit’s requirement that patent litigants establish their entitlement to fees under § 285 by clear and convincing evidence and held that the lower preponderance of the evidence standard was adequate to award attorneys’ fees.
In Highmark, the question presented to the Supreme Court was whether a district court’s finding of an “exceptional case” was entitled to deference upon appeal. Here, the Court eliminated the de novo review in favor of the abuse of discretion standard for appellate review of a district court’s decision and held that “an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s § 285 determination.”
The Octane Fitness and Highmark decisions make it easier for parties to obtain attorneys’ fees in “exceptional cases.” Under the Hatch-Waxman Act, the FDA will not grant the generic pharmaceutical company approval of its product for thirty months once the pioneer company files a timely complaint unless there is an earlier court decision that the patent is not infringed, is invalid or is unenforceable. Pioneer pharmaceutical companies may now have significant risks of having to pay attorneys’ fees to ANDA defendants if they assert weak patent claims in order to obtain the thirty month stay.