Page 4 - IP

4 | Monday, august 4, 2014 | Intellectual Property
| nylj.com

Patent Act Fee Shifting Decisions recovering attorneys’ fees has indeed been

lowered.

Background of the Fee Shifting Statute
Focus on Discretion, Deference
Prior to 1946, the “American Rule” reigned
in patent cases, meaning that the “prevailing
litigant is ordinarily not entitled to collect a
reasonable attorneys’ fee from the loser.”3
This changed with the enactment of the 1946

Patent Bill codified under 35 u.S.C. §70, which
provided the court discretion to grant attor-
neys’ fees.4 The Senate Reports associated
with the 1946 Act indicate that the fee shift-
ing provision was not intended to make the
recovery of attorneys’ fees “an ordinary thing
in patent suits” but rather, was intended to
“discourage infringement” and “prevent a
gross injustice to an alleged infringer.”
5
In 1952, Congress recodified the statute
under §285 and amended the provision to
read, as it does today: “[t]he court in excep-
tional cases may award reasonable attorney
fees to the prevailing party.”6 The phrase
“exceptional cases” was inserted in place
of the discretionary language found in the
1946 provision. Despite this, Congress stat-

ed that the amended provision in 1952, “is
substantially the same as the corresponding
provision” in §70.7 Indeed, the Senate Report
explained that the 1952 amendment was add-
ed to “expres[s] the intention of the [1946]
statute as shown by its legislative history
and as interpreted by the courts.”8
As the court in Octane explains in discuss-
ing the history of §285, for the next three

decades, courts applied the provision in a
“discretionary manner.” Following the cre-
ation of the Federal Circuit in 1982, courts
were instructed to continue to apply §285
with discretion and to consider the totality of
the circumstances.9 Indeed, the Federal Cir-
cuit discussed the fact that “[c]ases decided
under §285 have noted that the substitution

of the phrase in exceptional cases has not
done away with the discretionary feature.”10
But in 2005, the Federal Circuit did away
with the discretionary standard and instead
adopted what the Supreme Court labeled a
“rigid and mechanical formulation.”11 The
Federal Circuit in Brooks Furniture adapted
a “probable cause” standard articulated
by the Supreme Court12 and developed a K
TOC
daunting test for parties seeking fees under GS
§285. According to Brooks Furniture, a case BI
is “exceptional” under §285 in one of two
circumstances. First, “when there has been
some material inappropriate conduct relat- case” to recover attorney fees are too high. a major step to address these concerns in
ed to the matter in litigation, such as willful By roBert M. Isackson This, some claim, has unbalanced the patent deciding two cases under the patent act fee
infringement, fraud or inequitable conduct and Ilene alBala
system, which is supposed to promote inno- shifting statute (35 u.S.C. §285): Octane Fit-
in procuring the patent, misconduct during vation while preserving legitimate competi- ness v. Icon Health & Fitness and Highmark v.
litigation, vexatious or unjustified litigation, T he increasing volume and cost of defend- tion, to allow bad claims to “win.” The public Allcare Health Management Sys.In Octane,
1
conduct that violates Fed. R. Civ. P. 11, or like
ing patent litigation, especially in cas- discussion on who should bear the burden of the court rejected the “rigid and mechanical”
13
infractions.” Second, “[a]bsent misconduct
es brought by non-practicing entities
unfounded litigation (indeed, how to define two-part test for exceptionality established
in conduct of the litigation or in securing the (nPEs), is reaching an all-time high. All too what is unacceptable, unfounded litigation) by the Federal Circuit in 2005, for one that
patent,” when and “only if both (1) the litiga- often, however, when faced with a settlement has spilled over into proposed legislation in assessed whether a case was exceptional as
tion is brought in subjective bad faith, and (2) offer considerably less than the cost of liti- Congress and actions by many state attor- one that stands out. And, in Highmark, the
the litigation is objectively baseless.”14 These gation, companies make the hard economic neys general seeking to regulate nPEs’ patent court held that an appellate court should
two conditions were later clarified by the choice of paying off the patent owner on a licensing activities. Significantly, confirming review all aspects of a district court’s decision
Federal Circuit. “To be objectively baseless, meritless case, because the cost of defense recognition of the problem, the judiciary has under §285 for abuse of discretion, granting

the infringement allegations must be such and the burden to prove an “exceptional
jumped into the discussion, with judges giving deference to the lower court’s decision.2 This
that no reasonable litigant could reasonably speeches imploring patience while the courts court action appears to have derailed Con-
expect success on the merits.”15 To meet the work through the sticky issues on fee shifting, gress’ pending legislation addressing fee shift-
“subjective bad faith” requirement, the “plain- roBert M. Isackson is a partner and Ilene alBala so that, as with excessive damages awards, ing in patent cases, sending Congress back
tiff’s case must have no objective foundation, is a managing associate at Orrick, Herrington & Sut- the courts can find the balanced solution.
to the drawing board. It also has spawned
and the plaintiff must actually » Page 10
cliffe in New York.
This last term, the u.S. Supreme Court took
some decisions that suggest that the bar to