For years, patent litigators have complained that the U.S. Court of Appeals for the Federal Circuit has set too rigid a standard for fee shifting in patent cases. On Wednesday, the U.S. Supreme Court sounded ready to go to the other extreme and give district judges broad latitude to determine when an attorney fee award is justified.
The court heard argument in two cases: Octane Fitness v. Icon Health and Fitness posed the question of how to interpret Section 285 of the Patent Act, which says attorney fees may be awarded in “exceptional cases.” Highmark v. Allcare Health Management Systems asked how much deference the Federal Circuit should give to district judges when making those awards.
The cases have been seen as a vehicle for curbing abusive patent litigation and drew amicus curiae briefs from the likes of Apple, Google and Facebook, which urged the high court to give more discretion to trial judges.
Harness Dickey partner Rudolph Telscher argued in Octane Fitness that his client should not have to prove a competitor’s suit was both objectively baseless and brought in bad faith to recoup the millions it spent defending a “meritless” case. But he had a difficult time articulating what should be considered exceptional, with several justices challenging his contention that any “meritless” or “unreasonably weak” suit would qualify.
“Don’t you have to add something to meritless?” Justice Antonin Scalia asked. “I mean, every time you win the summary judgment motion, that’s a determination that the claim is without merit, isn’t it?”
But Justice Stephen Breyer cited with apparent approval a lengthy list of factors that the U.S. Department of Justice says should be considered alone or in combination, including willful infringement, litigation misconduct, inequitable conduct before the U.S. Patent and Trademark Office, and the assertion of frivolous claims and defenses.
“Do you want to add to that list or subtract?” Breyer asked Assistant Solicitor General Ramon Martinez.
“You want to add ‘et cetera,’ right?” Scalia suggested.
Even before turning to Highmark, Breyer suggested that with all those factors to consider, deferring to the district judge’s evaluation would be important. The court could remand the case and say, “It’s up to you, district judge. You’re the expert on litigation. You decide.”
Sidley Austin partner Carter Phillips argued for Icon Health that Congress deliberately set a high standard for fee shifting, intending only that it prevent “gross injustice.”
But Breyer said that lets “brilliant” patent attorneys—he did not use the word “trolls”—use the threat of multimillion-dollar litigation to shake down tens of thousands of defendants for nuisance value settlements.
Phillips protested that that’s “a very small slice of the problem of litigation.”
“Of course, it may be a small slice of litigation, but it is a slice that costs a lot of people a lot of money,” Breyer replied. “If I do run across that small slice, why cannot I, the district judge, say, I’ve seen all these things, taken together they spell serious injustice and, therefore, I’m shifting the fees, OK?”
Hogan Lovells partner Neal Katyal carried that theme into Highmark, arguing that the Federal Circuit should not throw out a fee award unless the trial judge abused his or her discretion. The issue is “how reasonable was this argument at this particular time, in this particular case, with these particular parties, with this particular patent,” he argued, and those are factual questions best left to the district judge.
Justice Ruth Bader Ginsburg noted that handing more discretion to trial judges would cut both ways in future cases. “If the district court denies fees, there would be slim to no chance of getting that overturned on appeal?” she asked Katyal, who agreed.
Arguing for Allcare, Finnegan, Henderson, Farabow, Garrett & Dunner partner Donald Dunner said that the dispute really boiled down to the reasonableness of his client’s claim construction, which is a matter of law and should be reviewed de novo. “We had no factual issues in this case,” he argued.
The 82-year-old Dunner was making his first appearance at the Supreme Court, but as the dean of the patent bar he was accorded a lot of deference of his own. Describing the stakes in Section 285 hearings, Dunner said he’s handled two cases where fees ran as high as $30 million.
“Well, you’ve got to stop charging such outrageous fees,” Roberts joked.
“That’s the way it used to be with you, Your Honor,” Dunner replied.
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