Patent Foes Square Off Over New Fee-Shifting Rules

Patent Foes Square Off Over New Fee-Shifting Rules Cristian Baitg/iStock

It’s been three months since the U.S. Supreme Court ruled on fee-shifting in patent infringement lawsuits. But battles over how to apply the new standards are just beginning, as two companies at the center of the high court’s rulings illustrated this week.

In Highmark v. Allcare Health Management Systems and Octane Fitness v. ICON Health & Fitness, the Supreme Court wrestled with when judges can find patent cases “exceptional,” and therefore appropriate for attorney fee awards against losing plaintiffs. The court’s April 29 decisions (here and here) lowered the requirements for an exceptional case finding, outlining new standards that make it easier to shift fees in meritless cases.

Last month Allstate’s case against Highmark landed back at the U.S. Court of Appeals for the Federal Circuit, which has to decide how the Supreme Court’s decisions should affect the case. Not surprisingly, Highmark and Allstate urged two very different approaches in a pair of dueling briefs filed July 28.

Highmark’s lawyer, Cynthia Kernick of Reed Smith, asked the Federal Circuit to affirm the lower court’s exceptional case finding and the full $5 million fee award that Highmark won in the case. Allcare, represented by Erik Puknys of Finnegan, Henderson, Farabow, Garrett & Dunner, countered that the judge who found the case exceptional had abused his discretion and should be ordered to reconsider the award.

The Supreme Court ruled in April that the standard for determining when a case is exceptional requires a flexible case-by-case analysis focusing on the “totality of circumstances.” The justices also held that when fee-shifting rulings are appealed, the Federal Circuit should determine whether a lower court abused its discretion rather than undertaking a de novo review.

The Federal Circuit had previously reversed part of Highmark’s $5 million fee award in the Allcare case. Under the new Supreme Court precedent, Highmark argued in its brief, the de novo review that led to that decision was improper. “Any effort to adopt this court’s prior holding, or its reasoning, would not be faithful to the controlling legal standards,” Kernick wrote. Highmark also argued that that the district court already reviewed the full circumstances of the case in awarding fees, and that “no abuse of discretion is evident.”

Allcare maintained in its brief that the district court did abuse its discretion because its decision was based on a misreading of the evidence. The Supreme Court expressly said that when a district court either commits a legal error or makes a clearly erroneous factual determination, it has “necessarily” abused its discretion, the company said.

In light of the Supreme Court rulings, Allcare urged the Federal Circuit to reaffirm its earlier decision and remand the case to the district court to reconsider a single element of the award that survived the initial appeal. If the district court still finds the case exceptional, Allcare argued, Highmark’s fee award should be reduced to reflect the Federal Circuit’s decision.

Kernick said she couldn’t comment on the specifics of the briefs. “We believe the Federal Circuit will properly apply the guidance it received from the Supreme Court in Highmark and Octane,” she said. Puknys didn’t respond to requests for comment.

The Supreme Court’s fee-shifting rulings were lauded by many as a deterrent to weak infringement suits—especially those brought by so-called patent trolls. But since the decisions were issued, few judges have cited them to award fees.

Last week, a judge in Wilmington, Del., refused to grant attorney fees to Newegg Inc. in a patent case brought by Pragmatus Telecom. And this week U.S. District Judge Jon Tigar in San Francisco declined to award fees against a Texas company that sued big players in the mobile phone industry, calling it “a very close case.”

There are exceptions: In June a judge in Manhattan cited the new fee-shifting standards in finding that Lumen View Technology must pay attorney fees for bringing a frivolous patent suit against FindTheBest.com.

Michelle Lee, deputy director of the U.S. Patent and Trademark Office, told lawmakers on the House Judiciary Committee Wednesday that Highmark and Octane had left lingering questions about when fee-shifting is appropriate. She urged Congress to clarify the guidelines through patent reform legislation, warning that “there’s going to be a lot of litigation, a lot of motions brought on these issues.”

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