Exceptional Cases Not So Exceptional Anymore: The New Standard For Awarding Attorneys’ Fees in Exceptional Patent Cases

High Court relaxes standard for awarding fees in “exceptional” patent cases with landmark decisions in Octane Fitness, LLC and Highmark Inc.Section 285 of the Patent Act authorizes a district court to award attorneys’ fees to the prevailing party in “exceptional” patent cases. Before the Supreme Court’s recent opinion in Octane Fitness, LLC v. Icon Health & Fitness, Inc., a case was deemed exceptional in two limited circumstances: (1) when there had been materially inappropriate conduct; or (2) when litigation had been both (a) objectively baseless and (b) brought in subjective bad faith. To find litigation objectively baseless, it had to be so unreasonable that no reasonable litigant could believe it would succeed. In turn, subjective bad faith meant the plaintiff actually knew the litigation was objectively baseless. By unanimous decision, the Supreme Court struck down this lofty, rigid standard and replaced it with a straightforward one: an “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering the applicable law and facts of the case) or the unreasonable manner in which the case was litigated. This determination is made considering the totality of the circumstances on a case-by-case basis, which provides district courts flexibility in making their decision. The High Court also loosened the burden of proof placed on parties seeking fees under the statute from clear and convincing to the lesser preponderance of the evidence standard, which allows both parties to share the risk of error in roughly equal fashion.

Given this new standard left the determination of whether a case is “exceptional” to the discretion of the district court judge, the Court’s holding in Highmark Inc. v. Allcare Health Management System, Inc., necessarily followed: the decision of the district court is reviewed on appeal for abuse of discretion. This is true even though questions of law may be relevant in some cases to the inquiry, which is generally rooted in factual determinations.

While the impact of these decisions on reducing spurious litigation remains to be seen, it is clear they arm district court judges with a relaxed, flexible framework for awarding fees to prevailing parties with little fear of being overturned on appeal. Non-practicing entities beware.

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