Supreme Court Ruling Sparks Spate of Fee Shifting in Patent Cases

By Robert Ambrogi Esq
Patent trolls beware: Barely two months after the Supreme Court gave federal judges greater discretion to award attorneys' fees in patent litigation, the judges are taking heed. In at least six cases decided during May and June, judges have found the case to meet the Supreme Court's less rigid "exceptional" standard warranting an award of attorneys' fees to the prevailing party.
 
Several of these cases involve plaintiffs that have been characterized in news reports as patent trolls, suggesting that the lessened standard for attorneys' fees may serve to discourage patent troll lawsuits or embolden defendants to fight them more vigorously.
 
The Supreme Court ruling that has engendered this new wave of attorneys' fees is Octane Fitness v. Icon Health & Fitness, decided April 29. In the ruling, the Supreme Court struck down the standard that had governed attorneys' fees in patent cases ever since the Federal Circuit Court of Appeals set it in the 2005 case, Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc. 
 
In Brooks Furniture, the Federal Circuit interpreted Section 285 of the Patent Act, which authorizes a district court to award attorneys' fees to the prevailing party in patent litigation "in exceptional cases." The Federal Circuit held that a case is exceptional only "when there has been some material inappropriate conduct" or when the litigation was both "brought in subjective bad faith" and "objectively baseless."
 
But in Octane Fitness, the Supreme Court held that the Federal Circuit's framework "is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district court judges."
 
Rather, the court held, an exceptional case "is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."
 
Fee Awards in Six Cases
 
As we wrote on this blog in May, several commentators predicted that Octane Fitness would increase fee shifting and thereby discourage patent troll lawsuits. Their predictions appear to be coming true. So far, at least nine U.S. district courts have considered whether to award attorneys' fee under the lessened exceptional case standard, and six have decided that the standard was met.
 
One of the first of these cases was Classen Immunotherapies Inc. v. Biogen Idec, Civil No. WDQ–04–2607 (D.Md. May 14, 2014). In this case, Classen – which is not a patent troll – filed a lawsuit in 2004 against Biogen, GlaxoSmithKline (GSK), Merck & Co, and others, alleging that their manufacture and marketing of certain hepatitis B vaccines violates its patents.
 
Shortly after the lawsuit was filed, Biogen's counsel informed Classen's counsel that Biogen "was wrongly named" in the complaint because it had licensed its vaccines to GSK in the late 1980s and had no further involvement in them. Despite this, Classen pursued its litigation against Biogen for nearly a decade.
 
These facts satisfy the exception case standard of Octane Fitness, the court concluded. "Classen has offered no evidence to refute Biogen's showing that—within five months of filing suit—no reasonable litigant could reasonably expect success on the merits of an infringement claim based on Biogen's alleged actions in developing, licensing, manufacturing, or selling GSK's vaccines."
 
Payback Time for Trolls
 
Another recent case that awarded attorneys' fees under Octane Fitness has been described in news reports as showing that it is "payback time" for patent trolls. In Lumen View Technology LLC v. Findthebest.com, No. 13 CIV. 3599(DLC) (S.D.N.Y. May 30, 2014), U.S. District Judge Denise Cote awarded attorneys' fees after finding that Lumen's patent infringement lawsuit was "frivolous" and "objectively unreasonable."
 
Although Judge Cote never explicitly called Lumen a patent troll, she described its conduct in words that unmistakably fit the classic troll profile.

"Lumen's motivation in this litigation was to extract a nuisance settlement from FTB on the theory that FTB would rather pay an unjustified license fee than bear the costs of the threatened expensive litigation," she wrote. "Lumen never sought to enjoin FTB from the allegedly infringing conduct in its prayer for relief. Lumen's threats of 'full-scale litigation,' 'protracted discovery,' and a settlement demand escalator should FTB file responsive papers, were aimed at convincing FTB that a pay-off was the lesser injustice."
 
In at least three other patent cases decided since Octane Fitness, courts have awarded attorneys' fees:
 
  • Home Gambling Network Inc. v. Piche, No. 2:05–CV–610–DAE (D.Nev. May 21, 2014). Exceptional circumstances warranted an award of attorneys' fees, the court held, because plaintiffs had misstated the legal basis for their lawsuit, attempted to sue for infringement of a patent they did not own, and misused their patent.
  • Precision Links Inc. v. USA Products Group, Civil No. 3:08–cv–00576–MR (W.D.N.C. June 24, 2014). After the Federal Circuit remanded this case to reconsider the attorneys' fee award, the Supreme Court decided Octane Fitness. Applying that new standard, the court reaffirmed its fee award, holding that plaintiff's litigation position "was clearly frivolous and objectively baseless." It further found that the case stood out from others "with respect to the unreasonable manner in which the case was litigated."
  • Intellect Wireless Inc. v. Sharp Corporation, No. 10 C 6763 (N.D.Ill. May 30, 2014). The court concluded that this case was exceptional because plaintiff "made affirmative, false representations to the PTO about having reduced the patented invention to practice," and then, after obtaining patents on the strength of those false statements, proceeded to sue 24 companies for patent infringement.  
 
One other case indicates that the impact of Octane Fitness extends beyond patent cases. In AGSouth Genetics LLC v. Georgia Farm Services LLC, No. 1:09–CV–186 (WLS) (M.D.Ga. May 21, 2014), the court applied Octane Fitness in interpreting the "exceptional case" standard under the federal Plant Variety Protection Act.
 
Notably, the court ordered the defendant to pay plaintiff's attorneys' fees for its clear violation of the PVPA, even though it held that the defendant's claims in the lawsuit had not been "asserted without good faith or merit." 
 
In three cases decided since Octane Fitness, courts have concluded that the circumstances did not merit awards of attorneys' fees.
 
  • Bianco v. Globus Medical Inc., Case No. 2:12–CV–00147–WCB (E.D.Tex. May 12, 2014). After the Supreme Court decided Octane Fitness, Globus Medical asked the court to reconsider an earlier order denying attorneys' fees. The court found that Globus waived its right to argue in favor of using the more liberal Octane standard by urging for use of the Federal Circuit's standard in its original motion. Even under the more liberal standard, the court added, it would deny the motion as not involving an exceptional case.
  • EON Corp. IP Holdings LLC v. FLO TV Inc., Civil Action No. 10–812–RGA (D.Del. May 27, 2014). Nothing about this case made it exceptional, the court concluded. "The substantive strength of EON's case was not so conspicuously deficient as to justify the award of attorney's fees," the court said, and there is "no reason to believe EON litigated the case unreasonably."
  • Shire LLC v. Amneal Pharmaceuticals LLC, Civil Action No. 11–3781 (SRC) (D.N.J. June 23, 2014). "Plaintiffs have made no showing that this qualifies as an exceptional infringement case," the court said. "To the contrary, the record indicates that it is, on the whole, a fairly typical Hatch–Waxman case."

 
Ironically, even as Octane Fitness is sparking an uptick in fee awards, federal patent reform legislation has stalled. The House-approved version of the bill would create a presumption in favor of awarding attorneys' fees to the prevailing party. But the Senate, unable to reach agreement on the contours of the bill, put it on hold indefinitely.

What do you think? Will the greater threat of a fee award discourage patent troll lawsuits?

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Maggie Tamburro

Maggie Tamburro is an attorney and writer who holds a Juris Doctor from The John Marshall Law School and a Bachelor of Arts from the University of Texas. She was admitted to the Illinois Bar in 1994 and Florida Bar in 1999 and has significant experience in legal research, editing, and writing. Maggie is active her in local community, holding various publicly appointed civic board positions.

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