04/30/14

Octane Fitness v. Icon Health & Fitness: SCOTUS overrules "Brooks Furniture" standard for Attorney's Fees


Category: Damages 
 
 
 
 By: Jesus Hernandez, Blog Editor/Contributor 
 
TitleOctane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184 (April 29, 2014).
IssueSection 285 of the Patent Act authorizes a district court to award attorney’s fees in patent litigation. It provides, in its entirety, that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” […] In Brooks Furniture Mfg., Inc. v. Du­ tailier Int’l, Inc., 393 F. 3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that “[a] case may be deemed exceptional” under §285 only in two limited circumstances: “when there has been some material inappropriate conduct,” or when the litigation is both “brought in subjective bad faith” and “objectively baseless.” […] The question before us is whether the Brooks Furniture framework is consistent with the statutory text.
Octane Fitness, LLC at *1 (internal citations omitted).
HoldingWe hold, then, that 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. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.
Id. at *7-8.
 
 
 
Editor's Notes
For further insight, check out the Audio Brief of oral arguments in Octane Fitness v. Icon Health & Fitnes by clicking here.
 
 

Procedural HistoryThe District Court granted Octane’s motion for summary judgment, concluding that Octane’s machines did not infringe ICON’s patent.[…] Octane then moved for attorney’s fees under §285. Applying the Brooks Furniture standard, the District Court denied Octane’s motion. […] ICON appealed the judgment of noninfringement, and Octane cross-appealed the denial of attorney’s fees. The Federal Circuit affirmed both orders. […] The Federal Circuit declined to “revisit the settled standard for exceptionality.” […]
Octane Fitness, LLC at *5-6 (internal citations omitted).

 

Legal Reasoning (Sotomayor for the Court)
Background: History of Attorney's Fees in Patent Cases
Pre-§285Prior to 1946, the Patent Act did not authorize the awarding of attorney’s fees to the prevailing party in patent litigation. Rather, the “American Rule” governed: “‘[E]ach litigant pa[id] his own attorney’s fees, win or lose . . . .’ ” […] In 1946, Congress amended the Patent Act to add a discretionary fee-shifting provision, then codified in §70, which stated that a court “may in its discretion award reasonable attorney’s fees to the prevail- ing party upon the entry of judgment in any patent case.” 35 U. S. C. §70 (1946 ed.). Courts did not award fees under §70 as a matter of course. They viewed the award of fees not “as a penalty for failure to win a patent infringement suit,” but as appropriate “only in extraordinary circumstances.”
Octane Fitness, LLC at *1-2.
§285Congress amended the fee-shifting provision and recodified it as §285. Whereas §70 had specified that a district court could “in its discretion award reasonable attorney’s fees to the prevailing party,” the revised language of §285 (which remains in force today) provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”
Id. at *2.
Brooks Furniture InterpretationIn 2005, however, the Federal Circuit abandoned that holistic, equitable approach in favor of a more rigid and mechanical formulation. In Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F. 3d 1378 (2005), the court held that a case is “exceptional” under §285 only “when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions.” […] “Absent misconduct in conduct of the litigation or in securing the patent,” the Federal Circuit continued, fees “may be imposed against the pa- tentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.”
Id. at *4.
Analysis
Brooks Furniture Holding too Restrictive
The Federal Circuit’s formulation is overly rigid. Under the standard crafted in Brooks Furniture, a case is “exceptional” only if a district court either finds litigation-related misconduct of an independently sanctionable magnitude or determines that the litigation was both “brought in subjective bad faith” and “objectively baseless.” […] This formulation superimposes an inflexible framework onto statutory text that is inherently flexible.
Octane Fitness, LLC at *8 (internal citations omitted).
For one thing, the first category of cases in which the Federal Circuit allows fee awards—those involving litigation misconduct or certain other misconduct—appears to extend largely to independently sanctionable conduct. […] But sanctionable conduct is not the appropriate benchmark. Under the standard announced today, a district court may award fees in the rare case in which a party’s unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so “exceptional” as to justify an award of fees.

The second category of cases in which the Federal Circuit allows fee awards is also too restrictive. In order for a case to fall within this second category, a district court must determine both that the litigation is objectively baseless and that the plaintiff brought it in subjective bad faith. But a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award.

Id. at *8-9 (internal citations omitted).
Brooks Furniture renders §285 superfluousWe reject Brooks Furniture for another reason: It is so demanding that it would appear to render §285 largely superfluous. […] We have twice declined to construe fee-shifting provisions narrowly on the basis that doing so would render them superfluous, given the background exception to the American rule […], and we again decline to do so here.
Id. at *10-11 (internal citations omitted).
No "clear and convincing" standard of proofFinally, we reject the Federal Circuit’s requirement that patent litigants establish their entitlement to fees under §285 by “clear and convincing evidence,” Brooks Furniture, 393 F. 3d, at 1382. We have not interpreted comparable fee-shifting statutes to require proof of entitlement to fees by clear and convincing evidence. […] And nothing in §285 justifies such a high standard of proof. Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one.
Id. at *13 (internal citations omitted).
Conclusion
For the foregoing reasons, the judgment of the United States Court of Appeals for the Federal Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
Octane Fitness, LLC at *12.

 

 

 Image Attribution Statement: unknown, “American Silver Eagle, obverse, 2004,” available as a public domain image depicting currency, http://commons.wikimedia.org/wiki/File:American_Silver_Eagle,_obverse,_2004.jpg (last viewed April 29, 2014) (image edited).

 

 

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