11/15/14

Highmark, Inc. v. Allcare Health Mgmt.: Fed. Cir. Reviews Attorneys Fees In Light of SCOTUS Instructions


Category: Damages   
 
 
 
By: Abby Lin, Contributor 
 
TitleHighmark, Inc. v. Allcare Health Mgmt., No. 11-1219 (Fed. Cir. Sept. 5, 2014).
IssueThis case comes to us on remand from the Supreme Court, which vacated our earlier opinion in which we set aside the district court’s award of attorney fees to appellee Highmark, Inc. (Highmark)..
Highmark, at *2.
Holdings“[Per Supreme Court guidance, instead of de novo review,] an appellate court should review all aspects of a district court’s § 285 determination for abuse of discretion.” Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1747 (2014).
Id. at *4 (text added).
 
 
 
 
 
Procedural History
Contributer Note: Relevant procedural history has been summarized belong. See the opinion on pages 2-3 for this information.
1. Original Infringement/Declaratory Judgment Suit: Highmark sought declaratory judgment for Allcare’s patents being invalid/unenforceable against Allcare in Western District of Pennsylvania. The case was transferred to Northern District of Texas, where Allcare counterclaimed infringement.
2. Sanction/Attorney Fees Motion: While the case was pending on appeal, Highmark moved the District court for sanctions under Rule 11 and award of attorney fees under Section 285 of the Patent Act.
3. District Court Grants Attorney fees but not sanction: District Court found that “(1) Allcare’s allegations of infringement were frivolous as to two of the three asserted ’105 patent claims (claims 102 and 52), and (2) Allcare had engaged in litigation misconduct by asserting a meritless preclusion defense, shifting its position on claim construction throughout the case, and making misrepresentations to the Western District of Pennsylvania in connection with the transfer. The district court entered an award of approximately $4.7 million in attorney fees against Allcare under section 285”
4. Allcare appeals to Federal Circuit, and Fed Circuit affirms in part, reverses in part, and remands.
5. Supreme Court grants certiorari and remands to Federal Circuit.
 
 
 
Legal Reasoning (Newman, Mayer, and Dyk) (per curiam)
Background
Legal Standard: Standard of Review and Exceptional Case“[A]n appellate court should review all aspects of a district court’s § 285 determination for abuse of discretion.” Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1747 (2014). [...] “[T]he abuse-of-discretion standard does not preclude an appellate court’s correction of a district court’s legal or factual error” because “‘[a] district would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or a clearly erroneous assessment of the evidence.’” Id. at 1748 n.2 (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990)). [...] “[A]n ‘exceptional’ case [warranting attorney fees] is simply one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.” 134 S. Ct. 1749, 1756 (2014). The Court further held that the exceptional nature of a case need not be proven with clear and convincing evidence. Id. at 1758.
Highmark, at *4.
Status Prior to SCOTUS decision[Prior to the Supreme Court’s decision, ] under the standards then prevailing, a party seeking attorney fees under § 285 had to establish that the case was “exceptional” by clear and convincing evidence. See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1308 (Fed. Cir. 2012) (citing Forest Labs., Inc. v. Abbott Labs., 339 F.3d 1324, 1327 (Fed. Cir. 2003)). Furthermore, under the two-part Brooks Furniture test, “absent misconduct in the course of the litigation or in securing the patent, sanctions [could] be imposed against the patentee only if two separate criteria [we]re satisfied: (1) the litigation [was] brought in subjective bad faith, and (2) the litigation [was] objectively baseless.” Id. (citing Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005)). We reviewed a district court’s finding of subjective bad faith for clear error and its finding of objective reasonableness without deference. See id. at 1309–10. Applying these standards to Allcare’s appeal as to the claim construction issue, we affirmed in part, reversed in part, and remanded for further proceedings. As to one of the two claims for which the district court found Allcare’s assertion of infringement frivolous, claim 102, we agreed, concluding that “Allcare’s allegations . . . warranted an exceptional case finding.” Id. at 1313. But we disagreed with the district court’s conclusion on the other allegedly frivolous infringement claim, claim 52, finding that “Allcare’s argument with respect to this [claim] was not ‘so unreasonable that no reasonable litigant could believe it would succeed.’” Id. at 1315 (quoting iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1378 (Fed. Cir. 2011)). We also set aside the district court’s findings of litigation misconduct, although we did not apply the two-part Brooks Furniture test.
Id. at *3-4.
Analysis: Octane Standard requires Abuse for Discretion and not De Novo Review
Highmark caseFollowing our decision, the Supreme Court granted certiorari to review this court’s practice of reviewing exceptional case findings without deference. The Court held that de novo review of a district court’s objective unreasonableness finding was incorrect, and that “an appellate court should review all aspects of a district court’s § 285 determination for abuse of discretion.” Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1747 (2014). The court clarified, however, that “the abuse-of-discretion standard does not preclude an appellate court’s correction of a district court’s legal or factual error” because “‘[a] district would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or a clearly erroneous assessment of the evidence.’” Id. at 1748 n.2 (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990)). The case was remanded to us for further proceedings.
Highmark, at *4 (text added).
Octane CaseIn a companion case, Octane Fitness, LLC v. Icon Health & Fitness, Inc., the Supreme Court also rejected the “rigid” two-part Brooks Furniture test, holding that “an ‘exceptional’ case [warranting attorney fees] is simply one that stands out from others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.” 134 S. Ct. 1749, 1756 (2014). The Court further held that the exceptional nature of a case need not be proven with clear and convincing evidence. Id. at 1758. [On remand, both parties argue opposite of each other; one for affirmance of the attorneys fees and the other for reversal.]
Id. at *4 (text added).
Conclusion
Upon careful consideration, we vacate the district court’s award of attorney fees and remand for reconsideration under the new standard articulated in Octane. The district court need not revisit its finding with respect to claim 102, which we previously upheld under the stricter standards then prevailing and which Allcare now concedes. In all other respects, the district court is free to weigh any matter properly included in an exceptional case determination under § 285.
Highmark, at *5.
 
 
 

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