Is SCOTUS Fixin' to Fix Fee-Shifting in the Federal Circuit?

By William Peacock, Esq. on October 11, 2013 | Last updated on January 24, 2023

In its petition for certiorari, Octane Fitness referenced a study that shows that attorney fees are granted in only about 1 percent of all patent cases that are filed, with plaintiffs (typically patent owners) being twice as likely as defendants (typically, the alleged infringers) to prevail. They also quote another study, which shows that the median cost of a patent litigation battle is $2.5 million for cases where the amount in dispute is up to $25 million. Why is fee-shifting so rare, especially when the cost of litigation is so high? Surely, more than 1 percent of cases are blatantly frivolous. One reason is that fee-shifting is an exceptional remedy only applied in exceptional cases, per the authorizing statute, 35 U.S.C. § 285.
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Two other reasons, an incredibly strict test employed by the Federal Circuit and that same court's deference-free review of lower courts' awards, are also to blame. The Federal Circuit's twin barriers may soon be eliminated, however, by twin grants of certiorari handed down by the Supreme Court last week.

Octane Fitness v. Icon Health & Fitness: "Subjectively and Objectively Unreasonable" Standard

Octane Fitness makes elliptical machines. It was sued in 2008 by a Icon Health, a larger competitor, for patent infringement, claims which three years later were dismissed in summary judgment. Octane requested attorneys' fees, but the district court found that Icon's claims were neither objectively baseless nor brought in subjective bad faith. Octane asked the Federal Circuit to revise the standard to "objectively unreasonable" but the court, after affirming the lower court's findings, stated, "We have no reason to revisit the settled standard for exceptionality." Currently, to obtain attorneys' fees, a party has to prove by a clear and convincing standard that a claim was brought in subjective bad faith and the claim is objectively baseless. In short, that means the suit has to have no merits whatsoever when viewed by a reasonable person, and the person bringing the claim has to know it. As Octane points out in its petition, Rule 11 of the Federal Rules of Civil Procedure already covers this sort of "bad faith" conduct, allowing sanctions and fees in frivolous suits. Having the same standard apply twice makes Section 285 both onerous and duplicative. Instead, they would argue that "objectively unreasonable" is a better standard, requiring a showing only that the suit lacks merit.

Highmark v. Allcare Health Management Systems: More Deference is Due

Let's say a party convinces the lower court that a case was exceptional, and that the claims were "objectively unreasonable." It turns out, that is merely the first battle of a long war. When the case reaches the Federal Circuit, the court reviews the unreasonable determination without deference. In Highmark, the dissent laments this fact, and notes that the lower court, after spending time with the parties and the facts of the case, is in a far better position to make such a determination. Instead, that court becomes a "dress rehearsal for the command performance here." The dissent also notes that in analogous Rule 11 proceedings, the Supreme Court has held that a high level of deference is required, and that the review standard should be abuse of discretion.

Will SCOTUS Shift Fee-Shifting?

The President has called for more fee-shifting, as has Federal Circuit Chief Justice Randall Rader. The present standards stand in the way. It is interesting that the Supreme Court granted certiorari in both of these cases on the same day, and that one of these cases was a minor unpublished Federal Circuit decision. Is the high court itching to fix fee-shifting?

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