U.S. Supreme Court rules that patent suit losers should pay the victors’ legal fees

By Nicole Daniel

The Supreme Court rules in two closely watched cases that companies successfully defeating “unreasonable” patent lawsuits can get their legal fees paid by the suit loser.

The first case involved Octane Fitness LLC (“Octane”), a maker of exercise-equipment, seeking $ 1.8 million in fees after defeating a patent suit by Icon Health & Fitness Inc. over a component in elliptical machines. Octane challenged the test for awards which was established in 2005 by the Court of Appeal for the Federal Circuit which allowed for fees only if the suit in question is “objectively baseless” and filed in bad faith.

The second case involved Highmark Inc. (“Highmark”), an insurer, seeking to reinstate a $ 5 million fee award it won after defeating a patent suit by Allcare Health Management Systems Inc.

Both cases are regarding 35 U.S.C. § 285, the attorney fee-shifting provision, which states that in exceptional cases the court may award reasonable attorney fees to the prevailing party.

The Supreme Court’s rulings give trial judges more power to impose fees in cases where they hold that the case in question stands out from others regarding the losing’s party conduct.

In the Octane case it was held that an exceptional case is one which stands out from other cases with respect to the strength of a party’s litigating position or the unreasonable manner in which the case was litigated. The determination of whether a case is exceptional was left to the district court judge.

In the Highmark case the ruling in Octane was followed and it was held that an appellate court should apply an abuse-of-discretion standard when reviewing all aspects of the district court’s § 285 determination.

This decision could benefit technology businesses like Apple and Google, which were both among the undertakings urging the court to ease the rules of fee determination. This is so especially since such companies are facing claims by patent trolls who sue for baseless infringement claims and who agree to quick settlements as many defendants fear the high costs of litigation.

Currently Congress is considering the introduction of introduce legislation which requies the loser to pay the victor’s fees in most circumstances.