By Andrew Williams —

As we have reported over the past couple of weeks, the Supreme Court will hear arguments in two cases involving the attorney fees provision of 35 U.S.C. § 285 on Wednesday, February 26.  That statute provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party."  These cases will be heard shortly after the Court convenes at 10:00 A.M. Eastern.  The first of the cases listed on the Hearing List, Highmark Inc. v. Allcare Management Sys., Inc., relates to whether the lower court's determination regarding attorney fees is entitled to deference.  Specifically, the question presented was: whether a district court's exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.  The second listed case, Octane Fitness v. Icon Health and Fitness, involves how a court is to determine when a case is exceptional.  The specific question presented was:

[W]hether the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is 'exceptional' under 35 U.S.C. § 285 improperly appropriates a district court's discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlement from defendants.

We have already explained the factual and procedural history of both cases, and highlighted the arguments presented in the briefs submitted by the Petitioners and Respondents in both cases (see "Supreme Court Preview — Octane Fitness, LLC v. ICON Health & Fitness, Inc." and "Supreme Court Preview — Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.").  The amicus curiae briefs in the Octane Fitness case unanimously supported a change in the standard for an exceptional-case determination (even though some of them filed briefs in support of neither party).  They also almost all supported a standard that applies equally to plaintiff patent holders and defendant accused infringers.  In addition, almost all recognized the incentives that the current Federal Circuit standard provides for patent holders to assert their patents abusively (although they portrayed very different pictures of the state of the problem).  What was interesting, however, was the different approaches and alternatives suggested for what the standard should be.  For example, should the district court only look to whether the position of the non-prevailing party was "objectively baseless," or can the subjective intent of the party ever be considered.  Because it is very possible that the Court will adopt one of these new standards, it is worthwhile to review some of the suggestion and arguments presented in these briefs.  This post addresses a selection of the amicus curiae briefs.

United States Amicus Curiae Brief

It is generally advisable when reviewing various amicus curiae briefs for a given case to begin with the brief for the United States.  This is because not only is the Solicitor General provided special attention by the Court, but in this case, Roman Martinez, Assistant to the Solicitor General, is scheduled to argue for the United States.  In this case, the United States is advocating a totality of the circumstances test.  Specifically, according to the United States, the lower court should be able to consider whether the losing party had inflicted "gross injustice" on the prevailing party before or during the case.

To support its position, the United States looked to the history of 35 U.S.C. § 285, including its adoption in 1952.  This statute was based on one that was introduced in 1946, but did not include the "exceptional case" limitation.  Nevertheless, the legislative history suggested that the new provision was not intended to change the substantive standards for granting fee awards.  Therefore, according to the United States, the standard should be the same as that used between 1946 and 1952.  During this time, "grossly unjust" conduct could support a fee award, and such conduct included fraud on the Patent Office, willful infringement, harassing tactics during litigation by either party, or untenable legal or factual theories.  This standard did not have to rise to the level of objective baselessness, because fee awards were made when the theories were "unjustified," "wholly unjustified," "unwarranted," "unreasonable," or "groundless."  Also, "subjective bad faith" was not required, although the United States argued that it could be highly relevant to the Section 285 analysis.  Finally, the United States urged that "clear and convincing" evidence should not be required for an accused infringer to be awarded fees.  The United States did not take a position on whether the present case was an exceptional case under the proffered standard, but instead requested that the case be vacated and remanded.

Amicus Curiae Briefs From Participants in the Patent System

Several different companies that own and assert patents filed amicus curiae briefs, either alone or as part of a collection.  In general, they pointed out that as owners of intellectual property and as frequent targets of abusive litigation tactics, they have a balanced perspective and unique insights into the issue.  For example, a collection of seven intellectual property owners, Yahoo!, the New York Times, NetApp, Medtronic, General Mills, EMC, and Boston Scientific, filed a brief in support of petitioners in both cases.  This collection of companies is somewhat interesting, because it includes two (Medtronic and Boston Scientific) that were on opposing sides of a recently decided Supreme Court case.  In an articulated standard much like the one proffered by the United States, this collection urged the adoption of a test that would "afford[] a district court discretion to enter a fee award in favor of a plaintiff or defendant whenever it would be grossly unjust or inequitable for the prevailing party to bear its own costs."  Brief at 5.  And, just like the United States, this collection pointed to the period just before the enactment of 35 U.S.C. § 285 for support.  However, they also pointed to the statute itself as giving three "guideposts" for a district court to follow.  These are that "exceptional" cases are meant to be those that are "uncommon" or "extraordinary," that prevailing plaintiffs and defendants are to be treated equally, and the trial court should have discretion to make the grant determination, as well as the amount.

Another collection of intellectual property owners, 3M Co., General Electric Co., The Procter & Gamble Company, and Johnson & Johnson, also filed a brief advocating a flexible standard.  Specifically, they urged the "adoption of a flexible standard that permits 'district courts in patent cases to consider traditional equitable factors, guided by the purposes of patent law, in granting fee awards' under Section 285."  Brief and 4.  This collection also acknowledged that there is a problem of abusive patent litigation, but they went out of their way to defend patent assertion entities, explaining that they serve a valuable purpose in the patent system.  For example, they pointed out that the U.S. patent system has always been based on a disclosure system, and that patent holders have never been requirement to practice the invention.  In fact, this collection stressed that greater than 60% of the inventors of the Industrial Revolution sold or licensed at least some of their patents, including Thomas Edison and Charles Goodyear.

Another collection of "leading providers of high-technology products and services" filed anamicus curiae brief supporting a flexible standard.  This collection included Google, Cisco Systems, Facebook, HTC, Intel, LinkedIn, Motorola Mobility, Netflix, Newegg, Rackspace, salesforce.com, T-Mobile, Verizon, and Vizio.  Specifically, they asserted that there should be no exclusive list of factors that can make a case exceptional under § 285, but that these factors should all be considered together.  Importantly, they requested a disjunctive approach in which subjective bad faith and objective reasonableness can either be used as an independent bases for fee-shifting.  Therefore, bad faith alone can support an award of attorney fees.  Another collection, this one entitled BSA | The Software Alliance, disagreed, and instead asserted that "objectively unreasonable" should be the standard.  The standard was summarized as "[a] losing litigant that persists in advocating a claim or defense lacking an objective basis in law or fact should pay the winning party's fees."  Brief at 2.  BSA | The Software Alliance did not think that a subjective component should be included because common law already allows for fee-shifting when the lower litigates in bad faith.

The final participant in the patent system to file an amicus curiae brief (not including the Intellectual Property Owners Association), and the only one to do it on its own, was Apple.  Apple's brief was in support of the patent system, but it came out strong against so-called "patent trolls."  It advocated a flexible standard that would look to a host of factors relevant to the particular litigation.  Specifically, Apple advocated for the inclusion of such factors as "the nature of the parties, the motivations underlying the parties' positions, the objective merit of both parties' claims and the particular arguments advanced in court, and the parties' conduct."  Brief at 9.  Only then, according to Apple, will the fee-shifting provision of § 285 function properly to deal with "patent assertion entities that thrive on strike suits, nuisance suits, and in terrorem demands."  Brief at 7.

Amicus Curiae Briefs From "Anti-Troll" Representatives

There were several briefs that were filed for organizations and individuals that focused more on the so-called "patent troll" problem then on what the appropriate standard should be for what an exceptional case should be.  For example, the Electronic Frontier Foundation, et al., ("EFF") spent almost its entire brief explaining how the current standard was allowing patent trolls to thrive, and therefore harming small businesses, start-ups, and American innovation.  Only near the end of its brief did the EFF advocate for a flexible test that considers the totality of the circumstances.  The EFF would look to whether the "Plaintiff brings an objectively weak case or uses the cost of defense as a weapon."  Brief at 17.  Not surprisingly, the EFF focused almost exclusively on when the non-prevailing party is the patent holder.  Therefore, it did not address the sort of factors one would look when the accused infringer was the non-prevailing party, if they would even be entitled to an award under the EFF's scheme in the first place.

To their credit, however, the EFF did provide a somewhat workable test, even if it was one-sided.  Professor Robin Feldman and the U.C. Hastings Institute for Innovation Law filed an amicus brief urging the Court to adopt a standard which would "empower courts to remedy schemes that exploit the patent system."  Instead of articulating a standard, Prof. Feldman railed against the Federal Circuit's standard and the abuses that have stemmed from it.  One of the "abuses" that she cites is that of reverse payments in Hatch-Waxman litigations.  However, she does not explain how section 285 could be used to stop such "abusive schemes."

As a final example of the "anti-troll" amicus briefs, a collection of thirty (30) states, including Vermont and Nebraska (but not Illinois), filed a brief advocating overturning the Federal Circuit's precedent.  Like the other "anti-troll" parties, these states urge a standard that does not provide for a shift of fees when the accused infringer is the non-prevailing party.  Instead, the states submit that the district courts should "have discretion to award fees where the patentee's claim had an objectively low likelihood of success and a fee award is otherwise appropriate."  Brief at 27.  They also urged the Court to consider the broader context – and unfortunately they asserted that this broader context was that the patent system is broken.  For example, in addition to addressing the "attorney fee" problem, the collective states extoll the other problems of the patent system, including the Federal Circuit's test for personal jurisdiction, the lenient pleading standards allowed by Form 18, and the cost of litigating vague and ambiguous patent claims caused by the Federal Circuits "insolubly ambiguous" test for 35 U.S.C. § 112, ¶ 2.  Of course, the Supreme Court is taking up this last issue in the Biosig Instruments, Inc. v. Nautilus, Inc. case, but it is unclear how the Court is supposed to "take into account" these other problems to address how an "exceptional case" is determined.

By Andrew Williams —

As we indicated last week, the Supreme Court will hear arguments next week in two cases involving the Attorney Fees provision at 35 U.S.C. § 285.  That section provides that a district court may award reasonable attorney fees to a prevailing party "in exceptional cases."  The Octane Fitness case, which we previewed last week, will address what the standard is for determining when a particular case is "exceptional."  Specifically, the Court will be reviewing the standard articulated by the Federal Circuit, which provided that a case is only exceptional when "both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless," absent misconduct in litigation or in securing the patent.  See Brooks Furniture Mfg. v. Dutailier, Inc., 393 F.3d 1378 (Fed. Cir. 2005).  The second case, Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., will address the level of deference that the lower court's determination is entitled to on appeal.  The question presented in that case is: whether a district court's exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.

To be clear, even though it is only the standard of review of the objective prong of an "exception-case" determination that is at issue, it result could also impact the level of deference for subjective-prong determinations as well.  According to the reasoning found in the Federal Circuit's Highmark opinion, there are three standards of review for an award of attorney fees in a patent case.  First, the objective prong is entitled to de novo review because it is purely an issue of law.  Second, the subjective "bad-faith" prong is mainly factual, and therefore entitled to review for clear error.  Finally, if the case is exceptional, the awarding of fees is reviewed under an abuse-of-discretion standard.  Therefore, in the Highmark case, because the Federal Circuit was reviewing the "objectively baseless" prong, it reviewed the lower court's determination de novo.  But, Highmark is seeking a unitary abuse-of-discretion standard for § 285 fee awards, even though there are both questions of law and fact that the lower court must decide.

Highmark's primary argument is that two Supreme Court cases, Pierce v. Underwood, 487 U.S. 552 (1988) and Cooter & Gell v. Hartmarx, 496 U.S. 384 (1990), dictate the higher standard in patent cases.  In response, Allcare mainly points to the Supreme Court case of Professional Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993) ("PRE") as controlling, which is the same case the Federal Circuit relied upon in devising the two-part test in Brooks Furniture.  It is also the same case the Federal Circuit cited in support of the decision rendered below.

With regard to the facts of this case, Allcare is the owner of U.S. Patent No. 5,301,105 ("the '105 patent"), which is directed to "managed health care systems" used by insurance companies to interact with providers.  The patent discloses two embodiments of the invention, a "diagnostic" system and a "utilization-review" system.  The former involves inputting a patient's symptoms, and the system prepares a list of possible medical conditions.  The latter involves inputting both symptoms and the proposed treatment into the system, and if the treatment is considered to be potentially inappropriate for the symptoms, it is flagged for "utilization review."  This review allows the insurance company to determine if a payment should be made.  Highmark used a system that incorporates "utilization review," so the determinative issue at the district court was whether the claims of the '105 patent covered this embodiment.  After a special master assisted the court in construing the claims and in determining that Highmark should be granted summary judgment of non-infringement, the court adopted the reports without substantial change, thereby disposing of the case.  When the merit case was on appeal, Highmark moved for an exceptional case finding pursuant to § 285, which the court granted on the papers and awarded fees.

The Federal Circuit affirmed the merit appeal.  However, in response to Allcare's appeal of the exceptional-case determination, the court reversed the lower court's determination as to all claims except the assertion of claim 102 (the determination as to this single claim was remanded to the district court).  The judges on the panel, and indeed the entire court, were almost evenly split on the issue of deference.  The majority opinion, authored by Judge Dyk, relied heavily on the PRE case to hold that the objective-baselessness standard is an issue of law to be reviewed de novo.  However, Judge Mayer dissented, citing to cases like Pierce and Cooter and articulating arguments echoed later in Highmark's merit brief.  Highmark petitioned for a panel rehearing and for a rehearing en banc, both of which were denied.  The denial indicated that the poll for en banc review was "requested, taken, and failed," but five of the twelve judges either wrote or joined dissents, expressing disagreement with the panel's determination.  Judge Mayer did not participate in the decision, but if he had, the court would have been evenly split.  Needless to say, this is not a clear-cut case.

In its merit brief to the Supreme Court, Highmark relied heavily on the Pierce and Cooter cases.  Pierce involved the proper standard of review for fee awards under the Equal Access to Justice Act ("EAJA").  This statute provides an award of fees upon a finding that the United States' position was not "substantially justified."  This was defined as the position having no "reasonable basis in both law and fact," which was equated to the § 285 "objectively baseless" prong.  The Court in Pierce reasoned that "sound judicial administration" dictated a standard for the "substantial-justification" finding of abuse of discretion.  Cooter involved the determination of the standard of review for the imposition of Rule 11 sanctions.  The Court in that case concluded that all aspects of the decision, even the legal conclusions, should be reviewed under a unitary, abuse-of-discretion standard.

Highmark applied the reasoning used by the Supreme Court in those two cases to explain why the same result is required here.  First, the statutory text suggests discretion, because it uses the word "may," and "exceptional" cases denote case-by-case judgments best left for the decision of the district court judge.  This argument appears to the miss the mark, however, because no one denied that the actual award of fees is properly reviewed for abuse of discretion.  Rather, the "question presented" related only to the objectively baseless prong.  Next, Highmark pointed out that the district court judge is the best-positioned decision maker.  It is somewhat curious that it would highlight this factor, because the lower court judge appeared to relegate a significant portion of the case to the special master.  Highmark also pointed to the efficiencies associated with deference to the lower court, because the objective-baselessness inquiry "requires appellate courts to have intimate familiarity with the entire progression of a case."  However, the Federal Circuit addressed this concern below, pointing out that review of a case for an award of attorney fees is usually the second time the facts of the case are in front of them, the first being during the merit review.  Therefore, this concern might be overblown.  Highmark continued, explaining that the fact-intensive nature of these decisions would result in very little law-clarifying value, as it would be difficult to formulate a rule for the various case-by-case determinations.  Highmark concluded that the Federal Circuit's holding would distort the appellate process and would not discourage collateral appeals.  In sum, Highmark's position was that the factors as articulated in Pierce and Cooter require that a unitary abuse-of-discretion standard is necessary in the review of § 285 decisions.

On the other hand, Allcare focused extensively on the PRE decision, explaining why it was more appropriately analogous.  First, Allcare pointed out that "[t]he 'objective-reasonableness' standard derives from the concept of 'probable cause.'"  As PRE explained, "'[p]robable cause to institute civil proceedings requires no more than a 'reasonabl[e] belie[f] that there is a chance that [a] claim may be held valid upon adjudication.'"  Brief for Respondent, at 23 (citing PRE, 508 U.S. at 62-63).  And, "the question of whether a given set of facts justified bringing suit is ultimately a legal question."  Id.  Allcare relied on the fact that there are no facts in dispute in this case, which then reduces the question to a pure issue of law.  However, Allcare did point out that in all such cases, there will never be facts in dispute, because the relevant facts make up the record of the case.  The parties' positions in filing and maintaining patent infringement lawsuit, therefore, will not be in dispute (so the argument goes).

In the end, this case appears to come down to whether the Supreme Court will find that the Pierce and Cooter cases are more in line with § 285 determinations, or whether the Court will look to the reasoning articulated in PRE.  The Court's decision in Octane Fitness could also be a factor, because a change in the standard for determining exceptional cases could affect the standard of review.  Of course, both sides pointed out why their position would still survive regardless of the outcome of Octane Fitness.

Finally, as with any case dealing with the shifting of attorney fees, Highmark and some of the amicus curiae brought up the public policy argument against so-called "patent trolls." (Interestingly, the amicus briefs were fairly evenly split between supporting Highmark, supporting Allcare, and supporting neither party).  However, Allcare criticized this attempt at appealing to public sentiment as having no substance, because Highmark could not support its assertion that a change in the standard of review for decisions on attorney fees would reduce the incentive for non-practicing patent assertion entities to file infringement lawsuits.  In its reply brief, Highmark concedes that "a deferential review standard will not solve these problems."  Reply Brief for Petitioner, at 23.  But, Highmark did point out that the de novo standard gives so-called "trolls" "a second bite at the apple," giving them the incentive to fight on.  In the end, Highmark's appeal to anti-troll sentiment seems misplaced, because a causal connection between the problem and the requested deferential standard of review appears to be lacking.