By: Daniel Larson
In the past few years, patent reform has become a major issue of debate in the House and Senate, most specifically, over the use of a fee-shifting provision. Fee-shifting is the legal mechanism that forces the losing party of a patent case to pay the winning party’s attorney fees. The attorney fees “shift” from the winning party over to the losing party. In 2014, the Supreme Court decided Octane Fitness LLC v. ICON Health & Fitness, Inc. which dealt with the issue of shifting attorney fees in patent cases. The court overturned the previous standard for awarding attorney fees and took a more rationale approach. The old standard required a showing, by clear and convincing evidence that the patentee’s case was brought in subjective bad faith and was objectively baseless. Under this standard, even the weakest of patent cases stood no chance of shifting attorney fees. This article will analyze Octane and how the decision mayimpact the patent troll problem.
What Is a Patent Troll?
To provide context for the patent troll issue, a patent troll, also known as a non-asserting patent entity, is a large company or large legal entity that owns a number of patents and uses them to file infringement suits against smaller companies to force a settlement. Defending a patent infringement claim is an extremely costly endeavor win or lose, therefore settlement is almost always the more feasible option. A majority of patent trolls never actually reduce to their patents to practice, instead, they file them away and “take them off the shelf” when a possible infringement claim presents itself. Patent trolls have taken advantage of a litigation friendly system using their economic advantage in their size, resources, and spending power to scare their victims into settlement. One solution to the patent troll problem is the use of fee-shifting provision within the laws regulating patent litigation.
The Impact Fee-Shifting Provisions
Fee-shifting provisions, found in both the Patent Act & Lanham Act, operate by forcing the losing party in an infringement suit to pay the winning party’s attorney fees. By awarding the attorney fees to the winning party, the financial risk associated with litigation are reduced and smaller companies have a better incentive to fight back against weak infringement claims. Furthermore, fee-shifting makes patent trolls less likely to bring a frivolous or weak cases because the probability of settlement is lower and the financial risks associated with litigation are much higher. However, a major problem remains has hindered the effectiveness of these provisions — the standard used by judges to determine whether a party should be awarded attorney fees was far too stringent.
The legal basis of awarding attorney fees comes from a particular section of a patent law statute 35 U.S.C § 285, which states, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” The standard to be used for § 285 was established in 2005, in Brooks Furniture Mfg., Inc. v. Dutailer Int’l, Inc. The Federal Circuit held that a § 285 award required a showing, by clear and convincing evidence, that the patentee’s case was brought in subjective bad faith and was objectively baseless. The standard proved to be problematic because the elements of the standard were not feasible and placed unreasonably high burden on the moving party.
Octane Changed How Attorney Fees Are Awarded
In April 2014, the United States Supreme Court decided Octane Fitness LLC v. ICON Health & Fitness, Inc. overturning the Brooks standards finding it to be too stringent and impractical. At the center of the debate was § 285 used in the Patent Act, and Lanham Act, and more specifically what constituted an “exceptional” case. While the Court did not provide a direct interpretation of what an “exceptional” case was, it did note that the language of § 285 was intended to be read more broadly, in its ordinary meaning. In addition, the Court explained that judges must look at the totality of the circumstances and determine whether the case “stands out,” by a preponderance of the evidence, with respect to the strength of the party’s position or the unreasonable manner of litigating. Therefore, Octane shifting fees does not require a finding that the patentee acted in bad faith or brought a case that was frivolous under Rule 11, a court needs only to find that the case was weak enough to stand out from a normal patent case. This less stringent view of an § 285 award has had and will continue to have far-reaching implications on patent litigation.
Impact of Octane
The Octane decision has had major impacts on the dynamics of patent litigation and two specific effects include: (1) the increased number of § 285 motions by parties and the increased number of attorney fee awards by courts; and (2) small companies will not be the only ones to benefit from these awards, but large companies will use the new standards to their advantage as well.
Since Octane, the number of awards has increased across the country. One study shows that from April 29, 2014 to March 1, 2015 district courts have awarded fees in twenty-seven out of sixty-three case–which is about two times greater than fee-shifting awards in previous years. These findings show that the fee-shifting provisions are being used more often in patent litigation than before and that judges are more likely to issue such awards due to the broader interpretation of § 285.
Furthermore, Octane has provided a wider range of relief for parties. This was illuminated in the massive legal battle in Apple v. Samsung over patented smartphone technologies. After Apple was awarded $930 million by a jury after finding that Samsung infringed patents related to the iPhone they demanded $16 million in attorney fees arguing that the case met the criteria of an “exceptional” case. Apple argued the § 285 no longer applied to only patent troll and therefore Samsung’s “willful, deliberate, and calculated copying of Apple’s iPhone constitutes an ‘exceptional’ case.” Apple’s argument here proves that Octane has changed the way in which § 285 will be used, specifically because plaintiffs, not just defendants, will now be just as inclined to fight for attorney fees. Also, § 285 will not be strictly confined to patent trolls, but also infringers in cases where the infringement is so deliberate that it stands out from the normal patent case. Finally, patent “bullies” (companies that bring meritless infringement suits to slow down competition) are likely to think twice about such tactical claims after Octane since an “exception” case is easier to prove.
It will be interesting to see how Octane continues to change dynamics of patent litigation going forward, particularly if pending patent reform bill, the Innovation Act, is passed.
Daniel Larson is Staff Member of the Journal of High Technology Law. He is currently a 2L at Suffolk Law. He received a B.A. in Political Science from Rhode Island College in 2012. In addition to being a law student, Dan is a website developer specializing in video production.