Message to Patent Trolls: Lose & You Will Pay Attorney’s Fees

The American system is unlike many others when it comes to paying the attorney’s fees of the winner in litigation. Patent cases have always been a little different in that the relevant statutes allowed for the district court judge to consider a fee motion in favor of the winner in a patent infringement suit. Until recently, the common thinking was that unless you brought a case that was on its face frivolous, or if your conduct during litigation was so egregious as to make the case “exceptional”  the court was not likely to award you any attorney’s fees if you prevailed.

In recent years, with the acceleration in suits filed by patent trolls, the Supreme Court has made it easier and easier for accused infringers to slap losers with a hefty and often scary fee motion. If the conduct of the attorneys representing the losing side were particularly egregious then under section 1927 of Title 28 of U.S. Codes the attorneys may have to pay the fees personally. That is the situation where the attorneys become increasingly veracious by filing unnecessary motions particularly during the expensive phase of litigation known as the discovery period. A quick review of the history of the fee motion is instructive.

Attorney’s fees were not authorized by the Patent Act prior to 1946. It was not until after the codification of 35 U.S.C. 70 that federal judges were given the power to award attorney’s fees to the prevailing party in patent infringement actions. When judges were faced with a fee motion, they tended to look for bad faith in bringing and maintaining the prosecution of the case. Typically that meant that the case had the obnoxious odor of unfairness. For example, if a patent was clearly invalid due to prior art or inequitable conduct, and the patent owner or the attorney prosecuting the case knew that or should have known facts that existed either at the time the case was filed or if later became known, and the case was still filed or prosecuted then the judges usually concluded the case was “extraordinary” and awarded attorney’s fees to the winner.

In 1952, the legislator amended Section 285 to include the word “exceptional” but the amendment was not taken all that seriously by judges and they continued using discretion to award fees under the old standards.  It was not until 2005 that the Federal Circuit decided to provide real guidance on the analysis that the judges were to perform in order to decide on attorney’s fee motions. As is the tradition with the Federal Circuit, the court looked to the dictionary meaning of the word “exceptional” and concluded that the case had to be rare and uncommon in order to qualify. In subsequent cases, the test basically boiled down to whether a reasonable attorney would have brought the case (Objectively baseless) and whether there was subjective bad faith by the patent owner in bringing the law suit. For example, if the attorney had done a search and found prior art that a reasonable attorney would have considered invalidating art and still filed the case, then that was considered an “exceptional” case. Add to that the fact that the patentee filed the case in order to push a competitor out of business and now you have the perfect storm for the judge to find the case exceptional and award fees.

All of that changed with the recent supreme court decision in Octane Fitness, LLC v. Icon Health and Fitness, Inc., 134 S. Ct. 1749; 188 L. Ed. 2d 816 (2014) penned by the court’s latest addition of Justice Sotomayor. Many legal observers believe that the court has relaxed the standard in response to the many patent trolls that have filed a plethora of cases in recent years. After the defendant in that case won on summary judgment, it filed a fee motion. The judge denied the fee motion as it concluded that the case was not objectively baseless and found no evidence of subjective bad faith.

The Federal Circuit affirmed the district court judge but the Supreme Court saw it differently.  Justice Sotomayor opined that the Federal Circuit’s test was “too rigid” and too similar to the Rule 11 standard. Under Rule 11, an attorney has a duty to file a patent infringement action only after he has undertaken an investigation reasonable under the circumstances to satisfy himself that the case is not without merit. That usually means that a patent attorney has performed claim construction and has seen that the accused device reads on every element of the asserted claims. The court also reduced the standard of proof from the preponderance of evidence which is required to prove that a patent is invalid, to a preponderance of evidence which is required to prove infringement.

Shortly after Octane Fitness, the Court considered the issue again in Highmark, Inc. v. Allcare Health Management. System, Inc., 134 S. Ct. 1744, 188 L. Ed. 2d 829 (2014). In Highmark, the district court did award fees after the accused infringer won the case on summary judgment. The judge found that the plaintiff was vexatious and deceitful during the prosecution of case. The Federal Circuit affirmed the exceptional determination as to one claim and reversed the finding as to another claim. The Supreme Court would have no part in it as it reversed the Federal Circuit based on its decision in Octane Fitness. The court gave broad authority to the judge to look at all the facts and determine whether the case was exceptional under the totality of the circumstances. The court also said that the judge’s decision will not be altered unless he abused his discretion.

This decision has been used in subsequent cases and has been interpreted to mean that a showing of bad faith is no longer required in order to award attorney’s fees. In Action Star Enterprise v. Kaijet Tech, which was recently decided in California’s central district, the judge granted a fee motion due to a finding of “exceptional”. The court found that the behavior of patent counsel during the prosecution of the case, which included several discovery related sanctions and its failure to provide proper infringement contentions and the like, was sufficient under the new standard set out by the Supreme Court to award attorney’s fees.

Practice Pointer: Many legal observers believe that the recent change of trend to more freely award attorney’s fees in patent infringement suits is the Court’s response to the recent increase in patent trolls. Nonetheless, when the weather turns everyone is affected by the storm, not just those who are standing out in the open. Before filing a patent infringement action patent counsel should take his Rule 11 duty seriously and gather all the evidence it can and perform as thorough analysis as possible under the circumstances. Counsel should also consult with the patent owner and understand the history of the patent. Asking lots of questions from the patent owner such as when did you come up with the invention, were you aware of prior art prior to the filing of the application, did you reveal all the known art to the patent attorney who filed the application, what other cases have you been involved with, what correspondences are there regarding the patent and the like will go a long way to being able to sleep at night if you end up losing the case and are facing a fee motion.