Supreme Court Eases The “Exceptional Case” Standards for Patent Cases
In October, we reported on the Supreme Court’s decision to take on two patent cases addressing the “exceptional case” standards of Section 285. This week, the Court issued its unanimous decisions in Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health, abolishing the Federal Circuit’s rigid standards for these types of cases and creating new standards that will make it easier for district courts to award fees to prevailing parties in patent infringement actions.
Prior to this week’s decisions, in order to establish that a case was exceptional, a prevailing party was required to show by clear and convincing evidence that the litigation was both brought in bad faith and objectively baseless. In Octane Fitness, however, the Court found that Section 285 contains no such requirements. Rather, according to the Court, Section 285 “imposes one and only one constraint on district courts’ discretion to award attorney’s fees in patent litigation: The power is reserved for ‘exceptional’ cases.” Similarly, the Court found that “nothing in [Section 285] justifies such a high standard of proof” as clear and convincing evidence. Instead, “Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less a high one.”
Construing the term “exceptional” in accordance with its ordinary meaning, the Court held that an “exceptional” case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position. . . or the unreasonable manner in which the case was litigated.” Accordingly, under the new framework set forth in Octane Fitness, district courts may determine whether a case is “exceptional” in a “case-by-case exercise of their discretion, considering the totality of the circumstances.”
Piggy backing on the holding of Octane Fitness, the Icon Health decision held that all aspects of an “exceptional case” determination should be reviewed under an abuse of discretion standard rather than the Federal Circuit’s previously exercised de novo review of the “objectively baseless” determination.
While both of these cases had implications relating to the rise of non-practicing entity (“NPE”) litigation, the Court did not specifically address NPE issues. However, with the more flexible standards set forth in these decisions, there is no doubt these holdings will impact not only NPE litigation, but patent litigation in general. “Exceptional case” motions are likely to become more common, and, as one amicus suggested, the new standards will “incentivize patent holders and accused infringers to litigate only legitimate, good-faith disputes over patent infringement and validity.”