SCOTUS Just Fixed Patent Fee Shifting; Trial Courts Must Follow

Fee-shifting has long since been broken in the Federal Circuit. Chief Judge Randall Rader has written an op-ed and numerous concurrences on the subjecting, lamenting the lack of fee awards and the circuit's uniquely high standard for shifting fees.

He got his wish. Yesterday, in a pair of extremely important decisions, the Supreme Court, as predicted, fixed fee-shifting. How? By dropping the Federal Circuit's impossibly high standard down to a "case-by-case exercise" of a trial judge's discretion, a discretion which must be respected on appeal now that the circuit's de novo review has been dropped as well.

Chief Judge Rader got his wish. The trial courts have their tools. If they use them, this could go a long way toward fighting frivolous patent trolling.

Fee-Shifting Was Broken

You've just spanked a patent troll in trial court. How do you get your legal fees back?

Before yesterday, you'd first have to convince the district court judge, who likely knows nothing about patents, that the troll's claim was brought in subjective bad faith and the claim was objectively baseless, by a clear and convincing standard. In other words, the suit had no merits whatsoever when viewed by a reasonable person and the troll knew it.

Victory! You met the standard, but the troll, not wishing to cover your $500,000 legal tab, appeals to the Federal Circuit.

Hit the reset button, as the award of fees was reviewed de novo on appeal. And if you lost the appeal, you wasted the extra expense of defending the award in the Federal Circuit.

Needless to say, fee-shifting was extremely rare.

Fix 1: Octane Fitness Sets Lower 'Case-by-Case' Standard

Subjective bad faith? Objectively baseless? This impossibly high standard did not come from the statute (35 U.S.C. § 285), which only employs the vague descriptor "exceptional" to describe appropriate cases for fee awards.

Using the ordinary meaning of "exceptional," the Court noted that an exceptional case "is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." In other words, frivolous trolls with frivolous cases, must die pay.

"District courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances," the Court noted.

Fix 2: Highmark Means Fed. Reviews for 'Abuse of Discretion'

The Highmark dissent, at the Federal Circuit, quipped that the de novo standard made the trial court a "dress rehearsal for the command performance here."

No more. In an opinion piggybacking on the Supreme Court's Octane decision, the Court made quick work of the appeal, noting first that Octane held that fee-shifting is a matter of discretion, which "suggests some deference to the district court upon appeal."

How much deference? The Court noted that because this is a "decision[] on matters of discretion," it should only be "reviewable for abuse of discretion," rather than the deference-free standard previously employed by the Federal Circuit.

Will it Work?

You can lead a horse to water, right? Prior to yesterday's holdings, a trial judge exercising his or her discretion to award fees barely got a start on sticking the troll with the legal tab. One would have to work the gauntlet of merits, fees, appeal of merits and fees, just to get the bills paid.

Now? A trial judge's award can be based on a lower standard and it stands a better chance of surviving on appeal. Judges simply need to seize the power and run with it.

Related Resources:

• Octane Fitness v. Icon Health and Fitness (FindLaw's Caselaw)
• Highmark v. Allcare Health Management System (FindLaw's Caselaw)
• 3 New Years Resolutions for Patent Reform (FindLaw's In House Blog)