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Highmark Octane: Fuel for Attorney Fees

April 29, 2014 – On April 29, 2014, the U.S. Supreme Court issued rulings in two cases that will affect the recovery of attorney's fees in litigation--certainly in patent cases and likely in trademark cases too. Highmark Inc. v. Allcare Health Mgt. System, Inc. and Octane Fitness, LLC v. Icon Health & Fitness, Inc.

Octane Fitness is the lead case in which the Court overturned the standard created by the Federal Circuit, and then the Court applied the new standard to also vacate the ruling by the Federal Circuit in the Highmark case. The Patent Act (and the Trademark Act) both contain this provision: "The court in exceptional cases may award reasonable attorney fees to the prevailing party." The Court ruled that this brief provision meant what it says: an "exceptional" case is one that is not ordinary, not run-of-the-mill, or not common.

The prior standard of the Federal Circuit for an award of attorney fees against the non-prevailing party required, with respect to that party, either "some material inappropriate conduct" or that the litigation was both brought in subjective bad faith and was objectively baseless. This standard, the Supreme Court ruled, "is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts."

The discretion of the district courts was clearly important to the Supreme Court. In the Highmark case, specifically, the Court also overturned the Federal Circuit's prior standard for reviewing the district court's award of attorney fees. That Federal Circuit review had been de novo (anew-allowing an independent review) and the Supreme Court instead implemented the standard of review as abuse of discretion. That standard receives the lowest level of scrutiny compared to reviewing questions of law de novo and questions of fact for clear error.

In yet another overruling of the Federal Circuit, the Supreme Court rejected the prior standard of requiring clear and convincing evidence for any award of attorney fees. The correct standard, per the Court, was the usual standard for any litigation of a preponderance of the evidence (i.e., 51% or better-less than the more demanding standard of clear and convincing evidence).

The Supreme Court offered some guidance in applying this new standard: it should be based on the totality of circumstances and could consider a non-exclusive list of factors including "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence."

Those factors come from the Court's 1994 ruling regarding the award of attorney fees in cases of infringement under the Copyright Act. The provision in that Act does not use the "exceptional" case standard, though the Court in Octane Fitness stated it was "a similar provision." That prior ruling applied an even-handed approach to both a plaintiff and defendant. Though that issue was not part of these two recent cases, one may expect to see a shift in that direction by courts, though tempered by the fact that a plaintiff and defendant have different approaches and activities associated with a case so that the matters under consideration will necessarily vary.

What else to expect for the future? The Supreme Court stated that the Federal Circuit's standard was "so demanding that it would appear to render §285 [the fee provision] largely superfluous." Under a less demanding standard, therefore, one may expect an award of attorney fees more often though still subject to the "exceptional" case standard.

Trademark law, as using the same statutory provision as patents, can expect a similar makeover. While patent cases are under the exclusive review of the Federal Circuit, trademark cases are reviewed by each of the twelve circuit courts of appeal. Judge Posner (of some renown and of the Seventh Circuit) has described the resulting case law as a "rainbow of standards" with varying requirements. These recent rulings augur for more harmonization among the circuits.

In Congress, several bills are pending and aimed at so-called abuse of litigation or cases brought by "trolls" or non-practicing entities. Some of these bills contain amendments to the Patent Act regarding the award of attorney fees to help curb this perceived abuse. These rulings may give pause to the legislators to consider whether reform is needed. These rulings also return a considerable amount of discretion-that is, power-to the judges of the district courts who will also be aware that any ruling will be more insulated upon review by a court of appeal. At trial, while the merits of any case may be determined by a jury, the decision regarding attorney fees belongs solely to the judge. Just another of many reasons to plan and act accordingly.

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