Argument preview: Justices to assess attorney’s fees in patent litigation (twice in one day!)
on Feb 24, 2014 at 10:46 am
In their constant quest to leave no important doctrine articulated by the Federal Circuit unreviewed, the Justices decided last fall to hear two separate cases arising out of a single section of the Patent Act (§ 285), which is the provision that specifies when attorney’s fees are awarded in patent cases. The Justices have several hundred pages of briefs, all for the purpose of considering the following simple text, which dates (without change) to the adoption of the Patent Act in 1952: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.” So the Justices will devote the morning of February 26 to attorney’s fees in patent cases. The first case the Justices will hear (Octane Fitness v. Icon Health and Fitness) considers the standard for awarding the fees in the first instance. The second case (Highmark Inc. v. Allcare Health Management System) considers the standard of review the Federal Circuit should use to review district court decisions under the statute.
Octane Fitness is a dispute between two manufacturers of elliptical exercise machines over an Icon patent that governs a particular type of “stroke rail”; the stroke rail is the piece that connects the mobile foot rail to the frame in front of the user. The district court granted summary judgment of non-infringement for Octane and then denied its motion for fees, concluding that the case was not “exceptional” under Federal Circuit precedent; the Federal Circuit summarily affirmed.
Petitioner Octane offers a passionate plea playing to three presumed tendencies of the Justices: opposition to patent trolls, a general assumption that the Federal Circuit is unduly favorable to patentees, and an expectation that the Federal Circuit’s “special” rules for patent litigation often are ill conceived. As a rhetorical play, the strategy is highly effective. Petitioner Octane paints its opponent Icon as a classic troll, emphasizing that Icon never commercialized the patent Icon now seeks to enforce against Octane. Octane also argues that the Federal Circuit rule for awarding fees to those who fend off unjustified infringement actions is condemnably niggardly.
The centerpiece of Octane’s argument is the claim that (a) the language of the patent act provision is identical to language in the Lanham Act; and (b) a D.C. Circuit opinion (Noxell Corp. v. Firehouse No. 1 Bar-B-Que) by then-Judge Ginsburg, joined by then-Judge Scalia, interpreted the Lanham Act much more broadly. As Octane presents it, the Federal Circuit’s limitation of fees to cases that show both objective baselessness and subjective bad faith is so out of line that it warrants reversal. The Solicitor General weighs in as well, emphasizing the equitable discretion typically afforded trial judges in determining the propriety of fee awards, something conspicuously absent from the Federal Circuit’s highly intrusive review.
Octane’s presentation is well-crafted and forceful. The only problem is that Icon gets to file a brief as well; Icon’s response is devastating on a whole series of fronts. For one thing, it turns out that Icon is a major competitor in the industry. It is not at all the kind of “non-practicing entity” or “NPE” against which Octane focuses its rhetoric; although Icon didn’t practice this patent, it practices many of its other patents and produces numerous products that compete directly with Octane’s products.
For another, Icon successfully resets the field of dispute about Section 285. Where Octane criticizes the Federal Circuit for limiting fees to cases both objectively unreasonable and subjectively baseless, Icon points out that Octane is criticizing only one of the four situations in which the Federal Circuit has justified fees: Octane thinks the fees for “vexatious and unjustified” litigation should be broader, but ignores the availability of fees for fraud on the Patent Office, willful infringement, and litigation misconduct. Thus, once you’ve read Icon’s presentation you realize that the dispute isn’t about all of Section 285; it’s about the boundaries of one of the four categories of fee awards. Although that doesn’t, strictly speaking, change the legal question before the Court, it has the same deflating effect as the documentation of Icon’s status as a serious competitor. It’s simply not true that the only basis for a fee award requires objective and subjective baselessness.
Third, and perhaps most persuasively, Icon documents a statutory history for Section 285 that Octane’s presentation largely obscured. The predecessor to Section 285, adopted in 1946, provided that a court “may in its discretion” award fees. When Congress codified patent law in the 1952 Patent Act, it revised that provision, removing the reference to “discretion” and substituting the existing language about “exceptional cases.” It is a compelling argument that the shift in language all but precludes a reading of the statute as committing the question to the district court’s discretion (a fair summary of the Solicitor General’s position).
Crucially, the argument about the history of Section 285 also defuses the Noxell problem – because the Lanham Act provision was adopted a quarter-century after Section 285, it did not exhibit the sharp shift of language Icon emphasizes here. To be sure, the text-history argument arguably should have been relevant to analysis of the Lanham Act as well, but – as far as the briefs suggest – neither party nor any of the judges involved in Noxell were aware of the point.
It’s always hard to bet in favor of the Federal Circuit and in favor of a patentee that has just lost an infringement action, but Icon’s briefing here is so compelling in its response to Octane’s presentation that we can expect the Justices to pause a long time before proceeding to another routine reversal of the Federal Circuit.
The vigor of the briefing in Octane – in which the parties’ arguments largely pass each other in the night – makes it particularly difficult for the parties to brief the question before the Court in Highmark about the standard of review. If Octane and the Solicitor General are correct that the statute essentially commits the question to the discretion of the district court, then the statute as a practical matter permits fees in just about any case. If that is a fair reading of Octane’s position (and that possibility probably provides yet another reason the Justices will be wary of accepting Octane’s argument), then it almost compels a ruling in Highmark that appellate court review should be under a narrow abuse-of-discretion standard. Conversely, if Icon is correct that the Federal Circuit’s articulation of distinct and specifically bounded categories for fee awards is a reasonable application of the provision’s historical provenance, then a much more intrusive standard approaching de novo review would seem appropriate.
To complicate matters, Highmark in fact does involve the NPE scenario that has driven so much of the recent policy concern in the area. Plaintiff Allcare is an NPE (or patent assertion entity, as the briefs in Highmark describe it), which decisively lost an infringement action it brought against Highmark, offending the district judge enough to suffer a substantial fee award. Predictably (given the briefing in Octane), the Federal Circuit reversed.
The petitioners in Highmark, trying to defend the fee award they won in the district court, have to argue for the abuse-of-discretion standard. Accepting the inevitable, they argue that even if the Court affirms in Octane – adopting some kind of objective baselessness standard – the Court should adopt abuse-of-discretion review, drawing that standard from earlier cases assessing the standard for reviewing fee awards under the Equal Access to Justice Act (EAJA) and Rule 11. Having pressed that argument, Highmark easily can fall back to the position that it should win easily if the Court adopts the Solicitor General’s “total discretion” standard in Octane. And of course it is easy for the Solicitor General to file in support of Highmark: if the Court accepts the Solicitor General’s arguments in Octane, then reversal in Highmark seems almost compelled.
For its part, the plaintiff Allcare readily can join issue on the ground Highmark has staked out, emphasizing the considerable component of legal analysis required to justify a fee award under the Federal Circuit’s existing interpretation of Section 285. On its face, it is hard to believe that this is something for which abuse-of-discretion review makes sense.
Allcare also presents powerful arguments distinguishing the EAJA and Rule 11 cases. Especially telling is the large gap between Section 285 and the language in the EAJA (which discusses the trial court’s “find[ing]” that fees are appropriate and says nothing about “exceptional” cases). Allcare also presents a compelling factual argument: because the claim construction used in this case came directly from a decision of a different district court in another one of Allcare’s previous enforcement actions, how can the action possibly be exceptionally baseless under any fair reading of Section 285?
My guess is that the oral argument in Octane will bleed over into the discussion in Highmark, and that ultimately the decision in Highmark will be driven by the decision in Octane. It makes some sense for the Court to consider the two cases together so that it can be done with the area once and for all, but it really does seem odd to hear a second case that seems to depend so much on the decision in the first.