‘Exceptional’ Standard in Patent Cases Debated at Supreme Court

‘Exceptional’ Standard in Patent Cases Debated at Supreme Court

 WASHINGTON, D.C. — (Mealey’s) The Federal Circuit U.S. Court of Appeals’ exceptionality test for an award of attorney fees, whereby a prevailing party must demonstrate objective baselessness and subjective bad faith, is “extreme,” an attorney told the U.S. Supreme Court today (Octane Fitness LLC v. ICON Health & Fitness Inc., No. 12-1184, U.S. Sup.; See 2/3/14, Page 41).

According to attorney Rudolph A. Telscher, representing petitioner Octane Fitness LLC, the standard established by the Federal Circuit in Brooks Mfg. v. Dutailier, Inc., 393 F.3d 1378 (Fed. Cir. 2005) [an enhanced version of this opinion is available to lexis.com subscribers] ; See 1/17/05, Page 12) “conflicts with the statutory language, it violates established canons of statutory construction, and it deprives District Courts of the discretion they need to effectively combat abusive patent litigation practices.”

Elements Missing

Respondent ICON Health & Fitness Inc. of Utah manufacturers and sells exercise equipment. In 2000, ICON obtained U.S. patent No. 6,019,710, titled “Exercising Device with Elliptical Movement.”  The patent is directed to the linkage system of an elliptical exercise machine. Octane is a Minnesota startup company that produces elliptical machines that are sold to fitness clubs and specialty fitness stores. Its products include the Q45 and Q47 series of elliptical machines, which are licensed under U.S. patent No. 5,707,321.

In 2009, ICON sued Octane in the U.S. District Court for the District of Minnesota, alleging that the Q45 and Q47 infringe several claims of the ‘710 patent. After Octane moved for summary judgment, Judge Ann D. Montgomery conducted claim construction briefing and a hearing and issued an opinion construing various terms of the ‘710 patent. Octane renewed its motion for summary judgment of noninfringement of the ‘710 patent. In June 2011, the judge granted Octane’s motion after finding several elements missing both literally and equivalently, including the “stroke rail” and “means for connecting” limitations. After ICON and Octane stipulated to the dismissal of Octane’s counterclaim for a declaratory judgment of invalidity of the ‘710 patent, the judge entered final judgment, and ICON appealed to the Federal Circuit.

Traditional Equitable Factors

While the appeal was pending, Octane moved in the District Court for a declaration that the case is exceptional and an award of more than $1.3 million in attorney fees pursuant to 35 U.S. Code Section 285 [an annotated version of this statute is available to lexis.com subscribers]. Octane argued that the unreasonable and baseless positions maintained by ICON throughout the litigation, as shown by emails and deposition testimony evidence, proved that ICON’s suit was vexatious and unjustified and warranted a finding of exceptional case status and fees. In September 2011, Judge Montgomery denied Octane’s motion because “the plaintiff's case must have no objective foundation, and the plaintiff must actually know this.”  Applying that standard, the judge reasoned that the case was not objectively baseless. The judge also found that there was no clear and convincing evidence of subjective bad faith on the part of ICON. Octane appealed the attorney fee ruling to the Federal Circuit, which consolidated the appeals. In October 2012, the Federal Circuit affirmed both holdings. Specifically, with regard to attorney fees, the Federal Circuit found “no reason to revisit the settled standard for exceptionality.”

After the Federal Circuit denied rehearing and rehearing en banc, Octane filed a petition for writ of certiorari with the Supreme Court. The petition was granted in October 2013 and presents the following question:  “Whether a district court, in exercising its discretion to award attorney fees to prevailing accused patent infringers in 'exceptional cases’ under Title 35, United States Code, Section 285, should use traditional equitable factors guided by the purposes of patent law to protect legitimate patent interests in reasonable ways rather than the Federal Circuit's rigid test requiring both objective baselessness and subjective bad faith?”

‘Weaker And Weaker’

Urging reversal, Telscher told the Supreme Court today that, although “rare,” an appellate court can order reimbursement of attorney fees when that appellate court has a “firm and definite conviction” that such an award is warranted. Justice Ruth Bader Ginsburg appeared skeptical, however. “I can understand you asking for a remand, but I can’t understand you asking for a reversal and an order that the fees be reimbursed,” she told Telscher.

Next, when asked by Justice Antonin Scalia what in Octane’s view could trigger an exceptional case finding, Telscher opined that Section 285 may be implicated whenever a plaintiff “brings a claim construction position that’s unreasonably weak.”  Unconvinced, Justice Scalia told Telscher, “you’ve got to give me something tighter than that.”

“In most of these cases what we're talking about is going to typically involve the merits. And so if we say that the only way you can get a fee award is to have a zero merit, frivolous case, it's impossible to show. It’s inconsistent with the statutory language. So when we're looking at this from a statutory context, on the merits, what should qualify?  And there comes a point at which a case goes from strong to medium and it crosses into the territory of weak. It gets weaker and weaker and then it becomes frivolous,” Telscher responded.

‘Troubling’ Position

Justice Samuel Alito called Octane’s position “troubling,” however, in that the ability to gauge the appropriateness of a Section 285 award could vary depending on the district court and its familiarity with patent law.

“Most district court judges do not see a lot of patent cases, and when they see one it’s very unusual. So you’ve got these patent attorneys showing up in court. They are different from other attorneys. Sometimes they, particularly if it’s a very technical case, they speak a different language. They do things differently. The district judge is struggling to figure out how to handle the case. And then the one party wins, the other party loses and the party that wins says, this was an exceptional case and you should award fees in my favor under 285. And the district judge says:  How can I tell if this is exceptional?  If I had 25 patent cases, I could make some comparisons. But I don’t have a basis for doing that,” Justice Alito said.

4-Point Approach

Telscher nonetheless found support in the form of Roman Martinez, representing the United States as amicus curiae for Octane. Urging the Supreme Court to “restore” the original understanding of Section 285, whereby district courts had discretionary authority to look at the totality of the circumstances and award fees when necessary to prevent gross injustice, Martinez advocated a four-point approach to clarifying the issue for judges.

“First and most importantly, the Court should say that baselessness and bad faith do not both have to be present in a case in order to justify a fee award; second, the Court should say that District Courts can grant fees based on a combination of different factors even if no single factor would necessarily support the award on its own; third, the Court should say that an objectively unreasonable argument can trigger a fee award even if that argument is not so unreasonable that it’s actually considered frivolous; and fourth, the Court should say that clear and convincing evidence is not required,” Martinez said.

‘Thorough Job’

Carter G. Phillips, representing ICON, told the Supreme Court that it should affirm on grounds that the District Court did “a very thorough job of analyzing every element of this case.” 

“The district judge obviously presided over the entirety of this litigation, analyzed the case for purposes of summary judgment, and then reanalyzed the case for purposes of analyzing the merits of the claim and whether or not this would be an exceptional case,” Phillips argued.

Although the District Court applied the Brooks standard, “basically what it analyzed was just simply whether there was an objectively legitimate basis for the decision,” according to Phillips. “It’s not that it has zero merit,” he continued. “Counsel keeps saying zero merit is objectively baseless [but] that’s not the standard.”

Octane is represented by Telscher, Kara R. Fussner, Steven E. Holtshouser and Daisy Manning of Harness, Dickey & Pierce in St. Louis. Larry R. Laycock, David R. Wright and Jared J. Braithwaite of Maschoff Brennan Laycock Gilmore Israelsen & Wright in Salt Lake City, Phillips and Ryan C. Morris of Sidley Austin in Washington and Constantine L. Trela Jr. of Sidley Austin in Chicago represent ICON. Martinez of the U.S. Department of Justice in Washington represents the government.

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