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A Supreme Court Doubleheader


May 1, 2014

Read Time

3 minutes


On Tuesday, April 29, the US Supreme Court handed down two unanimous decisions that could have far-reaching consequences for parties in patent litigation. The cases both deal with fee-shifting, which is when a prevailing party may recover attorney’s fees from the losing party in litigation.

Why Should I Care?

What is the practical impact of these decisions, why now, and what does it mean to you?  In our view, this is an attempt by the courts, and in particular, the Supreme Court to address some of the issues and recent tumult regarding patent assertion entities (PAEs), some of whom are referred to in some circles as “patent trolls.” While many PAEs are legitimate businesses, independent inventors, universities and the like, there are also those patent “owners” that are using their patents to file hundreds, if not thousands of nuisance lawsuits in the hopes of quick settlements and using their patents to hold up true innovation and commerce. In the past, exceptional cases were almost always found against defendants or those found to have infringed another’s patent, for example, by being found to have willfully infringed. It was the rare case that a plaintiff or patent owner’s conduct was found to have been “exceptional.” As such, the risk for a patent owner was low – if they lost, the lawsuit was over and each paid their own way. Any risk fell to infringer. Now, under the Court’s relaxed standards, a patent owner asserting his or her patent shares that risk. For legitimate businesses or patent owners with a good case, the risk is low, but for those filing nuisance or baseless lawsuits, the scales may have tipped against their favor. 

Background (For Those Who Care)

In the first case, Octane Fitness v. Icon Health & Fitness, the Court redefined the term “exceptional case” as used in the patent laws to allow a winning party to more readily recover attorney’s fees from the losing party. Previously, in order to recover attorney’s fees, the prevailing party had to show that there was either “material inappropriate conduct” or that the losing party’s case was “objectively baseless” and “brought in subjective bad faith.” The Court found that this was an overly restrictive definition of “exceptional” and held that an exceptional case is one that stands out from other cases “with respect to the substantive strength of a party’s litigating perspective (considering both the law . . . and the facts. . . ) or the unreasonable manner in which it was litigated.” The Court also held that the burden of proof previously used by the trial courts, the “clear and convincing evidence” standard, was too high and not supported by prior cases, and that the prevailing party’s burden was by a “preponderance of the evidence” standard giving the parties an equal share of risk in litigation.

In the second case, Highmark Inc. v. Allcare Health Management Systems, which is related in spirit to the Octane case, the Court dealt with the question of how much deference a court of appeals must give to the trial court judge on the question of whether a case is “exceptional.” In prior cases, the appeals court gave no deference to the trial court’s finding that a case was exceptional, reasoning that finding a case was “exceptional” was a matter of law which is reviewed on appeal de novo (reviewed anew). Rather, the Court held that when a trial court finds a case to be exceptional, the appeals court can only overturn that finding if the trial court abused its discretion. The Court reasoned that the trial judge “lives with the case over a prolonged period of time” and is in a better position to decide whether the case is exceptional.

Filed under: Intellectual Property

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