Federal Circuit’s Bar on Fees Deemed Too Rigid

WASHINGTON (CN) - A company that successfully fought off patent-infringement claims may be eligible for attorneys' fees, the Supreme Court ruled Tuesday.

The decision is one of two Federal Circuit reversals Tuesday that makes it easier to award patent fees. Icon Health & Fitness brought the case at hand in 2011, claiming that Octane Fitness had infringed on its patent for a component in elliptical machines, a product both companies manufacture.

Octane beat the allegations and then sought $1.3 million in fees, but a federal judge shot it down and the Federal Circuit affirmed. Citing Section 285 of the U.S. Patent Act, the court said fees could be awarded only in exceptional cases, where a lawsuit is deemed "objectively baseless" and filed in bad faith.

The justices agreed this past October to look at the Federal Circuit precedent that determines what makes a case "exceptional."

"In Brooks Furniture Manufacturing Inc. v. Dutailier International Inc., the United States Court of Appeals for the Federal Circuit held that '[a] case may be deemed exceptional' under §285 only in two lim­ited circumstances: 'when there has been some material inappropriate conduct,' or when the litigation is both 'brought in subjective bad faith' and 'objectively base­less,'" Justice Sonia Sotomayor wrote for the mostly unanimous court. "The question before us is whether the Brooks Furniture framework is consistent with the statu­tory text. We hold that it is not."

The Federal Circuit's 2005 ruling in Brooks Furniture "abandoned [a] holistic, equitable approach in favor of a more rigid and mechanical formulation," the 12-page ruling states.

In addition to being "unduly rigid," Sotomayor said the framework established in Brooks Furniture "impermissibly encumbers the statutory grant of discretion to district courts."

"Sanctionable conduct is not the appropriate benchmark," the judge added. "Under the standard announced today, a District Court may award fees in the rare case in which a party's unreasonable conduct - while not necessarily independently sanctionable - is nonethe­less so 'exceptional' as to justify an award of fees."

It is also too restrictive to make fees contingent on a finding "both that the litigation is objectively baseless and that the plaintiff brought it in subjective bad faith," the ruling states."

"A case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award," Sotomayor wrote.

The rigors of Brooks Furniture moreover would render Section 285 "superfluous," the court found.

"Section 285 demands a simple discretionary inquiry; it imposes no specific evidentiary burden, much less such a high one," Sotomayor wrote. "Indeed, patent-infringement litiga­tion has always been governed by a preponderance of the evidence standard, and that is the 'standard generally applicable in civil actions,' because it 'allows both parties to "share the risk of error in roughly equal fashion."'

Sotomayor's colleagues all joined her opinion in full, except for Justice Antonin Scalia who abstained from the first three footnotes of six such remarks.

In its other decision Tuesday on attorneys' fees in patent cases, the unanimous court said that the Federal Circuit owes deference to a district court's Section 285 analysis.

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