Last month, Dr. Anthony Sabatelli had joined with Paul Pescatello, JD, PhD of CURE (Connecticut United for Research Excellence) to advocate for the Biotech Industry at the BIO 2014 Legislative Day Fly-In on the patent reform legislation discussed in this article.

Back in February I reported that the Supreme Court had a heavy patent docket during this 2013-14 term.  See, Busy Schedule for the Supremes – Court Takes on Six High Profile Patent Cases This Term.  On Tuesday of this week, the Court issued unanimous decisions in two of these cases:  Octane Fitness, LLC v. Icon Health and Fitness, Inc., U.S., No. 12-1184, 4/29/2014 and Highmark Inc. v. Allcare Health Management Sys., U.S., No. 12-1163, 4/29/2014.  In deciding these cases, the Court held that the Federal Circuit’s current standard for finding a patent case “exceptional” for the purpose of awarding attorneys’ fees to the prevailing party to be “unduly rigid.”

As background, keep in mind that the usual practice in patent litigation – or any litigation for that matter – is for each party to bear its own legal costs.  However, under certain circumstances the prevailing party can seek reimbursement of its legal fees from the losing party.  The patent code has just such a provision where “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  See 35 USC § 285.

In the Octane decision, the Court held that the current standard for awarding attorney fees “superimposes an inflexible framework”, which is not consistent with the discretionary determination of whether a case is “exceptional.”  In Highmark, the Court further clarified that fee awards in patent litigation cases should be reviewed on a case-by-case basis considering the totality of the circumstances.

So, what do these decisions mean?  Essentially the Supreme Court is laying down the ground rules by which the Federal Circuit can review and overturn a District Court’s award of attorneys’ fees in a patent lawsuit.  The Supreme Court is (1) tossing out the Federal Circuit’s two-pronged test for determining whether a patent case rises to the level of “exceptional”, (2) reigning in the Federal Circuit’s ability to review de novo a lower District Court’s determination, and (3) restoring the discretion of the lower District Courts to make the “exceptional” and award determinations.

These decisions come right in the midst of federal patent litigation reform legislation that is before the Senate Judiciary Committee (on which Connecticut’s Senator Richard Blumenthal sits).  Various versions of the pending legislation have contained a proposed fee-shifting provision as an attempt to deter abusive patent enforcement activities by nonpracticing patent entities (“NPEs” or “patent trolls”).  However, there has been a concern that smaller biotech companies, individual inventors, and universities would be unfairly affected by this provision.  Even though this provision is intended to curb the filing of frivolous or unjustified lawsuits, it could have an unintended chilling effect by discouraging bona fide patent holders from enforcing their legitimate patent rights.  Senate Bill S. 1720, which is currently under consideration, will be merged with H.R. 3309 which was passed by the House back in December.  We will likely learn the impact of the Court decisions on the shaping of the legislation in the very near future.

–  Anthony D. Sabatelli, PhD, JD
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This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.