In Octane Fitness v. Icon Health and Fitness, the United States Supreme Court unanimously held that the Federal Circuit’s standard for awarding attorneys’ fee under 35 U.S.C. § 285 is too rigid, lowering the burden for successful patent litigants to recover their fees.  All patent litigants should take heed:  the risk of patent litigation just increased, making thorough and sound pre-suit and early-litigation counseling essential.

35 U.S.C. § 285 states:  “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”  Since the Federal Circuit’s 2005 ruling in Brooks Furniture Manufacturing v. Dutailer International, Inc., in order to deem a case “exceptional,” district courts were required to find that the case was both (1) brought in subjective bad faith, and (2) objectively baseless.  In Octane Fitness, however, the U.S. Supreme Court eliminated that two-part standard because it “superimpose[ed] an inflexible framework onto statutory test that is inherently flexible.”  The U.S. Supreme Court held:

. . . that an “exceptional” case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances.

Thus, the U.S. Supreme Court empowered district courts to determine whether a case is “exceptional” without formulaic restraint.

Although perhaps not as impactful as eliminating the Federal Circuit’s two-part standard for determining whether a case is exceptional, the U.S. Supreme Court in Octane Fitness also lessened the burden to recover attorneys’ fees by eliminating the requirement that patent litigants must prove their attorneys’ fees by clear and convincing evidence.  Adhering to the plain language of the statute, the Court held that 35 U.S.C. § 285 did not require such a high evidentiary burden and ruled that the preponderance of the evidence standard is appropriate because it “allows both parties to share in the risk of error in roughly equal fashion.”

The easy conclusion from Octane Fitness is that the U. S. Supreme Court responded to the well-publicized increase in lawsuits filed by NPEs having questionable merits.  While that conclusion may or may not be true, it does not negate that the Octane Fitness holding applies to all patent lawsuits.  Exactly how trial courts will use their new found discretion is uncertain and will likely vary from district to district and judge to judge.  For now, the clear take away for all patent litigants is that they must closely scrutinize their claims and defenses at all times to ensure their positions are not susceptible to being painted by their adversary as “stand[ing] out from others with respect to substantive strength.”