How does one decide whether a case is “exceptional”? More to the point, should a reviewing court defer to a trial court’s determination that a particular case was “exceptional”? Those questions lie at the heart of the U.S. Supreme Court’s recent unanimous opinion in Highmark Inc. v. Allcare Health Management System, Inc., 572 U.S. ___ (April 29, 2014) (slip opinion). Recognizing that a trial court may be in a superior position to determine whether the facts and circumstances of a particular case merit its designation as “exceptional” – and thus justify an award of attorney fees pursuant to section 285 of the Patent Act – the Court concluded that such decisions should be reviewed under an abuse-of-discretion standard. In reaching its determination, the Court provided a helpful overview of the varying standards of review before federal courts of review.
Two companies, Highmark and Allcare, were embroiled in patent litigation. Highmark won summary judgment, and its victory was affirmed on appeal. Highmark then moved for its attorney fees in the district court under section 285 of the Patent Act, which authorizes fee awards to prevailing parties in “exceptional cases.” See 35 U.S.C. §285. The district court awarded fees to Highmark. The Federal Circuit then affirmed the district court’s fee award in part and reversed it in part. The Federal Circuit derived the applicable legal standard from Brooks Furniture Mfg., Inc. v. Dutailier Int’l., Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005), which held that a case is “exceptional” for purposes of section 285 if: (i) a party has engaged in “material inappropriate conduct,” or (ii) the case was “brought in subjective bad faith” and also was “objectively baseless.” In Highmark, the Federal Circuit applied a de novo standard of review to the district court’s determination that the case was “objectively baseless.”
The Supreme Court disagreed. The Court noted that, in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. ___ (April 29, 2014), it rejected the Brooks Furniture test “as unduly rigid and inconsistent with the text of §285.” In place of the Brooks Furniture test, the Court in Octane Fitness held that whether a case is “exceptional” depends upon the totality of the circumstances and the district court’s discretion.
Consistent with its contemporaneous holding in Octane Fitness, the Court in Highmark held that such decisions should be “reviewed on appeal for abuse of discretion.” Quoting a case that interpreted a similar statutory fee-shift provision, the Court noted that the district court “ ‘is better positioned’ to decide whether a case is exceptional, because it lives with the case over a prolonged period of time” (internal citation omitted). The issue of whether a case is “exceptional” is “not susceptible to ‘useful generalization’ of the sort that de novo review provides, and ‘likely to profit from the experience that an abuse-of-discretion rule will permit to develop’ ” (citation omitted).
In a footnote, the Court added an important qualifier: “The abuse-of-discretion standard does not preclude an appellate court’s correction of a district court’s legal or factual error.” The Court also noted that, while “questions of law may in some cases be relevant to the §285 inquiry, that inquiry generally is, at heart, ‘rooted in factual determinations’ ” (citation omitted). Accordingly, the abuse-of-discretion standard was appropriate and governed all components of the inquiry.
Recommended Citation: John M. Fitzgerald and Katherine M. O’Brien, U.S. Supreme Court Sets Deferential Standard of Review for Attorney Fee Awards in Patent Cases, The Brief, (May 7, 2014), http://applawyers-thebrief.blogspot.com/2014/05/us-supreme-court-sets-deferential.html.