Octane Fitness in Practice: Federal Circuit Applies Supreme Court Attorney Fees StandardJuly 14, 2015

The Supreme Court decision in Octane Fitness LLC v. ICON Health and Fitness (previously discussed on Filewrapper®) changed the standard for awarding attorney fees in patent suits to the prevailing party in exceptional cases under Section 258 of the patent statute. In Octane Fitness, the Court further defined “exceptional cases”to mean those “that stands out from others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.”This effectively lowered the standard for awarding of attorney fees.  District courts were instructed to apply this standard on a case-by-case basis while considering the totality of the circumstances. The Federal Circuit recently issued a decision which interprets and applies the Supreme Court’s standard: SFA Systems, Inc. v. Newegg, Inc., affirms a district court ruling denying attorney fees under Section 285 of the Patent Act. 

SFA Systems (“SFA‚¬) brought an action against Newegg for infringement of patents which relate to a computer sales system that includes a plurality of subsystems or components, where each of the components corresponds to a different phase of the sales process. After the district court had issued a claim construction, SFA voluntarily dismissed the case and covenanted not to sue Newegg. Newegg then moved for fees under Section 258, which was denied by the court. During the proceedings of the case, the Supreme Court issued its decision in Octane Fitness. 

On appeal to the Federal Circuit, Newegg asserted that the court’s analyses on claim construction were incorrect and if corrected, SFA’s suit would be meritless and exceptional. They also argued that SFA maintained the lawsuit in bad faith. The appellate court, however, concluded that the language of Octane’s sister case, Highmark Inc v. Allcare Health Management System, Inc., does not mean that on appeal all issues of law must be reviewed for correctness—the court is merely concerned with the substantive strength of the positions. Thus, Newegg’s first argument regarding correctness of claim construction was found to be meritless. Furthermore, as Newegg did not preserve their objections as to SFA’s case strategy or the alleged bad faith associated with the case, the Federal Circuit also rejected this argument. Importantly, the Federal Circuit noted that their holding does not preclude the district court from considering a patentee’s pattern of litigation, but rather they merely hold that the district court did not abuse its discretion in this area.

In effect, this decision demonstrates that although the standard for awarding attorney fees may be less stringent, it is far from guaranteed that a prevailing party will be awarded attorney fees in a patent infringement case.