MVS Filewrapper – Blog:Supreme Court Revises Standards for Sanctions in Exceptional Patent CasesApril 29, 2014

Two U.S. Supreme Court opinions issued today—Octane Fitness, LLC v. Icon Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Management System, Inc.—have changed the framework for which exceptional cases are analyzed under § 285 of the Patent Act. For years, the controlling case with regard to § 285 of the Patent Act was Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc. In Brooks Furniture, the Federal Circuit defined an "exceptional case" as one which involves either "material inappropriate conduct" or is both "objectively baseless" and "brought in subjective bad faith." Under this framework, the determination is a mixed question of law and fact. Accordingly, the objective-baselessness determination is reviewed de novo on appeal without any deference to the determinations made by the district court.

The two Supreme Court decisions in Octane Fitness and Highmark specifically reject the Brooks Furniture framework as "unduly rigid and inconsistent with the text of § 285." Instead, the word "exceptional" in § 285 should be "interpreted in accordance with its ordinary meaning." In its opinion, the Supreme Court characterized the Brooks Furniture framework as taking away a district court's power to award fees in exceptional cases due to overly restrictive standards. Justice Sotomayor, writing for the Court in the Octane Fitness opinion, sums up Brooks Furniture as a "formulation [that] superimposes an inflexible framework onto statutory text that is inherently flexible."

The Octane Fitness framework that now controls exceptional case determinations states 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." Additionally, litigants are no longer required to establish their entitlement to fees under § 285 by clear and convincing evidence, as § 285 does not provide any specific evidentiary burden.