'; Survey of “Exceptional Case” Fee Shifting in Patent Litigation Post- Octane

Survey of “Exceptional Case” Fee Shifting in Patent Litigation Post- Octane

April 6, 2015 Chicago Daily Law Bulletin

Nearly a year removed from the Supreme Court’s landmark decisions in Octane v. Icon and Highmark v. Allcare, which altered the standard for attorney fee shifting in patent litigation, an abundance of case law exists from which to draw guidance moving forward. Certain fact patterns have repeatedly triggered fee shifting based on a finding of an “exceptional case.”

In patent litigation, 35 U.S.C. § 285 provides “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Since 2005 and prior to Octane, courts predominantly applied the Federal Circuit’s Brooks Furniture framework in determining whether a case is “exceptional.” Under this framework, the prevailing party must prove by clear and convincing evidence (1) material inappropriate conduct, such as willful infringement, fraud, or inequitable conduct, or (2) that the litigation was both brought in subjective bad faith and is objectively baseless. Brooks Furniture Manufacturing v. Dutailier International Inc., 393 F.3d 1378 (Fed. Circ. 2005).

In April 2014, the Supreme Court articulated a new standard in Octane, which overturned the Brooks Furniture standard and loosened the requirements for fee shifting. Octane Fitness v. Icon Health & Fitness, 134 S.Ct. 1749 (2014).

Under the Octane standard, the prevailing party must prove by the preponderance of the evidence that the case stands out with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated, under the totality of the circumstances.

The high court determined that the “material inappropriate conduct” prong of Brooks Furniture targets largely independently sanctionable conduct, a threshold the Court found too high, and asserted the “subjective bad faith and objectively baseless” prong was too restrictive and unduly rigid, as either/or cases may warrant an award of fees.

In view of the shift from a more rigid standard to a totality of the circumstances test, the Supreme Court revisited the proper standard of review. The more rigid Brooks Furniture standard was treated as a question of law, reviewable de novo. In Highmark, the Supreme Court held that because the Octane standard is a matter of discretion for the district courts, decisions should be reviewed for abuse of discretion. Highmark Inc. v. Allcare Health Management System Inc., 134 S.Ct. 1744 (2014).

District courts have repeatedly stressed the importance of pre-filing responsibilities. In Yufa v. TSI Inc., No. 09-CV-0135-KAW, 2014 WL 4071902 (N.D. Cal. Aug. 14, 2014), the court found the plaintiff had filed an infringement action without purchasing or testing any of the accused products. The court concluded that failure to test the products constituted an inadequate pre-filing investigation weighing in favor of a finding that the case is exceptional.

Even where a pre-filing investigation has been performed, courts have looked into the substance and depth of the analysis. In Chalumeau Power Systems LLC v. Alcatel-Lucent, No. 11-1175-RGA, 2014 WL 4675002 (D. Del. Sept. 12, 2014), the court found that plaintiff’s infringement theory relied entirely on public documents and failed to have its expert look at the accused infringer’s core documents. The court determined that failure to seek expert analysis weighed in favor of an exceptional case. In light of these opinions, it is clear that emphasis should be placed on a thorough pre-filing investigation prior to bringing a suit for patent infringement.

District courts have also considered the apparent purpose of the litigation as a consideration under the Octane standard. The classic exceptional case under this inquiry involves (1) a non-practicing entity, (2) filing multiple similar lawsuits, (3) with a boilerplate complaint, and (4) extracting settlements worth a fraction of what the cost to litigate would be. In Lumen View Tech., LLC v., Inc., No. 13 CIV. 3599 DLC, 2014 WL 2440867 (S.D.N.Y. May 30, 2014), the court argued the boilerplate nature of Lumen’s complaint and number of substantially similar lawsuits filed in a short time frame suggested a predatory strategy, advancing the need for considerations of deterrence.

Under the Octane standard, litigation misconduct no longer must rise to the level of being independently sanctionable. District courts have found cases exceptional based on various fact patterns, including improper behavior during discovery disputes, shifting positions during litigation, witness harassment, and general unreasonableness throughout litigation.

For example, in Cambrian Sci. Corp v. Cox Commc’ns, Inc., No. SACV 11-01011 AG, 2015 WL 178417 (C.D. Cal. Jan. 6, 2015), the court found an exceptional case where Cambrian requested overly broad discovery and filed serial meritless motions to compel. The district court further noted the unwillingness to cooperate to reschedule a deposition strongly suggested harassment, reinforcing the conclusion that Cambrian litigated in an unreasonable manner.

While infringement claims no longer must be objectively baseless to warrant attorney fees under Octane, courts still inquire into the substantive strength of claims. Fact patterns which have warranted attorney fees include unreasonable infringement theories, pressing arguments after repeated rejections, and advancing multiple meritless theories.

For example, in IPVX Patent Holdings, Inc. v. Voxernet LLC, No. 5:13-CV-01708 HRL, 2014 WL 5795545 (N.D. Cal. Nov. 6, 2014), the district court asserted that IPVX’s infringement theories were unreasonable, despite adopting some constructions proposed by IPVX, and granted a motion for summary judgment of non-infringement against IPVX. Parties should be aware that hiding behind partial victories may not defeat a motion for attorney fees.

Moving forward, plaintiffs and defendants alike should keep these fact patterns in mind when preparing for, and advocating in, patent litigation.