Are Patent Plaintiffs in for a Rocky 2014?

06 January 2014 IP Litigation Current Blog

The start of a new year is a good time for reflection – an excuse to take stock of where we are, how we got here and where we’re going. So it seems appropriate to observe that 2013 was a big year for accused infringers in patent cases and 2014 may be even bigger. We are living in the post-AIA world of tighter joinder rules. In the right case, an inter partes review petition can be a useful tool to narrow issues, obtain a stay of co-pending District Court litigation, or completely invalidate an asserted patent. In June, the Obama Administration’s Council of Economic Advisers released a study concerning the detrimental effects of marginal patent claims by non-practicing entities and urged Congress to act. Currently, a bill designed to curb abusive patent litigation has passed in the House (“The Innovation Act” – H.R. 3309) and several competing proposals are winding their way through the Senate.

Are we witnessing a sea change in patent litigation as we know it?

Probably not. But recently a panel of the Federal Circuit joined the drumbeat by endorsing a more liberal test for attorneys’ fee awards under 35 U.S.C. § 285. Kilopass v. Sidense, __ F.3d __ (Fed. Cir. 2013) (O’Malley, J.). In Kilopass, the Federal Circuit vacated a denial of the defendant’s motion for an award of attorney’s fees under § 285 and remanded because the lower court should have focused on the “totality of the circumstances” rather than looking for direct evidence of the patentee’s subjective bad faith in conducting the litigation. Slip Op. at 15.

Kilopass is a thoughtful and well-reasoned opinion – not because plaintiffs are evil and we should penalize them when they don’t prevail (§ 285 is compensatory in nature, not punitive after all), but because the discretion to award attorneys’ fees belongs with the District Courts and the often cited “Brooks Furniture” test is subject to application in an overly rigid way that makes it almost impossible to meet.

As we all know, since 2005 the rule has been that an award of attorneys’ fees under § 285 requires that the litigation be both (1) brought in subjective bad faith, and (2) objectively baseless. Brooks Furniture Mfg. v. Dutailier, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005). Before Brooks Furniture (a panel decision), the courts had applied a “totality of the circumstances” test in deciding whether to award attorneys’ fees in exceptional cases. Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805, 810-11 (Fed. Cir. 1990).

While not calling for a change to the standard for attorneys’ fee awards under § 285, the Kilopass panel clearly rejected an overly narrow view that relies too heavily on the “subjective bad faith” component of the Brooks Furniture test. In particular, the opinion emphasizes that subjective bad faith can be proven in “a wide variety of ways” and notes that “subjective bad faith is difficult to prove directly, essentially requiring the discovery of a smoking gun,” while also reminding the reader that bad faith may be proven by circumstantial evidence and established “in light of the totality of the circumstances.” Slip Op. at 15, 17 (emphasis in original) (citing Eltech, 903 F.2d at 811). Because the District Court had focused exclusively on the patentee’s subjective bad faith without assessing the objective merits of its claims, the panel vacated the decision denying an award of fees and remanded “for consideration of whether [the patentee] acted in bad faith in light of the totality of the circumstances – with particular attention paid to the objective merits of [its] claims and other objective evidence indicative of bad faith.” Id.

In a concurring opinion, Chief Judge Rader noted that Brooks Furniture cannot be used to overturn an earlier panel decision (Eltech) and argued outright for a more liberal application of § 285 that focuses exclusively on the totality of the circumstances.

Kilopass provides a thorough overview of § 285 and should be considered required reading for prevailing parties seeking an award of attorneys’ fees in patent cases. However, with legislation proposed in the Senate (which is likely to water down or remove altogether the overhaul of § 285 that passed the House) and two appeals scheduled to be heard by the Supreme Court this term involving § 285 (Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc. (Case No. 12-1163) & Octane Fitness, LLC v. Icon Health and Fitness, Inc., (Case No. 12-1184)), the author may be pausing for more reflection on this issue once again in 2015.

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