Recent Supreme Court Decisions Highlight the Need for Fee Shifting Legislation

While the law allows courts to grant attorney fees to the winning party in a patent infringement case, many federal courts have opted not to award those fees. Courts have interpreted the standard for awarding fees, “exceptional circumstances” (35 U.S.C. §285), so high few, if any, cases have been able to meet it.

On Monday, the Supreme Court issued a ruling in two very important patent cases: Octane Fitness LLC v. Icon Health and Fitness, Inc. (No. 12-1184) and Highmark Inc. v. Allcare Health Management System, Inc. (No. 12-1163), both dealing with the fee shifting standard for patent infringement cases. While the Supreme Court’s ruling clarified the standard, federal legislation is still needed to ensure federal judges are free to exercise fee shifting as a disincentive for patent trolls filing frivolous law suits.

In Octane Fitness, the Supreme Court unanimously ruled that the lower court’s interpretation of “exceptional circumstances” is too restricting and renders the statute largely superfluous. The Court noted that when Congress wrote §285, “exceptional” meant only uncommon, rare, or not ordinary.

However, in Highmark, the Supreme Court, again unanimously, said that appellate courts should review lower courts decisions whether to grant fees under §285 under the “abuse of discretion” standard, a very tough standard to meet. So, even if the lower courts continue to use the wrong standard in determining whether to grant fees, the appellate courts have very little ability to correct them.

For small businesses, fighting a patent troll in court is an expensive proposition. While we appreciate the Supreme Court’s decision in Octane Fitness, we still need clear guidance to the courts to make sure fee shifting is a strong deterrent to patent trolls filing frivolous law suits. The Innovation Act (H.R. 3309), passed by the House in 2013, contains amendments to the fee shifting provision that allow lower courts to grant fees when the case warrants it. We urge the Senate to pass a similar fee shifting provision to definitively deal with the problem of patent trolls taking advantage of the legal system.