Supreme Court IP Review, Chicago-Kent: Patents

Ed Timberlake: most IP cases in a term ever, 8 or 10 depending on whether you count the Lanham Act cases.

Octane Fitness v. Icon Health & Fitness Inc. (When is a case "exceptional" for award of fees under 35 U.S.C. § 285, when a defendant prevails in a patent infringement action?)

Highmark Inc. v. Allcare Health Management System (Standard of review of a court's fee award pursuant to "objectively baseless" patent claims is abuse of discretion.)

Moderator: David Clough, Partner, Morgan Lewis & Bockius LLP

Dominic Perella, Counsel to Highmark Inc.; Partner, Hogan Lovells LLP: SCt didn’t have to delve too deeply into policy considerations to resolve this; Fed. Cir. was so obviously wrong.

Rudolph Telscher, Counsel to Octane Fitness; Principal, Harness Dickey PLC: the statute says “exceptional” and you start with the plain meaning, as it was when enacted. Dictionary: Out of the ordinary: a far cry from frivolous and subjective bad faith.  The latter was essentially an impossible standard. From 2005-2011 not a single fee award that related to the merits of the case was upheld, during a time when we all know that lawsuits were getting weaker.  Since Octane, 10 awards of fees in those few months. Already a litigation impact.

Constantine Trela, Jr., Counsel to Icon Health, Partner, Sidley Austin LLP: Statutory question: This was in the SCt’s view an instance where the Fed. Cir. treated patent as somehow different than regular law and reading statutes as you wouldn’t read them in other areas. Very similar to eBay.  Publicity/concern over patent trolls has had an impact.  Whether that’s true is another issue but that concern has gotten through to the Court.

Q: what effect on NPEs?

Professor David Schwartz, IIT Chicago-Kent College of Law: On balance, made it easier to affirm findings of fee awards.  Immediate narrative on NPEs is that those with weak claims, with cost of defense settlements, would encourage defendants to litigate rather than settle.  But the standard is not fee-shifting. Still has to be outlier/uncommon.  So still a lot of pressure on accused infringers if settlement offer is well under cost of litigation.

Perella: True, change only at the margins.

Telscher: legislative prospects?  Doesn’t see loser pays legislation going anywhere. Chilling effect on patent system of going up against a large company.  75% are small companies.  Other legislation possibility: fee shifting for NPEs unless NPE could show reasonability.  That in his view is basically no different from SCt’s standard: case has to stand out in substantive strength/weakness.

Trela: whether SCt intended to/did obviate need for legislation, Congress will see it as at least partial solution and will take a wait and see approach, so he wouldn’t expect a legislative return for a while.

Schwartz: not sure he agrees. Politically, proponents of reform made fee shifting central, and these cases took some wind from sails. But reform sought was much broader than these cases allowed. Proposal on table: default that fees shifted unless positions were reasonably justified. Proponents of patent reform think that’s important and will re-raise it soon.

Because of the way sj and trial are set up, there are more opportunities for accused infringers to be the prevailing party.

Trela: Agrees: likely that courts will view Ds and Ps a bit differently. Lack of meritorious defenses: dcts may think of willful infringement as the solution, but no counterpart for assessing fees against P.  (Also the case before.)

Telscher: if you win at sj, for Ps and Ds it will apply equally, but for a P who proves your case and a jury finds willful infringement, that emboldens the judge to feel more comfortable awarding fees.  It’s far easier to get a jury to buy into willful infringement than a judge, so that’s a P edge at actual trial.

Discussion over whether one could get fees without a sj motion: general agreement that you could, depending on how the expert opinions shook out, but that winning at sj was helpful.  Trela noted that Judge Dyk had said that failure to move for sj is a factor counseling against a fee award.

Q: what counts as exceptional?

Telscher: start with merits of the case. Abuse comes in two areas: big company suing small; NPE cases.  Not a troll-hater: a legit tech legitimately used in the marketplace can justify. But in the past 10 years the goods (patents) got picked over and the cases got weaker and weaker.  More like extortion.  Cases dragged out until defendants pay. Look at economics to explain motivation to judges.

Trela: ought to turn on weakness, not motivation.

Schwartz: district courts aren’t equally situated to evaluate merits v. litigation misconduct.  In some jurisdictions, judges see lots of patent cases, but in others, judge might not have a sense of ordinariness.  Litigation behavior is easier to evaluate for generally experienced judges.

Trela: if the standard is whether the case stands out, what does a new judge do? 

Q: if you’re in EDTex., where many of the cases are very weak, how could a case stand out?

Telscher: reasonable litigants. It’s not numerical.  EDTex. is separate issue: pro-plaintiff jurisdiction; you can expect it to be harder to get a fee award there.  Expect more forum shopping.  Has seen plaintiffs move to EDTex. to avoid transfer.

Q: recent findings by dcts that two prominent firms had abusive deposition practices: 198 objections/case.  Take a lesson!

Telscher: NDCal case from June, where judge found p had acted unreasonably in merits and litigation conduct; ds also acted unreasonably so judge denied fees. So be aware of your own conduct.

Schwartz: deference to dct judges in Highmark makes fee denial likely to be affirmed. Once there are differences in districts emerging from the data, ps will move there quickly.

Trela: if there’s variation among the judges in the district you’re taking a chance!

Telscher: reminder that the conduct doesn’t have to be independently sanctionable to affect the fee determination.  You can say: these lawyers were smart, they didn’t cross any line, but overall their conduct merits a fee award.

Trela: judges will be looking at conduct & litigation tactics of the other side, not necessarily to say a pox on both houses but to see whether effort put on other side is appropriate. If you really believe case is weak from the outset, do you need 10 lawyers and 5 experts?  Those arguments will sway some judges.

Telscher: judge doesn’t have to go all or nothing. Can award fees for one aspect of the case.  Keep billing records in condition to separate those out.

Peter Menell: may have effect on what cases are brought.  You might not be able to fund exploratory litigation. If the issues are tied together—you have a bad validity case, why not award fees on the infringement portion too?

Telscher: dct will always have discretion to decide whether one issue is fatal and affects the whole case, or whether it’s just one issue.

Schwartz: treble/enhanced damages: willfulness isn’t required by the statute. The Fed. Cir. has held that willfulness is required.  Not clear how this rule can survive after these cases.

Q: many of these rules were promulgated a while back. Would they be different with more former dct judges on the bench?

Trela: ct app judges sometimes lose sight of what happens in a trial court. Fed. Cir. has that problem in spades.  New judges may make a difference.  But some of the problems we see come from appellate judges w/out a good feel for trial court litigation.

Q: has a D recovered fees by killing a patent in reexamination?  If case is stayed in the interim, judge may perceive there’s not much in fees accrued/behavior in court so how could it be exceptional?

Telscher: If you go right to reexamination, hard to get fees.  But Octane may make the argument plausible if the case is more mature. 

Q: can you get fees for P not knowing of prior art?

Telscher: once you’re in litigation D will do a much bigger search for prior art; unreasonable to expect P to find it all for purposes of fees.

Q: well, has been involved in case where 30-minute search produced 35 pieces of prior art.

Q from audience: effect on declaratory judgment P?

Telscher: same rule.  3d Cir. just applied Octane to TM cases.