Another Not–So Exceptional Case: Attorneys’ Fees, Objective Tests, and Appellate Review

On the heels of our discussion of the proposed SHIELD Act that if enacted would make it easier for prevailing defendants in computer software or hardware cases to obtain an award of fees and costs comes the latest Federal Circuit opinion demonstrating how difficult it is to meet the current “exceptional case” standard for fee–shifting in patent cases. Please bear with the technical difficulties of discussing an arcane subject with very practical impacts on litigants.

To get an award of attorneys’ fees, the prevailing party in a patent case must show by clear and convincing evidence that the case is exceptional. If the case is proved exceptional, the court then considers whether an award of attorneys’ fees is appropriate and if so, how much to award. If the opposing party does not engage in litigation misconduct, an accused infringer can demonstrate that a case is “exceptional” only by proving that the litigation was brought in subjective bad faith and the litigation is objectively baseless. No easy task on its face.

While there is much to chew on in the Federal Circuit opinion in Highmark v. Allcare Health, we’d like to focus on how Judge Dyk’s majority opinion explains the differences between what you need to get attorneys’ fees in a patent case and what you need to get sanctions under Federal Rule of Civil Procedure 11.

Pre–filing investigation: An adequate pre–filing investigation can negate a finding of bad faith under the exceptional case standard. An inadequate pre–filing investigation can support an award of attorneys’ fees as a sanction under Rule 11. The court declined to address whether an inadequate pre–filing investigation could ever support an exceptional case finding.

Standard of review: The objective prong of the exceptional case analysis is a question of law reviewed de novo, that is, without deference to the lower court. Rule 11 sanctions are reviewed for error under a deferential standard. Applying non–deferential standard, the majority affirmed the exceptional case finding as to one asserted claim, reversed as to another, and remanded for a reduction of the attorneys’ fee award to reflect these conclusions.

Under these rules, then, it appears that an exceptional case finding is both harder to get at the trial level than Rule 11 sanctions and, once obtained, harder to defend on appeal than Rule 11 sanctions. And Rule 11 sanctions are already hard to get

In partial dissent, Judge Mayer argues against this inconsistency, writing that the trial judge’s findings of objective unreasonableness in support of an exceptional case finding should be reviewed for clear error. Judge Mayer would establish consistency between the exceptional case and Rule 11 analyses. Under that standard, Judge Mayer would have affirmed the trial court’s exceptional case order in its entirety.

In parting, Judge Mayer also diverged somewhat surprisingly from the thrust of his dissent to state the opinion that the underlying patent in the case was a good candidate for invalidation as not eligible for patent protection under 35 U.S.C. § 101 and the holdings of the Supreme Court in the Bilski and Prometheus cases. “[A] robust application of section 101 at the summary judgment stage,” wrote Judge Mayer, “will save both courts and litigants years of needless litigation.”

Posted by David Swetnam-Burland