Supreme Court Takes Exception to Federal Circuit’s “Exceptional Case” Standard

In a pair of unanimous opinions by Justice Sotomayor—although Justice Scalia declined to join three footnotes–worth of legislative history in one of them—the Supreme Court has rewritten the law governing the award of attorneys’ fees in patent litigation, which may be awarded to a prevailing party “in exceptional cases.”

The Federal Circuit had set an exceptionally high bar for proving that a case is exceptional, finding that a party seeking a fee award must show by clear and convincing evidence that the case was both objectively baseless and subjectively brought in bad faith. At times, that standard appeared to be the exception that erased the rule, given the difficulty satisfying it.

In Octane Fitness v. ICON Health & Fitness, the Supreme Court rejected the Federal Circuit’s articulation, holding that “an ‘exceptional case’ is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated….[T]here is no precise rule or formulation for making these determinations, but instead equitable discretion should be exercised in light of the considerations we have identified” (ellipsis and brackets added; quotation omitted). The high court also cleared away the requirement of proving that a case was “exceptional” by clear and convincing evidence, noting that the statute “imposes no specific evidentiary burden, much less such a high one.”

In Highmark v. Allcare, the Court further clarified that the standard of review of a district court finding of an exceptional case by the Federal Circuit Court of Appeals is abuse of discretion, a standard affording considerable deference to the district court. The application of this rule will make it much harder to convince the court of appeals to overturn a fee award on appeal.

The net result is that fee awards in patent cases should no longer be the near–impossibilities they once seemed, and once obtained, should stand up on appeal in all but the most exceptional, exceptional case.

Posted by David Swetnam-Burland