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Justices mull attorney fees in patent troll cases

WASHINGTON — The justices of the U.S. Supreme Court wrangled over the language of a statute that allows prevailing parties in certain patent infringement cases to recoup attorney fees — an issue that could mean millions of dollars in already costly legal proceedings.

Oral arguments Wednesday in Octane Fitness LLC v. ICON Health & Fitness, No. 12-1184, and Highmark Inc. v. Allcare Health Management Systems, No. 12-1163, were a lesson in linguistics, with the justices struggling to define when a case qualifies as “exceptional” under the language of the statute.

The Octane case involves a lawsuit in which ICON is accusing Octane of infringing a patent for a type of elliptical trainer machine. Octane won summary judgment and then sought an award of attorney fees under 35 U.S.C. §285, which provides for the award of attorney fees to the prevailing party in a patent infringement action in “exceptional cases.”

The district court declined to award fees, citing precedent from the U.S. Circuit Court of Appeals for the Federal Circuit. The Federal Circuit affirmed the ruling, finding that the cases did not meet the “settled standard of exceptionality.”

Highmark involves a declaratory judgment action filed by Highmark, a company facing several infringement counterclaims. Highmark prevailed and was awarded attorney fees, with the district court judge describing defendant Allcare as a “patent troll,” a litigant who obtains patents for the purpose of bringing frivolous infringement claims against other patent owners.

The Federal Circuit affirmed the declaratory judgment but reversed the attorney fees award. Reviewing the award de novo, the court declined to give deference to the district court’s ruling, instead finding that Allcare’s infringement claims were not “objectively baseless.”

The Supreme Court granted certiorari in both cases, agreeing to consider the substantive issue of attorney fees in Octane and the standard of review in Highmark.

Search for adjectives

During argument, the attorneys and the justices tussled over how to nail down the standard for qualifying as an “exceptional case” that would allow an award of attorney fees.

“ICON’s infringement allegations against Octane were meritless,” said Rudolph A. Telscher Jr., a principal at the St. Louis office of intellectual property firm Harness Dickey.

“This is a search for adjectives,” noted Justice Anthony M. Kennedy. “I think you used the word ‘meritless.’ Is there a difference between ‘meritless’ and ‘objectively baseless?”

“I don’t know that the case law is perfectly clear,” Telscher replied.

Kennedy noted that the district court has already determined that the claim was not brought in bad faith, so that wouldn’t be enough. “I’m not quite sure what words we’re going to give to the district court if you’re to prevail,” he said.

“Don’t you have to add something to ‘meritless?’” Justice Antonin Scalia asked. “I mean, every time you win the summary judgment motion, that’s a determination that the claim is without merit, isn’t it?”

While Telscher had some difficulty establishing what the standard was, he was certain about what it wasn’t.

“We think frivolousness is too low of a standard under §285,” he said.

Roman Martinez, assistant to the U.S. solicitor general, argued as amicus in support of Octane that a number of factors can be considered in making the “exceptional” determination, and that a bad faith or frivolousness finding is not necessary

In the “search for adjectives,” Martinez suggested that “a fee award should be appropriate or can be appropriate in a case in which there’s an objectively unreasonable litigating position or objectively unreasonable arguments that are made in a case.”

Carter G. Phillips, a partner in the Washington office of Sidley Austin LLP, argued on ICON’s behalf that the determination was far simpler.

“This court found [that] when you look to the larger objectives and you want to encourage good conduct and you want to discourage bad conduct, you set [the standard] at ‘reasonable.’” he said.

Governing standards

Georgetown law professor Neal K. Katyal argued on Highmark’s behalf for the adoption of an abuse of discretion standard for the review of attorney fees awards.

But Chief Justice John G. Roberts Jr. noted that such a standard is usually applied to cases involving issues of fact as opposed to law.

“How does abuse of discretion work with respect to a pure legal question?” he asked.

Katyal argued that the case did not present a straight issue of fact, but rather a “a mixed question, a mongrel question of law in fact.”

Donald R. Dunner, a partner in the Washington office of Finnegan, Henderson, Farabow, Garrett & Dunner LLP, argued on behalf of Allcare that allowing district court judges too much discretion will lead to disparate results that will only fuel the problem of judicial uncertainty on an issue that can be hugely expensive for parties.

“The size of the fee involved in patent cases [is] humongous,” Dunner said. “I’ve been in two cases where the legal fees were $30 million.”

Without missing a beat, Roberts deadpanned: “Well, you’ve got to stop charging such outrageous fees!” The other justices, attorneys and spectators in the chamber laughed.

A decision is expected later this term.