'Loser pays' rules loosened in patent cases

As Congress attempts to change the patent litigation system, the Supreme Court is making it easier for companies that were unreasonably sued for patent infringement to get their attorneys fees paid for.

In nearly unanimous rulings published Tuesday in two high-profile patent cases, the Supreme Court said that the current standard for invoking "fee-shifting" — or requiring the losing party of an unreasonable patent infringement case to pay the winning party's fees — is too high.

ADVERTISEMENT
The current standard enforced by federal courts requires that courts shift the winner's legal fees in "exceptional" cases.

It defines exceptional cases as those that involve "material inappropriate conduct" or are "objectively baseless" and "brought in subjective bad faith."

That standard — first set by a 2005 patent case between furniture companies — "is unduly rigid and inconsistent" with patent law, the Supreme Court said in the rulings published Tuesday.

Rather than requiring cases be both "objectively baseless" and "brought in subjective bad faith" to invoke fee-shifting, courts can shift fees if either condition is met, the court said.

The court lowered the bar for fee-shifting as it considered two patent cases: Octane Fitness v. ICON Health & Fitness Inc. and Highmark Inc. v. Allcare Health Management System Inc.

The first case focuses on a fitness equipment manufacturers who sued another manufacturer for patent infringement over an elliptical machine. The defendant won but was not awarded attorneys fees.

The second centered around healthcare companies that sued each other over a "managed healthcare systems" patent owned by Allcare. Highmark won but was eventually denied attorneys fees.

The court found in both cases that the bar for the courts to force the losing party to pay the winning party's fees was too high.

In the fitness equipment case, the opinion pointed to the laws governing the patent litigation system, which doesn't define what makes a patent infringement case "exceptional" and deserving of fee-shifting.

An exceptional case is "simply one that stands out from others with respect to the substantive strength of the party's litigation position ... or the unreasonable manner in which the case was litigated," the opinion said.

The lower courts' strict evaluation of whether to shift fees "superimposes an inflexible framework on statutory text that is inherently flexible," the Supreme Court wrote.

The Octane opinion was written by Justice Sonia Sotomayor and joined by the remaining justices except for Justice Antonin Scalia, who disagreed with certain footnotes.

The opinion overruling the decision in the healthcare case was writing by Sotomayor and joined by all justices.

The issue is currently being debated in Congress as well.

As lawmakers look to reform the patent litigation system to combat "trolls" — the companies that profit by bringing and threatening to bring meritless lawsuits — one of the most contentious issues has been whether to require courts to shift fees more often.

The House passed the Innovation Act last year, which addresses the issue in an eleventh-hour compromise struck by House Judiciary Democrats and Chairman Bob Goodlatte (R-Va.)

The Senate is now examining the issue as Senate Judiciary Chairman Patrick Leahy (D-Vt.) looks to modify and advance his patent reform bill.

In that chamber, Leahy is caught between Democrats who oppose the measure because they say it could close the court doors to inventors and Republicans who support it because they say it will cut down on meritless cases.

After multiple delays before the most recent recess, Leahy has scheduled a markup on his patent bill for Thursday.

Leahy has not yet published an updated version of his patent bill for consideration at Thursday's meeting, despite pledges to produce on Monday a manager's amendment representing compromise on fee-shifting and other contentious issues.