In the Octane case, the U.S. Supreme Court unanimously ruled that the two-prong test was “unduly rigid and impermissible” and inconsistent with § 285. This decision, therefore, overruled more than nine years of case law under § 285, and upheld the pre-2005 standard that the district courts have discretionary authority to look, on a case-by-case basis, at a totality of the circumstances in determining whether a case is exceptional. In the majority opinion, Justice Sonia Sotomayor stated that district courts should use their best judgment, defining an “exceptional” situation as “simply one that stands out from others” with regards to the strength of a company’s case or the “unreasonable manner” in which the case was made. The court also held that § 285 is a simple discretionary inquiry and does not impose such a high evidentiary burden as “clear and convincing evidence” thereby overruling the “clear and convincing” evidentiary standard used in post and pre-2005 patent infringement cases. Further, the Supreme Court’s decision in the Highmark case limited the ability of the appellate court to overturn the discretion of the district court in awarding reasonable attorneys’ fees in patent infringement cases.
The U.S. Supreme Court’s decision in Octane creates ambiguity on how liberally the district courts should consider this new standard, which leads to the question whether there will be an increase in the award of reasonable attorneys’ fees to defendants in patent infringement cases post-April 29, 2014. The decision will, most likely, make it easier for defendants, who are generally accused infringers, to be awarded reasonable attorneys’ fees from the patentees. Nonetheless, these rulings are perceived as a victory to patent owners against patent trolls, who have commenced frivolous lawsuits against patent owners with the intent to obtain quick settlements. The increase in frivolous lawsuits from patent trolls has been a growing concern for patent owners in recent years. These decisions will also affect settlement negotiations in which a plaintiff can no longer threaten commencing an action with the intent to induce settlement negotiations, and settlements may be riskier when the option of the prevailing party obtaining all reasonable attorneys’ fee is on the table.
These rulings are only two of seven important intellectual property cases involving the ambiguity of claim construction, interpretation of claims and limitations on controversial software patents that are being argued before the U.S. Supreme Court this term. If the U.S. Supreme Court’s decisions in the Highmark and Octane lawsuits are any indication of its future intellectual property rulings, it promises to be a “ground-breaking” year for intellectual property.
For more information on these U.S. Supreme Court rulings or our intellectual practice area, please contact John F. Renzulli.