11

Firm Logo

American Intellectual Property Law Association

ATTORNEY FEES FOR EXCEPTIONAL CASES,OCTANE FITNESS AND HIGHMARK

STEVEN F. MEYERAIPLA IP in Japan Committee

October 21-22, 2014

1773381

22

Firm Logo

Supreme Court: Octane Fitness v. ICON Health

2773381

33

Firm Logo

35 U.S.C. §285 (“Attorney Fees”)

“The Court in exceptional cases may award

reasonable attorney fees to the prevailing

party.”

7733813

44

Firm Logo

Two-Part “Exceptional Case” Standard Under Federal Circuit’s Brooks Furniture (2005)

• District court must determine whether the prevailing party has established by clear and convincing evidence that the case is “exceptional”. District courts have awarded attorney’s fees only when a party has:

– Asserted A Frivolous Claim– Engaged In Inequitable Conduct Before Patent Office– Engaged In Misconduct During Litigation

• If case is deemed “exceptional”, the district court must determine whether an award of attorneys’ fees is appropriate and, if so, the amount of the award.

4773381

55

Firm Logo

Two-Part “Exceptional Case” Standard Under Federal Circuit’s Brooks Furniture (2005)

• In the absence of litigation misconduct or fraud in securing the patent, for a prevailing accused infringer, a case is exceptional only if it is (1) “objectively baseless” and (2) “brought in the subjective bad faith” by the patentee.

• To be objectively baseless, “the infringement allegations must be such that no reasonable litigant could reasonably expect success on the merits.”

• For subjective bad faith, it must be shown that the lack of objective foundation for the claim “was either known or so obvious that it should have been known” by the patentee.

Citing Professional Real Estate Investors v. Columbia Pictures Indus., 508 U.S. 49, 60-61 (1993) (defining elements of antitrust-based “sham litigation” counterclaim) [“PRE”]

5773381

66

Firm Logo

Octane Fitness: Asserted Patent’s Disclosure

Stroke rail (66) is attached to the frame in 3 places:

• to forward end of a foot rail (72, 50)

• to a rotatable crank arm (90) connected to an axle

• via a pin (76) mounted in a C-shaped channel (84)

7733816

77

Firm Logo

ICON Health v. Octane Fitness

1. An exercise apparatus comprising:

* * *

(c) a pair of stroke rails each having a first end and an opposing second end, the second end of each stoke rail being hingedly attached to the first end of a corresponding foot rail;

(d) means for connecting each stroke rail to the frame such that linear reciprocating displacement of the first end of each stroke rail results in displacement of the second end of each stroke rail in a substantially elliptical path; ….

7773381

88

Firm Logo

Octane Fitness: Claim Construction

(c) a pair of stroke rails each having a first end and opposing second end, the second end of each stroke rail being hingedly attached to the first end of a corresponding foot rail.

7733818

First End

Second End

99

Firm Logo

Octane Fitness: Claim Construction

(d) means for connecting each stroke rail to the frame such that linear reciprocating displacement of the first end of each stroke rail results in displacement of the second end of each stroke rail in a

substantially elliptical path.Function: “Ordinary meaning”;

rejected Icon’s proposed construction of “linear reciprocating displacement” which did not require “movement

along a linear path”.

7733819

1010

Firm Logo

Octane Fitness: Claim Construction

(d) means for connecting each stroke rail to the frame such that linear reciprocating displacement of the first end of each stroke rail results in displacement of the second end of each stroke rail in a

substantially elliptical path.

Corresponding Structure:

C-shaped channel 84 and pin structure 76, as well as crank

arm structure 90.

77338110

1111

Firm Logo

Octane Fitness v. Icon Health & Fitness

The district court concluded that the “means for connecting” and “stroke rail” limitations were absent in the accused machines, and granted summary judgment of non-infringement.

77338111

1212

Firm Logo

Octane Fitness v. Icon Health & Fitness

Reasons For Summary Judgment of Non-Infringement:

•Claim limitation (d):– no evidence of linear reciprocating displacement– slight arc is not equivalent to movement in straight line

•Claim limitation (c):– no single part of Octane’s linkage extends from a foot

rail to the frame; cannot consist of multiple parts– no equivalence because Icon hasn’t shown that a

hypothetical claim wouldn’t encompass prior art.

2011 WL 2457914 at **8-12.

77338112

1313

Firm Logo

Octane Fitness v. Icon Health & FitnessNotable Conduct

• “Icon argues that the first end of the stroke rail undergoes linear reciprocating displacement, relying on a portion of Dr. Rasty’s report which uses the rejected construction. Because it is based on an erroneous claim construction, Dr. Rasty’s opinion on this point is not admissible.”.

• “Given the exclusion of Dr. Rasty’s opinion on this point, there is no evidence that any part of Octane’s machines undergoes linear reciprocating displacement.”

2011 WL 2457914 at *9.

77338113

1414

Firm Logo

Octane Fitness v. Icon Health & FitnessOctane Moves For Attorneys Fees Under Brooks Furniture

Octane argued that suit was objectively baseless because the Court rejected Icon’s arguments that:

1. several elements of Octane’s machines collectively comprised a “stroke rail” which “extends from a foot rail to a frame”;

2. “linear reciprocating displacement” did not require movement in a linear path; and

3. several elements of Octane’s machines infringed the ‘710 patent.

2011 WL 3900975 at *2.

77338114

1515

Firm Logo

Octane Fitness v. Icon Health & FitnessOctane Moves For Attorneys Fees Under Brooks Furniture

As evidence of bad faith, Octane points to:

1. an email exchange between two Icon sales executives suggesting that the litigation was undertaken as a matter of commercial strategy; and

2. the fact that Icon is a bigger company which never commercialized the ‘710 patent.

2011 WL 3900975 at *4.

77338115

1616

Firm Logo

Octane Fitness v. Icon Health & Fitness

• District Court denied motion for attorney’s fees:

– “While Icon’s arguments on claim construction and infringement proved to be unpersuasive, the arguments are not objectively baseless.” See 2011 WL 3900975 at *3.

– Email that litigation was undertaken as a matter of commercial strategy and the fact that Icon is a bigger company which never commercialized the asserted patent, is not clear and convincing evidence of bad faith. See 2011 WL 3900975 at *4.

• Federal Circuit: “[W]e have reviewed the record and conclude that the court did not err in denying Octane’s motion to find the case exceptional. We have no reason to revisit the settled standard for exceptionality.” Slip Op. (Oct. 24, 2012) at p. 15.

16773381

1717

Firm Logo

Octane Fitness v. Icon Health & Fitness

Supreme Court: “The question before us is whether the Brooks Furniture framework is consistent with the statutory text. We hold that it is not.”

17773381

Octane Fitness, 134 S. Ct. 1749, 1752-53 (2014).

1818

Firm Logo

Octane Fitness v. Icon Health & FitnessSupreme Court: Background on 35 U.S.C. §285

• “For three decades after the enactment of§285, courts applied it … in a discretionary manner, assessing various factors to determine whether a given case was sufficiently ‘exceptional’ to warrant a fee award.”

• “In the two decades that followed [the creation of Federal Circuit in 1982], the Federal Circuit, like the regional circuits before it, instructed district courts to consider the totality of the circumstances when making fee determinations under §285.”

•In 2005, “Federal Circuit abandoned that holistic, equitable approach in favor of a more rigid and mechanical formulation”, citing Brooks Furniture.

Octane Fitness, 134 S.Ct. at 1753-54.

18773381

1919

Firm Logo

Octane Fitness v. Icon Health & FitnessSupreme Court: Abrogating Brooks Furniture

• “In Brooks Furniture, the Federal Circuit imported the PRE standard [i.e., sham exception to the Noerr-Pennington doctrine of antitrust law] into §285.”

•“But the PRE standard finds no roots in the text of §285, and it makes little sense in the context of determining whether a case is so ‘exceptional’ as to justify an aware of attorney’s fees in patent litigation.”

Octane Fitness, 134 S.Ct. at 1757.

19773381

2020

Firm Logo

Octane Fitness v. Icon Health & FitnessSupreme Court: Abrogating Brooks Furniture

“[W]e reject the Federal Circuit’s requirement that patent litigants establish their entitlement to fees under §285 by ‘clear and convincing evidence’”.

•“We have not interpreted comparable fee-shifting statutes to require proof of entitlement to fees by clear and convincing evidence.”

•“[N]othing in §285 justifies such a high standard of proof.”

•“[P]atent infringement litigation has always been governed by a preponderance of the evidence standard.”

Octane Fitness, 134 S.Ct. at 1758.

20773381

2121

Firm Logo

Octane Fitness v. Icon Health & FitnessSupreme Court: Construing 35 U.S.C. §285

• The text of §285 “imposes one and only one constraing on district courts’ discretion to award attorney’s fees in patent litigation: The power is reserved for ‘exceptional’ cases.”

• “The Patent Act does not define ‘exceptional,’ so we will construe it ‘in accordance with its ordinary meaning’.”

– “uncommon”

– “rare”

– “not ordinary”

Octane Fitness, 134 S.Ct. at 1755-56.

21773381

2222

Firm Logo

Octane Fitness v. Icon Health & FitnessSupreme Court: Construing 35 U.S.C. §285

“We hold, then, 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. District courts may determine

whether a case is ‘exceptional’ in the case-by-case exercise of

their discretion, considering the totality of the circumstances.”

Octane Fitness, 134 S.Ct. at 1756.

22773381

2323

Firm Logo

Octane Fitness v. Icon Health & FitnessFederal Circuit, On Remand From Supreme Court

“We remand that issue to the district court for application in

the first instance of the new standard whether, under the

totality of the circumstances, this case ‘stands out from others

with respect to the substantive strength’ of ICON’s litigation

position or was litigated in an unreasonable manner.”

23

Slip Op. (Aug. 26, 2014) at p. 7.

773381

2424

Firm Logo

Supreme Court: Highmark v. Allcare Health

24773381

2525

Firm Logo

Highmark, Inc. v. Allcare Health Management Sys

• District Court awarded accused infringer Highmark $4,694,727.40 in attorney fees. “Allcare’s actions align with the sort of conduct that gives the term ‘patent troll’ its negative connotation.”

• Federal Circuit affirmed district court’s finding that assertion of claim 102 was exceptional and reversed for claims 52 and 53.

• Federal Circuit stated standard of review for two-part test under §285:– “objectively baseless”: de novo review (question of law), citing Bard

Peripheral Vascular, Inc. v. W.L. Gore and Associates, Inc., 682 F.3d 1003 (Fed. Cir. 2012) (applying 35 U.S.C. §284)

– “subjective bad faith”: review for clear error (question of fact)

77338125

2626

Firm Logo

Highmark, Inc. v. Allcare Health Management Sys.

Supreme Court:

•“Our holding in Octane settles this case: Because§285 commits the determination whether a case is ‘exceptional’ to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion.”

•“We therefore hold that an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s §285 determination.”

Highmark, 134 S.Ct. 1744, 1748-49.

77338126

2727

Firm Logo

Highmark, Inc. v. Allcare Health Management Sys.

Supreme Court: “And as in our prior cases involving similar determinations, the exceptional-case determination is to be reviewed only for abuse of discretion.”

•Abuse of discretion standard for appellate review of fee awards under Equal Access to Justice Act, 28 U.S.C. §2412(d). See Pierce v. Underwood, 487 U.S. 552 (1988).

•Abuse of discretion standard for appellate review of “all aspects” of a district court’s decision to impose sanctions under Rule 11 (Fed. R. Civ. P.). See Cooter & Gell v. Hartmarx, 496 U.S. 384, 401-05 (1990).

Highmark, 134 S.Ct. at 1748.

77338127

2828

Firm Logo

Highmark, Inc. v. Allcare Health Management Sys.Federal Circuit, On Remand From Supreme Court

“Upon careful consideration, we vacate the district court’s award of attorney fees and remand for reconsideration under the new standard articulated in Octane. The district court need not revisit its finding with respect to claim 102, which we previously upheld under the stricter standards then prevailing and which Allcare now concedes. In all other respects, the district court is free to weigh any matter properly included in an exceptional case determination under §285.”

28

Highmark, Inc. v. Allcare Health Management Systems, Inc. (No. 11-1219) (Decided: September 5, 2014) at p. 5.

773381

2929

Firm Logo

Thanks for your attention! Questions?

Steven F. MeyerPartner

Locke Lord LLP3 World Financial Center

New York, NY 10281

+1-212.415.8535

SMeyer@Lockelord.com

29773381