In its opinions for Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. the U.S. Supreme Court yesterday addressed the standard for awarding attorney fees in patent cases under 35 U.S.C. § 285, which states that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.”  Flatly rejecting the Federal Circuit’s more demanding “clear and convincing” burden of proof standard for attorney fee awards under Section 285, Octane, slip op. at 11, the Court clarified that under Section 285 district courts instead may determine “whether a case is ‘exceptional’ in the day-by-day exercise of their discretion, considering the totality of the circumstances.” Id. at 8.

By so holding that a district court’s award of attorney fees for an exceptional patent case may be based on the less demanding “totality of the circumstances” test, a correspondingly more restrictive standard for review then applies to the reviewing appellate court: “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.”  This is true, even though “questions of law may in some cases be relevant to the §285 inquiry.” Highmark, slip op. at 5.

A district court may now more easily award attorney fees when it believes a patent litigation was brought or conducted in an abusive manner.  A reviewing court is also less likely to overturn a district court’s decision to award attorney fees.  As such, the cost-benefit analysis to bringing a patent litigation for the sole purpose of extracting a monetary settlement prior to judgment may now have shifted in favor of defendants, especially those that can afford to litigate a patent case through to a final judgment.  While this may have a net-positive effective on curtailing the number of frivolous lawsuits brought by non-practicing entities or the so-called “patent trolls,” it could also have a negative and chilling effect on patentees that have heretofore proceeded in good faith and with a legitimate basis for seeking redress for infringement.  Questions of law and fact in patent litigation are sometimes quite complex.  If a district court is not properly informed of the salient patent law principles and/or underlying questions of fact, legitimate claims for infringement or patent validity may be mistakenly viewed as frivolous or ill-conceived.