No. 12-1163
`
`IN THE
`Supreme Court of the United States
`
`HIGHMARK INC.,
`
`v.
`
`Petitioner,
`
`ALLCARE HEALTH MANAGEMENT SYSTEMS, INC.,
`
`Respondent.
`
`ON PETITION FOR A WRIT OF CERTIORARI TO THE
`UNITED STATES COURT OF APPEALS
`FOR THE FEDERAL CIRCUIT
`
`BRIEF OF BLUE CROSS BLUE SHIELD
`ASSOCIATION AS AMICUS CURIAE
`IN SUPPORT OF PETITIONER
`
`ROGER G. WILSON
`Senior Vice President,
`General Counsel and
`Corporate Secretary
`BLUECROSS BLUESHIELD
` ASSOCIATION
`225 N. Michigan Avenue
`Chicago, IL 60601
`(312) 297-6439
`
`BRIAN H. PANDYA
`Counsel of Record
`JAMES H. WALLACE, JR.
`JOHN B. WYSS
`MICHAEL L. STURM
`THOMAS R. MCCARTHY
`WILEY REIN LLP
`1776 K Street, NW
`Washington, D.C. 20006
`(202) 719-7000
`bpandya@wileyrein.com
`
`April 24, 2013
`
` Counsel For Amicus Curiae
`
`247198
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`
`
`IN THE
`Supreme Court of the United States
`
`HIGHMARK INC.,
`
`v.
`
`Petitioner,
`
`ALLCARE HEALTH MANAGEMENT SYSTEMS, INC.,
`
`Respondent.
`
`ON PETITION FOR A WRIT OF CERTIORARI TO THE
`UNITED STATES COURT OF APPEALS
`FOR THE FEDERAL CIRCUIT
`
`BRIEF OF BLUE CROSS BLUE SHIELD
`ASSOCIATION AS AMICUS CURIAE
`IN SUPPORT OF PETITIONER
`
`ROGER G. WILSON
`Senior Vice President,
`General Counsel and
`Corporate Secretary
`BLUECROSS BLUESHIELD
` ASSOCIATION
`225 N. Michigan Avenue
`Chicago, IL 60601
`(312) 297-6439
`
`BRIAN H. PANDYA
`Counsel of Record
`JAMES H. WALLACE, JR.
`JOHN B. WYSS
`MICHAEL L. STURM
`THOMAS R. MCCARTHY
`WILEY REIN LLP
`1776 K Street, NW
`Washington, D.C. 20006
`(202) 719-7000
`bpandya@wileyrein.com
`
`April 24, 2013
`
` Counsel For Amicus Curiae
`
`247198
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`
`
`i
`
`TABLE OF CONTENTS
`
`Page
`TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . i
`
`TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . iii
`
`INTEREST OF AMICUS CURIAE . . . . . . . . . . . . . . . .1
`
`INTRODUCTION AND SUMMARY
`OF THE ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .2
`
`ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
`
`I. T H E R A P I D LY I N C R E A S I N G
`AMOUNT AND EXPENSE OF PATENT
`LITIGATION HIGHLIGHTS THE
`IMPORTANCE OF SECTION 285’S
`ROLE IN REGULATING THE QUALITY
`OF PATENT SUITS . . . . . . . . . . . . . . . . . . . . . . .9
`
`
`
`A. Patent Lawsuits, Which Routinely
`C o s t M i l l i on s O f D ol l a r s To
`Litigate, Have Nearly Doubled In
`The Last Five Years . . . . . . . . . . . . . . . . . . . .9
`
`
`
`B. The Panel Majority’s Decision Ignores
`That Section 285 Awards Are Inherently
`Fact Intensive And Thus Properly
`Left To District Courts . . . . . . . . . . . . . . . .13
`
`
`
`C. Tak ing Discretion Away From
`District Courts Weakens Section 285’s
`Deterrent Effects . . . . . . . . . . . . . . . . . . . . .15
`
`
`
`
`
`ii
`
`Table of Contents
`
`Page
`
`II. THE PANEL MAJORITY’S DECISION
`TO REVIEW SECTION 285 AWARDS
`DE NOVO USURPS DISCRETION
`THIS COURT HAS TRADITIONALLY
`GIVEN TRIAL COURTS . . . . . . . . . . . . . . . . .18
`
`
`
`A. Under This Court’s Precedents,
`Attorney’s Fees Awards Are Reviewed
`For Abuse Of Discretion . . . . . . . . . . . . . . .18
`
`
`
`B. Section 285 Awards A re Mixed
`Questions Of Law And Fact, Which
`This Court Has Held In Similar
`Circumstances A re Subject To
`Review For Clear Error. . . . . . . . . . . . . . . .20
`
`
`
`III. T H E P A N E L M A J O R I T Y ’ S
`INTERPRETATION OF “EXCEPTIONAL
`CASE” IN SECTION 285 CONFLICTS
`WITH OTHER CIRCUITS THAT HAVE
`INTERPRETED THE PHRASE IN
`SIMILAR STATUTES . . . . . . . . . . . . . . . . . . . .22
`
`
`
`CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
`
`
`
`iii
`
`TABLE OF CITED AUTHORITIES
`
`Page
`
`CASES
`
`Anderson v. City of Bessemer City,
`
`470 U.S. 564 (1985). . . . . . . . . . . . . . . . . . . . . . . . . . . .16
`
`Berkla v. Corel Corp.,
`
`302 F.3d 909 (9th Cir. 2002) . . . . . . . . . . . . . . . . . . . .18
`
`Broo ks Furniture Mfg., Inc. v. Dutailier Int’l, Inc.,
`
`393 F.3d 1378 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . .20
`
`Brown v. Plata,
`
`131 S. Ct. 1910 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . .21
`
`Checkpoint Systems, Inc. v. All-Tag Security S.A.,
`
`2012-1085 (Fed. Cir. Mar. 25, 2013) . . . . . . . . . . . . . .17
`
`Classic Media, Inc. v. Mewborn,
`
`532 F.3d 978 (9th Cir. 2008) . . . . . . . . . . . . . . . . . . . .24
`
`Cooter & Gell v. Hartmarx Corp.,
`
`496 U.S. 384 (1990). . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`Cybor Corp. v. FAS Technologies, Inc.,
`
`138 F.3d 1448 (Fed. Cir. 1998) . . . . . . . . . . . . . . . . . .21
`
`DuBuit v. Harwell Enterprises, Inc.,
`
`540 F.2d 690 (4th Cir. 1976). . . . . . . . . . . . . . . . . . . . .23
`
`Eon-Net LP v. Flagstar Bancorp,
`
`653 F.3d 1314 (Fed. Cir. 2011). . . . . . . . . . . . . . . . . . .19
`
`
`
`iv
`
`Cited Authorities
`
`Page
`
`F.D. Rich Co. v.
` United States ex rel. Industrial Lumber Co.,
`
`417 U.S. 116 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`First National Bank in Sioux Falls v.
` First National Bank South Dakota,
`
`679 F.3d 763 (8th Cir. 2012). . . . . . . . . . . . . . . . . .19, 24
`
`Freytag v. Commissoner of Internal Revenue,
`
`501 U.S. 868 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
`
`Goodheart Clothing Co. v.
` Laura Goodman Enterprises, Inc.,
`
`962 F.2d 268 (2d Cir. 1992) . . . . . . . . . . . . . . . . . . 23-24
`
`Hoge Warren Zimmerman Co. v. Nourse & Co.,
`
`293 F.2d 779 (6th Cir. 1961). . . . . . . . . . . . . . . . . . . . .22
`
`Ji v. Bose Corp.,
`
`626 F.3d 116 (1st Cir. 2010) . . . . . . . . . . . . . . . . . . . . .23
`
`Lilly v. Virginia,
`
`527 U.S. 116 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
`
`Lipscher v. LRP Publications, Inc.,
`
`266 F.3d 1305 (11th Cir. 2001). . . . . . . . . . . . . . . . . . .24
`
`Microsoft Corp. v. i4i Limited Partnership,
`
`131 S. Ct. 2238 (2011). . . . . . . . . . . . . . . . . . . . . . . . . .12
`
`
`
`v
`
`Cited Authorities
`
`Page
`
`Mill er v. Fenton,
`
`474 U.S. 104 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
`
`National Business Forms & Printing, Inc. v.
` Ford Motor Co.,
`
`671 F.3d 526 (5th Cir. 2012). . . . . . . . . . . . . . . . . . . . .24
`
`Newman v. Piggie Park Enterprises, Inc.,
`
`390 U.S. 400 (1968). . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`Newport News Holdings Corp. v.
` Virtual City Vision, Inc.,
`
`650 F.3d 423 (4th Cir. 2011). . . . . . . . . . . . . . . . . . . . .24
`
`Pierce v. Underwood,
`
`487 U.S. 552 (1988). . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`Salve Regina Coll. v. Russell,
`
`499 U.S. 225 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
`
`Securacomm Consulting, Inc. v. Securacom Inc.,
`
`224 F.3d 273 (3d Cir. 2000) . . . . . . . . . . . . . . . . . . . . .24
`
`Talon, Inc. v. Union Slide Fastener, Inc.,
`
`266 F.2d 731 (9th Cir. 1959). . . . . . . . . . . . . . . . . . 22-23
`
`STATUTES
`
`7 U.S.C. § 2565. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
`
`15 U.S.C. § 1117 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
`
`
`
`vi
`
`Cited Authorities
`
`Page
`17 U.S.C. § 505 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
`
`35 U.S.C. § 285. . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim
`
`Sup. Ct. R. 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
`
`OTHER AUTHORITIES
`
`American Intellectual Property Law Association,
`2011 Repor t of the Economic Sur vey
`(2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6, 10, 11
`
`
`
`Brian T. Yeh, Cong. Research Serv., R42668,
`An Overview of the “Patent Trolls” Debate
`(2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`
`
`
`David L. Schwartz, Practice Makes Perfect?
`An Empirical Study of Claim Construction
`R e v e r s a l R a t e s i n P a t e n t C a s e s ,
`107 Mich. L. Rev. 223 (2008). . . . . . . . . . . . . . . . . . . .17
`
`
`
`James Beesen & Michael J. Meurer, The Direct
`Costs from NPE Disputes (Bos. Univ. Sch.
`of Law, Law & Economics Research Paper
` No. 12-34, 2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . .6, 12
`
`Jim Kerstetter, How much is that patent
`lawsuit going to cost you?, CNET (Apr.
`5 , 2 01 2), ht t p: // ne w s .c net .c om / 8 3 01-
`32973_3-57409792-296/how-much-is-that-
` patent-lawsuit-going-to-cost-you/ . . . . . . . . . . . . . . .11
`
`
`
`vii
`
`Cited Authorities
`
`Page
`
`Merritt B. Fox, Required Disclosure And
`Corporate Governance, 62 Law & Contemp.
` Probs. 113 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`
`P.J. Federico, Commentary on the New Patent
` Act, 35 U.S.C.A. 1, 56 (1954) . . . . . . . . . . . . . . . . . . . .22
`
`Perspectives on Patents: Post-Grant Review
`Procedures and Other Litigation Reforms:
`Hearing before the Subcomm. on Intellectual
`Property of the S. Judiciary Comm., 109th
` Cong. (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`
`Sara Jer uss, Robin Feldman & Thomas
`Ewing, The AIA 500 Expanded: Effects of
`Patent Monetization Entities (Apr. 9, 2013)
` http://ssrn.com/abstract=2247195 . . . . . . . . . . . . . .5, 9
`
`
`
`1
`
`INTEREST OF AMICUS CURIAE1
`
`The Blue Cr oss Blue Shield Association (“BCBSA”)
`is the trade association that coordinates the national
`interests of the independent, locally operated Blue
`Cross and Blue Shield companies (“BCBSA Member
`Companies”). Together, the 38 independent, community-
`based, and locally operated BCBSA Member Companies
`provide health insurance benefi ts to nearly 100 million
`people – almost one-third of all Americans – in all 50
`states, the District of Columbia, and Puerto Rico. The
`BCBSA Member Companies offer a variety of insurance
`products to all segments of the population, including large
`public and private employer groups, small businesses, and
`individuals.
`
`Petitioner Highmark, Inc. (“Highmark”) is a Member
`Company of BCBSA, although BCBSA has had no
`involvement in the case and has no fi nancial interest in
`its outcome. BCBSA has fi led nine amicus briefs with
`the Court in the past ten years. The issues set forth in
`Highmark’s certiorari petition interest BCBSA because
`of the high costs that patent litigations have imposed on
`a wide range of businesses in all sectors, from Member
`Companies, such as Highmark, to the entrepreneurs,
`small businesses, and large companies that purchase
`health insurance products from Member Companies. One
`
`1. Respondent and Petitioner have been given timely notice
`and have both consented to the fi ling of this amicus brief under
`Supreme Court Rule 37. Amicus and its counsel represent that
`no party to this case nor its counsel authored this brief in whole
`or in part, and that no person other than amicus paid for or made
`a monetary contribution toward the preparation and submission
`of this brief.
`
`
`
`2
`
`way patent litigation costs can be held in check is through
`the proper application and review of attorney’s fees awards
`under 35 U.S.C. § 285, thus giving the issues set forth
`Highmark’s certiorari petition particular relevance and
`urgency.
`
`INTRODUCTION AND SUMMARY
`OF THE ARGUMENT
`
`In the decision below, the Federal Circuit reviewed
`an exceptional case fi nding of the Northern District of
`Texas. The District Court, after carefully reviewing the
`six-year history of the case, was “fi rmly convince[d]”
`that this case was “exceptional” under 35 U.S.C. § 28 5
`because Respondent Allcare “had not done its homework
`when it began trolling for dollars and threatening
`litigation,” Pet. App. 69a; continued to assert “meritless
`allegations after the lack of merit became apparent” and
`after they were proven to be “without support by its own
`expert’s report and deposition testimony,” apparently
`“as insurance or leverage,” Pet. App. 77a- 78a; “use[d]
`frivolous and vexatious tactics” in litigating the case,
`including the assertion of a frivolous res judicata defense,
`misrepresentations to another district court in support of
`its transfer motion, and fl ip-fl opping its position on claim
`construction “without reasonable explanation” and after
`court ordered deadlines, “thus complicating Highmark’s
`ability to advance its own claim construction and to defend
`against Allcare’s elusive allegations,” Pet. App. 82a-83 a,
`91a. The District Court’s exhaustive analysis of the six-
`year record culminated with an exceptional case fi nding
`and an award of “reasonable attorney fees” to Petitioner
`as “the prevailing party.” 35 U.S.C. § 285.
`
`
`
`3
`
`Despite having only appellate briefing, a limited
`record, and a brief oral argument, a split panel of the
`Federal Circuit reversed the district court’s exceptional
`case fi nding with respect to Respondent’s litigation of one
`patent claim (claim 52). The panel majority broke with
`long-standing circuit precedent by granting itself the
`authority to make a de novo determination of whether
`the “objectively baseless” prong of the two-part test for
`an “exceptional case” was satisfi ed, Pet. App. 9a, and then
`compounded its error by overturning the trial court’s
`judgment that Respondent’s construction of claim 52
`was objectiveless baseless, based in part on an argument
`Respondent never advanced.
`
`Because of the Federal Circuit’s exclusive patent
`jurisdiction, this rule of de novo review will apply to all
`patent cases nationwide. And given that rehearing en banc
`was denied and the active members of the Federal Circuit
`are evenly divided on the issue, the Federal Circuit’s newly
`established authority to engage in de novo review of fee
`awards under Section 285 will r emain the law of the land
`unless and until this Court acts.
`
`BCBSA agrees with Petitioner Highmark that
`certiorari review is warranted because the decision
`below is incompatible with the precedent of this Court
`and regional appellate courts and creates a deep division
`within the Federal Circuit itself. See Pet. 14-26. BCBSA
` writes separately here primarily to underscore the
`reasons why this case presents a question of national
`importance. See id. at 26-31.
`
`The Federal Circuit’s decision to review Section
`285 attorn ey fee awards de novo—as opposed to
`
`
`
`4
`
`deferentially—distorts the proper allocation of judicial
`responsibility between federal trial and appellate courts.
`De novo appellate review of what are, in large part, factual
`determinations invades the traditional province of the
`district court and impedes the orderly administration of
`justice in the federal court system. Moreover, awarding
`attorney’s fees has historically been part of the trial court’s
`inherent power, as the trial court has a front seat view
`to the whole course of the litigation and the opportunity
`to view the entirety of the case fi rsthand, including the
`claims asserted and positions taken by the parties and
`the conduct and candor of the parties. Thus, the Federal
`Circuit’s sharply divided decision to vest itself with the
`power to review such fee awards de novo is a signifi cant
`development. Certiorari review is warranted to ensure
`the proper division of labor between the federal trial and
`appellate courts.
`
`This is not simply an academic issue but also an issue
`of great practical importance. By refusing to afford
`deference to a trial court’s factual fi ndings and instead
`deciding for itself what is or is not an “exceptional case”
`based on only “thirty minutes with the attorneys and . . .
`[a] limited record and knowledge of the events taking
`place in the proceedings below,” Pet. App. 201a (Mo ore,
`J., dissenting from denial of rehearing en banc), de novo
`review impedes the proper application of 35 U.S.C. § 285.
`
` This is because Section 285 plays a c ritical role in
`regulating the quality of patent infringement lawsuits.
`Section 285 incentivi zes patent holders and accused
`infringers to litigate only legitimate, good-faith disputes
`over patent infringement and validity. The prospect of
`a prevailing party recovering its attorney’s fees in an
`
`
`
`5
`
`“exceptional case” both: (a) deters patent holders from
`fi ling dubious cases with the main purpose of extracting
`settlements based on threatened litigation costs rather
`than the merits of the asserted infringement; and (b)
`encourages willful infringers to settle cases and enter
`into license agreements where the infringement is clear
`cut and in bad faith. The decision below, however, will
`only embolden parties with dubious positions to litigate,
`knowing that they will have not one, but two de novo
`opportunities to avoid an exceptional case fi nding. It
`thus threatens to clog busy district courts with both
`meritless cases and meritorious cases opposed only by
`futile defenses.
`
`Because of the Federal Circuit’s exclusive jurisdiction
`over patent appeals, this is a national problem. And it is a
`problem that will only grow in magnitude because of the
`increasing amount and expense of patent infringement
`litigation. Between January 1, 2007 and December 31,
`2008, 4,803 patent infringement lawsuits were fi led.2
`For the equivalent period between January 1, 2011 and
`December 31, 2012, the number of patent lawsuits nearly
`doubled, to 8,196. This increase was largely attributable
`to lawsuits fi led by non-practicing entities (“NPEs”) (also
`commonly called patent assertion entities (“PAEs”)). Id.
`
`Patent lawsuits are among the most expensive cases
`to litigate. The American Intellectual Property Law
`Association (“AIPLA”) estimates that a patent lawsuit
`
`2. See S ara Jeruss, Robin Feldman & Thomas Ewing,
`The AIA 500 Expanded: The Effects of Patent Monetization
`Entities app. A (Apr. 9, 2013), available at h ttp://ssrn.com/
`abstract=2247195.
`
`
`
`6
`
`involving $1 million to $25 million in claimed damages
`(i.e., a typical patent case) costs each party, on average,
`$1.5 million in attorney’s fees through discovery and $2.5
`million in attorney’s fees through trial.3 As the claimed
`damages increase, the expected fees will also escalate.
`
`The rise of NPE lawsuits has, according to some
`studies, inflicted billions of dollars of costs on the
`U.S. economy.4 Some industry leaders characterize
`NPE settlements as an “innovation tax” on high-tech
`companies. 5 And, with NPEs losing 92% of cases
`adjudicated on the merits, many NPE lawsuits are the
`patent litigation equivalent to a “strike suit” in securities
`litigation – i.e., the plaintiff makes a dubious claim for the
`purpose of gaining a settlement, before reaching litigation
`on the merits, for an amount equal to or lesser than the
`defendant’s anticipated legal costs.6
`
`3. A m. Intellectual Prop. Law A ss’n, 2011 Report of the
`Economic Survey 35 (2012).
`
`4. See J ames Beesen & Michael Meurer, The Direct Costs
`from NPE Disputes 18-19 (Bos. Univ. Sch. of L aw, Law &
`Economics Research Paper No. 12-34, 2012).
`
`5. E.g., P erspectives on Patents: Post-Grant Review
`Procedures and Other Litigation Reforms: Hearing before the
`Subcomm. on Intellectual Property of the S. Judiciary Comm.,
`109th Cong. 40-52 (2006) (statement of Mark Chandler, General
`Counsel, Cisco Systems).
`
`6. Brian T. Yeh, Cong. Research Serv., R42668, An Overview
`of the “Patent Trolls” Debate 1 (2012); M erritt B. Fox, Required
`Disclosure And Corporate Governance, 62 Law & Contemp.
`Probs. 113, 119 (1999) (defi ning strike suit).
`
`
`
`7
`
`NPEs are able to impose this “tax” because of the
`asymmetric fi nancial risks inherent in NPE lawsuits.
`NPEs, which typically have no operations, face little threat
`of counterclaims and have fewer documents to produce and
`depositions to defend than practicing entities. In contrast,
`a large company accused of patent infringement can incur
`millions of dollars simply responding to discovery requests
`propounded by an NPE. The one weapon that parties sued
`by NPEs have to level the playing fi eld and deter abusive
`litigation tactics is the threat of shifting attorney’s fees
`“in exceptional cases.” 35 U.S.C. § 285 (“The court in
`exceptional cases may award reasonable attorney fees to
`the prevailing party.”).
`
`Of course, NPEs are not the only parties that can
`assert baseless positions or use litigation as a tool to vex
`and harass. One can readily imagine a company suing
`its competitor to interfere with a new product launch
`or attempts to obtain investor fi nancing. Generic drug
`companies have long alleged that branded drug companies
`initiate litigation under the Hatch-Waxman Act to del ay
`the launch of generic drugs. Likewise, accused infringers
`may assert baseless defenses, and engage in scorched-
`earth litigation tactics, to exhaust the resources of the
`party asserting patent infringement. In all of these
`instances, the threat of fee shifting serves as an important
`deterrent. More broadly, due to their complexity, patent
`lawsuits stretch the increasingly limited resources of the
`federal judiciary. Because Section 285 applies to both
`plaintiffs and defendants, it focuses the parties on matters
`of legitimate dispute and increases the quality of patent
`cases that are litigated in the federal courts.
`
`
`
`8
`
`As evidenced by the decision here, where the district
`court determined that the case was exceptional but a split
`panel of the Federal Circuit held otherwise, the result
`of de novo review of attorney’s fees awards is that the
`Federal Circuit will simply substitute its own judgment
`for the judgment of the district court when determining
`whether a party’s litigation positions and conduct were
`sufficiently meritless (or otherwise exceptional) to
`warrant fee shifting. Appellate review, however, is based
`only on excerpts of the trial court record; key facts and
`observations available to the district court are likely
`to be invisible in the appellate record. Such facts may
`include the candor and credibility of litigants and their
`counsel, the consistency of positions taken, efforts to
`block discovery or otherwise delay development of the
`factual record, continued advocation of positions after
`facts no longer support the position, and ever-shifting or
`obfuscatory arguments designed to draw out the litigation.
`
`If this new de novo review standard is upheld, the
`deterrent effect of S ection 285 will be weakened, and
`parties will be more likely to roll the dice on bad claims
`or defenses, knowing that if the claim fails and attorney’s
`fees are awarded by the district court, they will get a
`clean slate at the Federal Circuit and will have the ability
`to make a post hoc rationalization of their positions and
`conduct. This is especially so given the panel majority’s
`willingness to supply its own post hoc rationalizations for
`Respondent’s conduct. A grant of certiorari is warranted.
`
`
`
`9
`
`ARGUMENT
`
`I. T H E R A PI DLY I NCREA SI NG A MOU N T
`AND EXPENSE OF PATENT LITIGATION
`HIGHLIGHTS THE IMPORTANCE OF S ECTION
`285’S ROLE IN REGULATING THE QUALITY OF
`PATENT SUITS
`
`The question presented is important because of the
`increase in the number of patent cases fi led and the high
`cost of litigating those cases. To manage this increase in
`fi lings and mitigate the high costs of litigation, district
`courts discretion to award attorney’s fees in exceptional
`cases should not be unduly circumscribed. The Federal
`Circuit moved in the wrong direction when it decided
`to allow itself to reexamine de novo whether a case is
`objectively baseless and thus potentially exceptional. This
`important and unprecedented change in the law warrants
`review by this Court.
`
`A. Patent Lawsuits, Which Routinely Cost
`Millions Of Dollars To Litigate, Have Nearly
`Doubled In The Last Five Years
`
`As noted above, the number of patent infringement
`lawsuits fi led in the last fi ve years has nearly doubled. The
`vast majority of this increase has been fueled by NPE
`fi lings. From January 1, 2007 to December 31, 2008, NPEs
`fi led 804 lawsuits, representing 17 percent of all patent
`infringement lawsuits.7 Over 2011 and 2012, NPEs fi led
`3,844 lawsuits, a 378% increase in fi lings. I d. In contrast,
`the number of patent lawsuits fi led between competitors
`
`7. See Jeruss, supra, at a pp. 1.
`
`
`
`10
`
`increased by 6.7% during that same timespan. I d. As a
`result of skyrocketing NPE fi lings and the relatively fl at
`increase in non-NPE fi lings, NPE suits now represent a
`majority (54.6%) of all patent cases.
`
`Litigating these lawsuits is costly. The A merican
`Intellectual Property Law Association’s (“AIPLA”) most
`recent annual survey of patent litigation reported that
`the average attorney’s fees to defend a typical patent case
`through trial totaled $2.5 million.8 Most of those fees are
`discovery costs incurred on the front end of the case –
`the average attorney’s fees from fi ling to the completion
`of discovery are $1.5 million. I d. Thus, the majority of
`patent litigation costs are incurred prior to the summary
`judgment phase of the case, which is usually the earliest
`opportunity to defeat a non-meritorious claim.
`
`Many patent litigation costs are fi xed costs and not
`tied to the amount in controversy. For example, parties
`routinely spend hundreds of thousands of dollars, if not
`millions of dollars, collecting and reviewing electronically
`stored information. Depositions and expert witnesses can
`quickly total several hundred thousand dollars. Although
`litigants typically spend more litigating a case when tens
`or hundreds of millions of dollars in damages are claimed,
`the cost of defending a case with only one million dollars in
`claimed damages remains substantial, as set forth below:
`
`8. A m. Intellectual Prop. Law Ass’n, supra.
`
`
`
`11
`
`Fig. 1. Jim Kerstetter, How much is that patent
`lawsuit going to cost you?, CN ET (Apr. 5, 2012), http://
`news.cnet.com/8301-32973_3-57409792-296/how-much-
`is-that-patent-lawsuit-going-to-cost-you/ (citing Am .
`Intellectual Prop. Law Ass’n, supra).
`
`It should come as no surprise then that many
`companies accused of patent infringement choose to settle
`cases, irrespective of their merits, to avoid incurring
`these costs. Quite simply, a party can “win” a patent case
`but lose millions of dollars in the process. The collective
`impact of these cases is substantial. One study estimated
`that companies spent $29 billion defending NPE lawsuits
`
`
`
`12
`
`in 2011.9 Se ction 285 is the principal mechanism under
`which some of these costs can potentially be recouped.
`
`To be sure, a patent owner is not required under
`the Pa tent Act to practice a patented invention. And
`there are many examples of what most individuals would
`consider “good” NPEs – universities, garage inventors,
`and perhaps small businessmen trying to monetize
`inventions remaining from failed business ventures.
`There are also examples of NPEs bringing lawsuits on
`patents that were adjudged valid, infringed, and highly
`valuable. See, e.g., Mi crosoft Corp. v. i4i Ltd. P’ship, 131
`S. Ct. 2238 (2011) (patentee awarded approximately $300
`million in damages). Although the strike suit nature of
`some NPE cases is used to illustrate the problem of rising
`patent litigation costs, the importance of S ection 285 is
`not confi ned to lawsuits fi led by NPEs. High legal costs
`can impact any patent litigant, thus the proper standard
`of review for S ection 285 awards is not a pro-plaintiff
`or pro-defendant issue. For example, a manufacturer
`could fi le a frivolous patent lawsuit to interfere with its
`competitor’s business relationships or to simply force the
`competitor to incur litigation costs. And, in some cases,
`defendants may attempt to exhaust the patent holder by
`fi ghting infringement claims to the bitter end based on
`specious defenses and endless discovery, thereby forcing
`both parties to incur substantial costs and consuming
`judicial resources. Se ction 285 is the best tool to deter
`conduct like this that harms the judicial system and the
`overall economy.
`
`9. See Beesen, supra, at 18-19.
`
`
`
`13
`
`B. The Pa nel Majority’s Decision Ignores That
`Section 285 Awards Are Inherently Fact
`Intensive And Thus Properly Left To District
`Courts
`
`Notwithstanding the Federal Circuit’s decision to
`engage in de novo review, the underlying case illustrates
`the fact-intensive nature of Se ction 285. Here, the district
`court awarded attorney’s fees only after fi nding that:
`Respondent Allcare’s assertions that two patent claims
`were infringed “were frivolous” and that “Allcare engaged
`in litigation misconduct” by (a) “asserting a frivolous
`position based on res judicata and collateral estoppel,”
`(b) “shifting its claim construction position through the
`course of the proceedings before the district court,” and
`(c) “making misrepresentations to the [transferor court] in
`connection with a motion to transfer venue.” Pe t. App. 6a-
`7a. Thus, the district court’s decisions to award attorney’s
`fees was based upon the trial court’s view of the entire
`conduct of the case, taking into consideration the claims
`asserted, the positions taken, how long a position was
`taken, the frivolity of claims or positions in light of facts
`known or readily available, and a party’s lack of candor,
`delay, and scorched-earth tactics – all of which taken
`together imposed unreasonable, unnecessary, and unjust
`attorney’s fees and costs on Highmark.
`
`Rather than focusing on the totality of the case and
`deferring to the district court, which viewed the case up
`close, the Federal Circuit’s review of the exceptional case
`determination—already narrowed by a limited appellate
`record—focused on a discrete claim construction issue
`in concluding that Allcare’s infringement claim was not
`objectively baseless. Despite affi rming the district court’s
`
`
`
`14
`
`rejection of Allcare’s claim construction position, the
`Federal Circuit explained that Allcare hypothetically
`could have made a claim construction argument that could
`have supported its infringement position. Pe t. App. 21a
`(“While Allcare may not have pointed to the specifi cation
`as an argument in support of its theory, this theory as to
`the scope of claim 52 was argued repeatedly by Allcare.”).
`
`That Allcare did not make that argument and that
`both the district court and Federal Circuit adopted
`different claim construction positions was apparently
`of no moment, as the Federal Circuit concluded that
`Highmark was not entitled to attorney’s fees because
`it failed “to establish that under this alternative claim
`construction, the allegations of infringement were
`objectively unreasonable.” Pe t. App. 22a.
`
`This sua sponte endeavor to justify Allcare’s otherwise
`baseless claim construction position underscores the
`degree to which the panel majority’s decision to grant
`itself the authority to engage in de novo review distorts
`the administration of justice. Rather than review the
`district court’s objectively baseless determination
`deferentially, the panel actually attacked and overcame
`that determination on its own.
`
`This decision to apply de novo review to the objective
`prong of Se ction 285 triggered sharp divisions within
`the Federal Circuit. Judge Mayer dissented from the
`underlying opinion (authored by Judge Dyk and joined
`by Judge Newman), asserting that “the question of what
`constitutes [objectively] reasonable conduct under varying
`circumstances is a quintessentially factual inquiry.” Pe t.
`App. 35a.
`
`
`
`15
`
`In the Federal Circuit’s denial of en banc review,
`Judge Moore fi led a dissenting opinion (joined by Chief
`Judge Rader and Judges O’Malley, Reyna, and Wallach)
`that argued that “[o]ur court system has well-defi ned
`roles: the trial court makes factual findings and the
`appellate court reviews those fi ndings with deference
`to the expertise of the trial court. An exceptional case
`determination under 35 U.S.C. § 285 has traditionally
`been one of the questions of fact determined by the trial
`court that is reviewable only for clear error.” Pet. App.
`190a. Judge Reyna also fi led a dissenting opinion (joined
`in full by Judges Moore, O’Malley, and Wallach, and joined
`in part by Chief Judge Rader) that argued that although
`the Federal Circuit “may be tempted to view ourselves
`as best-positioned to weigh whether a given party’s claim
`construction or infringement positions are objectively
`reasonable, in doing so, we fallaciously presume that we
`can neatly separate intertwined issues of law and fact.”
`Pet. App. 208a. These sharp divisions within the Federal
`Circuit itself underscore the need for this Court to
`intervene to clarify the role of the trial court in applying
`Sect ion 285.
`
`C. Taking Discretion Away From District Courts
`Weakens Sect ion 285’s Deterrent Effects
`
`With the average patent case costing millions of
`dollars to litigate, the threat of paying the prevailing
`party’s attorney’s fees is a powerful deterrent to frivolous
`claims and litigation mischief. When invoked, Sec tion 285
`deters both patent holders and accused infringers from
`engaging in non-meritorious litigation that is motivated
`by a desire to consume or exhaust the resources of the
`other party rather than adjudicate legitimate claims. The
`Federal Circuit’s new de novo review standard, however,
`weakens these deterrent effects.
`
`
`
`16
`
`Unlike a district court, the Federal Circuit does not
`live with a case for years. Despite its expertise in patent
`law, the Federal Circuit is no different from any other
`appellate court in that it has less familiarity than the trial
`court with the contours and nuances of a case. As was
`apparently the case here, exceptional case determinations
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