throbber
No. 12-1163
`
`IN THE
`Supreme Court of the United States
`
`HIGHMARK INC.,
`
`v.
`ALLCARE HEALTH MANAGEMENT SYSTEMS, INC.,
`Respondent.
`
`Petitioner,
`
`ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
`APPEALS FOR THE FEDERAL CIRCUIT
`
`BRIEF OF NEW YORK INTELLECTUAL
`PROPERTY LAW ASSOCIATION AS AMICUS
`CURIAE IN SUPPORT OF NEITHER PARTY
`
`ROBERT M. ISACKSON
`Co-Chair of Amicus Briefs
` Committee, NEW YORK
` INTELLECTUAL PROPERTY
` LAW ASSOCIATION
`ORRICK, HERRINGTON
` & SUTCLIFFE LLP
`51 West 52nd Street
`New York, NY 10019
`(212) 506-5000
`
`ANTHONY F. LO CICERO
`President-Elect, NEW YORK
` INTELLECTUAL PROPERTY
` LAW ASSOCIATION
`CHARLES R. MACEDO*
`Co-Chair of Amicus Briefs
` Committee, NEW YORK
` INTELLECTUAL PROPERTY
` LAW ASSOCIATION
`AMSTER, ROTHSTEIN
` & EBENSTEIN LLP
`90 Park Avenue
`New York, NY 10016
`(212) 336-8000
`cmacedo@arelaw.com
`Counsel for Amicus Curiae
`New York Intellectual Property Law Association
`*Counsel of Record
`
`250557
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`

`
`i
`
`QUESTION PRESENTED
`
`The Court has agreed to hear two cases this term on
`the appropriate standard to be applied when determining
`whether a case is “exceptional” under 35 U.S.C. § 285.
`
`The question presented in Highmark Inc. v. Allcare
`Management Systems (12-1163) is:
`
`Whether a district court’s exceptional-case
`fi nding under 35 U.S.C. § 285 (which permits
`the court to award attorney’s fees in exceptional
`cases), based on its judgment that a suit is
`objectively baseless, is entitled to deference.
`
`The question presented in Octane Fitness v. Icon
`Health and Fitness (12-1184) is:
`
`Whether the Federal Circuit’s promulgation
`of a rigid and exclusive two-part test for
`determining whether a case is “exceptional”
`under 35 U.S.C. § 285 improperly appropriates
`a district court’s discretionary authority to
`award attorney fees to prevailing accused
`infringers in contravention of statutory intent
`and this Court’s precedent, thereby raising
`the standard for accused infringers (but not
`patentees) to recoup fees and encouraging
`patent plaintiffs to bring spurious patent
`cases to cause competitive harm or coerce
`unwarranted settlements from defendants.
`
`Although these cases were not consolidated by the
`Court, NYIPLA is submitting this Amicus Brief in both
`
`

`
`ii
`
`cases because it respectfully submits that the answer to
`each question is dependent, at least in part, on the answer
`to the other question, with respect to whether unjustifi ed
`litigation gives rise to an exceptional case.*
`
`* The questions posed do not address the jurisprudence
`supporting other grounds for determining a patent case
`exceptional, such as willful or intentional infringement, inequitable
`conduct before the Patent and Trademark Offi ce or other vexatious
`or malfeasant behavior in the course of litigation. See, e.g.,
`Multiform Desiccants, Inc. v. Medzam, Ltd., 133 F.3d 1473, 1481-
`82 (Fed. Cir. 1998).
`
`

`
`iii
`
`TABLE OF CONTENTS
`
`Page
`QUESTION PRESENTED . . . . . . . . . . . . . . . . . . . . . . . i
`
`TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . iii
`
`TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . vi
`
`INTEREST OF AMICUS CURIAE . . . . . . . . . . . . . . . .1
`
`SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . .3
`
`ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`
`I. G U I D I N G P R I N C I P L E S I N
`FORMULATING AN “EXCEPTIONAL”
`CASE ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . .6
`
`
`
`A. The standard for declaring a case
`exceptional should be on parity for both
`patent holders and accused infringers . . . . .7
`
`
`
`B. The standard used for Section 285
`should not make patent litigation
`more costly or burdensome . . . . . . . . . . . . . .8
`
`
`
`C. The award of attorney fees should
`
`be limited to “exceptional” cases. . . . . . . . .10
`
`D. The award of attorney fees under Section
`285 should not be dictated by the standards
`for fee awards under other statutes . . . . . .11
`
`
`
`

`
`iv
`
`Table of Contents
`
`II. SLIGHTLY LOWER TWO-PART TEST
`W ITH ULTIM ATE DISCRETION
`LEFT TO THE TRIAL COURT . . . . . . . . . . . .12
`
`
`
`Page
`
`A. The analysis for an “exceptional”
`
`case should remain a two-part test. . . . . . .13
`
`B. The objective prong should be slightly
`easier to meet, but still subject
`to de novo review. . . . . . . . . . . . . . . . . . . . . .14
`
`
`
`1. Arguments asserted with a low
`likelihood of success may contribute
`to an “exceptional” case. . . . . . . . . . . . .14
`
`
`
`2. The objective test should be
`reviewed de novo. . . . . . . . . . . . . . . . . .15
`
`
`C. The subjective prong should focus on
`the purpose of the arguments made and
`be subject to review for clear error. . . . . . .19
`
`
`
`1. The subjective test should assess
`the purpose of the objectively
` meritless assertions . . . . . . . . . . . . . . . .19
`
`2. The subjective test should be
`
`reviewed for clear error . . . . . . . . . . . .20
`
`

`
`v
`
`Table of Contents
`
`Page
`
`D. The f inal decision of whether
`t o awa rd att or ney fees i n a n
`exceptional case should be left to
`the discretion of the district court . . . . . .21
`
`
`
`CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
`
`

`
`vi
`
`TABLE OF CITED AUTHORITIES
`
`Page
`
` Cases
`
`Brooks Furniture Mfg. v. Dutailier Int’l, Inc.,
`
`393 F.3d 1378 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . .13
`
`Chambers v. NASCO, Inc.,
`501 U.S. 32 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
`
`Cooter & Gell v. Hartmarx Corp.,
`496 U.S. 384 (1990). . . . . . . . . . . . . . . . . . . . . . . passim
`
`Dominant Semiconductors Sdn. Bhd. v.
`OSRAM GmbH,
`524 F.3d 1254 (Fed. Cir. 2008) . . . . . . . . . . . . . . . . . .15
`
`Dubil v. Rayford Camp & Co.,
`184 F.2d 899 (9th Cir. 1950) . . . . . . . . . . . . . . . . . . . .10
`
`eBay Inc. v. MercExchange, L.L.C.,
`547 U.S. 388 (2006). . . . . . . . . . . . . . . . . . . . . . . . . 21-22
`
`Fleischmann Distilling Corp. v. Maier Brewing Co.,
`386 U.S. 714 (1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`Graham v. John Deere Co. of Kan. City,
`383 U.S. 1 (1966). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
`
`Highmark, Inc. v. Allcare Health Mgmt. Sys.,
`687 F.3d 1300 (Fed. Cir. 2012) . . . . . . . . . . . . . . .15, 19
`
`

`
`vii
`
`Cited Authorities
`
`Page
`
`Holmes Grp., Inc. v. Vornado Air Circulation
`Systems, Inc.,
`535 U.S. 826 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`Jacquard Knitting Mach. Co. v. Ordnance
`Gauge Co.,
`213 F.2d 503 (3d Cir. 1954) . . . . . . . . . . . . . . . . . . . . .11
`
`Markman v. Westview Instruments, Inc.,
`517 U.S. 370 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`Mathis v. Spears,
`857 F.2d 749 (Fed. Cir.1988) . . . . . . . . . . . . . . . . . . . .19
`
`Mayo Collaborative Servs. v. Prometheus
`Labs., Inc.,
`132 S. Ct. 1289 (2012). . . . . . . . . . . . . . . . . . . . . . . . . .11
`
`Park-In-Theatres, Inc. v. Perkins,
`190 F.2d 137 (9th Cir. Cal. 1951) . . . . . . . . . . . . . .10, 11
`
`Pierce v. Underwood,
`487 U.S. 552 (1988). . . . . . . . . . . . . . . . . . . . . . . . . 16, 17
`
`Prof’l Real Estate Investors v. Columbia
`Pictures Indus.,
`508 U.S. 49 (1993). . . . . . . . . . . . . . . . . . . . . . . . . .13, 16
`
`Quantum Corp. v. Tandon Corp.,
`940 F.2d 642 (Fed. Cir. 1991) . . . . . . . . . . . . . . . . . . . .9
`
`

`
`viii
`
`Cited Authorities
`
`Page
`
`In re Seagate Tech., LLC,
`497 F.3d 1360 (Fed. Cir. 2007) . . . . . . . . . . . . . . . .9, 19
`
`Sun-Tek Ind., Inc. v. Kennedy Sky Lites, Inc.,
`929 F.2d 676 (Fed. Cir. 1991). . . . . . . . . . . . . . . . . . . .21
`
` Statutes and Legislative History
`
`28 U.S.C. § 1927 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4, 11
`
`35 U.S.C. § 285. . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim
`
`R.S. § 4921 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
`
`S. Rep. No. 79-1503 (1946) . . . . . . . . . . . . . . . . . . . . . . . 7-8
`
`Rules
`
` Fed. R. Civ. P. 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . passim
`
`Fed. R. Civ. P. 52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
`
`Other Authorities
`
`Abraham Lincoln, Lecture on “Discoveries,
`Inventions and Improvements,” Feb. 22, 1860 . . . . .7
`
`AIPLA Report of the Economic Survey 2013 . . . . . . . . .8
`
`Intellectual Property and the U.S. Economy:
`Industries in Focus, Econ. & Statistics Admin.
`and USPTO (Mar. 2012) . . . . . . . . . . . . . . . . . . . . . . . .6
`
`

`
`1
`
`INTEREST OF AMICUS CURIAE
`
` The New York Intellectual Property Law Association
`(“NYIPLA” or “Association”) respectfully submits this
`amicus curiae brief in support of neither party.1
`
`The arguments set forth herein were approved on
`December 5, 2013 by an absolute majority of the offi cers
`and members of the Board of Directors of the NYIPLA,
`including any offi cers or directors who did not vote for any
`reason, including recusal, but do not necessarily refl ect the
`views of a majority of the members of the Association, or
`of the law or corporate fi rms with which those members
`are associated. After reasonable investigation, the
`NYIPLA believes that no offi cer or director or member
`of the Committee on Amicus Briefs who voted in favor
`of fi ling this brief, nor any attorney associated with any
`such offi cer, director or committee member in any law or
`corporate fi rm, represents a party in this litigation. Some
`offi cers, directors, committee members or associated
`attorneys may represent entities, including other amici
`curiae, which have an interest in other matters which may
`be affected by the outcome of this litigation.
`
`1. Counsel for Respondent Allcare Health Management
`Systems, Inc. and Petitioner Highmark, Inc. consented to the fi ling
`of an amicus curiae brief in a communication on November 11, 2013.
`Blanket consent to the fi ling of amicus curiae briefs, in support
`of either party or of neither party, was received from counsel for
`Petitioner Octane Fitness and counsel for Respondent Icon Health
`& Fitness, Inc. in a docket entry dated October 31, 2013. Pursuant
`to Sup. Ct. R. 37.6, no counsel for a party authored this brief in whole
`or in part, and no counsel or party made a monetary contribution
`intended to fund the preparation or submission of this brief. No
`person other than NYIPLA, its members, or its counsel made a
`monetary contribution to its preparation or submission.
`
`

`
`2
`
`The NYIPLA is a professional association of
`approximately 1,300 attorneys whose interests and
`practices lie in the area of patent, trademark, copyright,
`trade secret and other intellectual property law. The
`Association’s members include a diverse array of attorneys
`specializing in patent law, from in-house counsel for
`businesses that own, enforce and challenge patents, to
`attorneys in private practice who represent inventors in
`various proceedings before the United States Patent and
`Trademark Offi ce (“PTO”).
`
`A substantial percentage of the Association’s member
`attorneys participate actively in patent litigation,
`representing both patent owners and accused infringers.
`The Association’s members also frequently engage
`in patent licensing matters on their clients’ behalf,
`representing both patent licensors and licensees. The
`entities served by the Association’s members include
`inventors, entrepreneurs, venture capitalists, businesses,
`universities, and industry and trade associations.
`
`NYIPLA’s interest in this case stems from the
`infl uence this case may have on the potential for recovering
`attorney fees in exceptional cases and the infl uence that
`it might have on the litigation activities of patent right
`holders and owners including but not limited to patent
`assertion entities (PAEs). In particular, this case may be
`used as a vehicle for addressing the recent concerns arising
`in the patent law community and among policymakers
`and the popular media over litigation initiated by PAEs.
`However, NYIPLA has an equal concern that this case
`should not discourage patent rights holders and owners
`from legitimate assertions of their patent rights, whether
`the patent rights holders or owners are PAEs or practicing
`entities.
`
`

`
`3
`
`The activities of NYIPLA members and practitioners
`depend on the evenly-applied and predictably-construed
`rights granted under the Patent Act. Thus, NYIPLA sets
`forth guiding principles and proposed rules to encourage
`and balance these competing interests.
`
`SUMMARY OF ARGUMENT
`
`I. The NYIPLA appreciates the need for clarifi cation
`regarding the discretion granted to trial courts in awarding
`attorney fees to prevailing parties in “exceptional” patent
`cases. Patents have long been a signifi cant element of
`the U.S. economy, and there has been a great deal of
`press recently regarding the practices of enforcing them
`through litigation. The clear intent behind Section 285
`is to provide a fee shifting remedy to prevailing parties
`when it would be unjust for them to bear the entire burden
`of their own attorney fees. Section 285 is intended to
`be impartial and available to any prevailing party as an
`appropriate remedy in such unwarranted cases. Section
`285 should be equally available and applied evenly to both
`accused infringers and patentees who are an unjustly
`burdened prevailing party.
`
`The NYIPLA respectfully submits that in order to
`address the situations in which an exceptional case under
`Section 285 should be found, and what level of deference
`to give the district court in making such a fi nding, the
`Court should consider the following guiding principles:
`
`A. Patent holders and accused infringers should be
`treated evenly under Section 285.
`
`

`
`4
`
`B. The award of attorney fees under Section 285
`should not lead to or require extensive and burdensome
`proceedings beyond the resolution of the dispute on the
`merits.
`
`C. As the statute is currently written, attorney fees
`are only available in “exceptional” cases and thus should
`not be awarded in every case.
`
`D. Section 285 provides a fee shifting remedy under
`the Patent Act that is distinct from sanctions awarded
`under Rule 11 and costs awarded under 28 U.S.C. § 1927,
`and thus does not need to apply the same standard.
`
`II. With these guiding principles in mind, NYIPLA
`respectfully submits that the form of the present test for
`determining whether a case is “exceptional” under Section
`285—a two-part test with an objective and subjective
`evaluation of the case, followed by a discretionary award
`by the district court—is an appropriate structure for the
`analysis, but that the current tests create too high of a bar
`to meet in order to adequately protect unjustly burdened
`prevailing parties from misconduct.
`
`The NYIPLA respectfully advocates maintaining
`the current structure of a two-part test to provide a level
`playing fi eld for prevailing patent owners and accused
`infringers—with an objective and subjective prong, after
`which an award may be awarded at the district court’s
`discretion—but lowering the threshold required to meet
`each prong slightly. Once it is determined that both
`prongs are met, the ultimate decision—whether to award
`attorney fees and what the appropriate amount should
`
`

`
`5
`
`be—is, as is presently the case, left to the district court
`based on the court’s observations throughout the course
`of the trial.
`
`Specifi cally, the NYIPLA proposes that, in a Section
`285 assessment of whether a case is exceptional, the
`district court consider:
`
`1) Were the asserted claims or defenses
`objectively meritless (absent, e.g., advocacy
`for a change in the law) such that any
`reasonable litigant would expect a low
`likelihood of success on the merits?
`
`
`
`and
`
`2) Was the litigant subjectively advancing such
`claims or defenses in the litigation for an
`improper purpose (e.g., extorting money,
`prolonging the litigation, or increasing
`litigation costs)?
`
`Assuming both parts of this test are met, the case
`would then be consider ed an “exceptional” case and the
`district court may exercise its discretion to award (or not
`award) some or all of the prevailing party’s reasonable
`attorney fees.
`
`Under this structure, the NYIPLA proposes that the
`objective prong be subject to de novo review, the subjective
`test be reviewed for clear error, and the ultimate award of
`the district court be reviewed for an abuse of discretion.
`Attorney fees awarded under the proposed test should
`continue to be available only to prevailing parties (whether
`alleged infringers or patentees).
`
`

`
`6
`
`ARGUMENT
`
`I. GUIDING PRINCIPLES IN FORMULATING AN
`“EXCEPTIONAL” CASE ANALYSIS
`
`Patents play a vital role in the economy, in part,
`by fulfi lling their constitutionally-granted purpose of
`providing an incentive for innovation.2 Enforcement of
`this granted “exclusive right” to patented subject matter
`is an important aspect of the incentive that patents
`provide. Thus, rules that encourage the enforcement of
`rightfully granted patents and the elimination of improper
`ones are useful in achieving the benefi ts of a functioning
`patent system. Over the past few years, there has been
`an increase in press coverage on patent enforcement
`practices that suggest a need to reconsider the application
`of Section 285 to address abusive litigation practices.
`
`In evaluating the proper application of Section 285,
`while balancing the competing goals of compensating
`unjustly wronged parties and staying within the intent
`and language of the statute, the NYIPLA sets forth the
`following guiding principles:
`
`2. See Intellectual Property and the U.S. Economy: Industries
`in Focus, Econ. & Statistics Admin. and USPTO (Mar. 2012), www.
`uspto.gov/news/publications/IP_Report_March_2012.pdf. (“The
`granting and protection of intellectual property rights is vital to
`promoting innovation and creativity and is an essential element of
`our free-enterprise, market-based system.”).
`
`

`
`7
`
`A. The standard for declaring a case exceptional
`should be on parity for both patent holders and
`accused infringers
`
`The patent statute is intended to be a carefully crafted
`system that both encourages invention and disclosure, but
`does not unreasonably foreclose access to such inventions.
`“The patent system . . . [adds] the fuel of interest to the
`fi re of genius”3 but that blaze might be smothered if the
`enforcement of granted patent rights is skewed by the
`judiciary. Just as a line must be drawn “between the
`things which are worth to the public the embarrassment
`of an exclusive patent, and those which are not,”4 a balance
`between patent enforcement and defense against accused
`infringement must be made in the judicial system. In
`order to induce inventors “to bring forth new knowledge,”5
`patentees must be assured that they can enforce their
`patent rights without fear of exorbitant fees in the event
`of mere failure. Moreover, the economy, competition, and
`the advance of science may be stifl ed if businesses fear
`unwarranted and costly patent litigation.
`
`In order to maintain the balance of the patent system,
`the standard for awarding attorney fees in an exceptional
`case should be equally available to prevailing patent
`holders and accused infringers. See, e.g., S. Rep. No. 79-
`
`3. Abraham Lincoln, Lecture on “Discoveries, Inventions
`and Improvements,” delivered before the Library Association of
`Springfi eld, Illinois, Feb. 22, 1860, reprinted in Charles R. Macedo,
`The Corporate Insider’s Guide to U.S. Patent Practice 4 (2010).
`
`4. Graham v. John Deere Co. of Kan. City, 383 U.S. 1, 9 (1966)
`(quoting Thomas Jefferson, Letter to Isaac McPherson (Aug. 1813))
`
`5. Id.
`
`

`
`8
`
`1503 (1946), reprinted in 1946 U.S. Code Cong. Serv. 1386,
`1387 (explaining that the predecessor statute of Section
`285 “will discourage infringement of a patent by anyone
`thinking that all he would be required to pay if he loses
`the suit would be a royalty” but that “[t]he provision is
`also made general so as to enable the court to prevent a
`gross injustice to an alleged infringer.” (emphasis added)).
`In other words, there should be parity; the same level of
`burdens and tests should be applied even-handedly, with
`no bias either way.
`
`B. The standard used for Section 285 should
`not make patent litigation more costly or
`burdensome
`
`One of the biggest problems associated with patent
`litigation is that it costs so much to resolve disputes in
`court.6 Over the years, patent litigations have resulted
`in various satellite litigations on issues such as willful
`infringement and inequitable conduct, which are
`independent grounds for fi nding a patent case exceptional
`under Section 285. These proceedings have led to
`increased costs by increasing discovery demands, and
`requiring additional factual and legal fi ndings outside of
`the resolution of the primary disputes on the merits of the
`infringement claim. Such diversions from the real issue
`are harmful to the patent system as a whole by raising the
`costs and burdens of patent litigation even higher.
`
`One way to limit costs associated with litigating
`ancillary disputes, such as whether unwarranted patent
`
`6. According to one study, even patent infringement suits with
`less than one million dollars at risk have a median litigation cost of
`$700,000. Report of the Economic Survey 2013, AIPLA 34 (Jul. 2013).
`
`

`
`9
`
`litigation rises to an exceptional case, is to make those
`issues subject to more predictably applied tests, rather
`than requiring exhaustive investigation into subjective
`details. For example, after In re Seagate, in which
`the Federal Circuit required a showing of objective
`recklessness for a fi nding of willful infringement, the
`widespread sideshow litigation on willful infringement
`was curtailed to only the more egregious cases. In re
`Seagate Tech., LLC, 497 F.3d 1360, 1369-71 (Fed. Cir.
`2007) (explaining that “[s]ince Underwater Devices, we
`have recognized the practical concerns stemming from our
`willfulness doctrine,” such as the “onerous” bifurcation of
`trials to avoid prejudice from the waiver of the attorney
`client privilege (citing to Quant um Corp. v. Tandon
`Corp., 940 F.2d 642, 643-44 (Fed. Cir. 1991)). While a
`departure from the current two-part test for evaluating an
`“exceptional” case may be well intentioned, adopting a rule
`that spawns more satellite litigation in patent disputes is
`likely to be more harmful than helpful, by encouraging
`more baseless and costly litigation.
`
`Thus, the test guiding the analysis of whether a case
`qualifi es as “exceptional” should remain a two-part test,
`including both an objective and subjective prong, to allow
`for a predictable application of fees while limiting any
`additional discovery that might be involved in evaluating
`the subjective injustice alleged in the case. Because both
`parts of the test must be met for a case to be “exceptional,”
`the objective test can be used as a threshold test before
`reaching any subjective issue that might require additional
`limited discovery.
`
`

`
`10
`
`C. The award of attorney fees should be limited
`to “exceptional” cases
`
`The role of attorney fees in patent cases to act as a
`deterrent to baseless or dilatory arguments by the patent
`holders and infringers alike is important and should be
`encouraged, but attorney fees should not become run-of-
`the-mill and ordered against the loser in every case.
`
`As is clear from the statutory language of Section
`285, and the legislative history, the award of attorney fees
`was intended to be limited to cases fi tting the defi nition
`of “exceptional.” Section 285 replaced its predecessor
`statute on attorney fees, R.S. § 4921, to codify the
`prevailing practice in the courts and the original statutory
`intent. See, e.g., Testimony of P.J. Federico Before the
`House Subcommittee at 108-109 (June 14, 1951)(explaining
`that the term “exceptional cases” “was picked up from the
`reports in passing [R.S. § 4921] and the decisions of the
`courts that have followed that”); Park-In-T heatres, Inc. v.
`Perkins, 190 F.2d 137, 142 (9th Cir. 1951) (“The Reports of
`House and Senate Committees . . . provided . . . that ‘It is
`not contemplated that the recovery of attorney’s fees will
`become an ordinary thing in patent suits.’” (quoting 1946
`U.S. Code Cong. Serv. 1386, 1387)).
`
`In awarding attorney fees under R.S. § 4921, the
`district courts had been required to state the basis for the
`award clearly. See, e.g., Dubil v. Rayfo rd Camp & Co., 184
`F.2d 899, 903 (9th Cir. 1950). Acceptable grounds for the
`award included “unfairness or bad faith in the conduct of
`the losing party . . . which [made] it grossly unjust that
`the winner of the particular law suit be left to bear the
`burden of his own counsel fees which prevailing litigants
`
`

`
`11
`
`normally bear.” Park-In-Theatres, 190 F.2d at 142; accord
`Jacquard Knitting Mach. Co. v. Ordnance Gauge Co., 213
`F.2d 503, 508-509 (3d Cir. 1954).
`
`Thus, with the addition of the “exceptional” case
`limitation to Section 285, Congress, in response to the
`interpretation of its predecessor statute on attorney
`fees, intended the statute to be used to compensate
`prevailing parties for that level of injustice amounting to
`an “exceptional” case. Only after a case is determined
`“exceptional” is the discretion left to the district court as
`to whether to award attorney fees and in what amount.
`
`D. The award of attorney fees under Section 285
`should not be dictated by the standards for fee
`awards under other statutes
`
`Although Section 285 may overlap with other legal
`authorities which provide for the grant of attorney fees
`or monetary penalties for improper conduct in litigation
`provisions—such as Rule 11 and 28 U. S.C. § 1927— it is
`a distinct remedy and need not apply the same standard
`as those provisions. Cf. Mayo Collaborative Servs. v.
`Prometheus Labs., Inc., 132 S. Ct. 1289, 1303-04 (2012)
`(explaining that although two statutes might overlap,
`applying complementary sections instead of another
`statute “assum[es] that those sections can do work that
`they are not equipped to do”). Section 285 allows for the
`award of attorney fees in “exceptional” patent cases, which
`is not an equivalent to the sanctions specifi ed in Rule 11 for
`an attorney’s failure to conduct a “reasonable inquiry” and
`verify that specifi cally identifi ed (and challenged) court
`fi lings “are well-grounded in fact, legally tenable, and ‘not
`interposed for any improper purpose.’” Cooter & Gell v.
`
`

`
`12
`
`Ha rtmarx Corp., 496 U.S. 384, 393 (1990) (“Cooter”). Nor
`is Section 285 identical to the penalty under Section 1927
`directed to an attorney who “multiplies the proceedings
`in any case unreasonably and vexatiously.” See Chambers
`v. NASCO, I nc., 501 U.S. 32, 48 (1991) (explaining that
`“the amendment to § 1927 allowing an assessment of fees
`against an attorney says nothing about a court’s power
`to assess fees against a party”). While these provisions
`may cover similar conduct, or the same conduct may run
`afoul of the different provisions, each was implemented
`for a different purpose and may not be confl ated.
`
`II. SLIGHTLY LOWER TWO-PART TEST WITH
`ULTIMATE DISCRETION LEFT TO THE TRIAL
`COURT
`
`A two-part test with objective and subjective prongs
`is an appropriate approach to guide the district courts
`in evaluating whether a case is “exceptional.” However,
`the current two-part test is too high of a standard to
`cover many exceptional cases. Thus, the objective and
`subjective prongs of the current test should be relaxed
`while still providing suffi cient guidance such that attorney
`fees will not be available as a rule in every case. The
`ultimate discretion allowed to the judge to apply such a
`remedy provides fl exibility to ensure that attorney fees in
`a given case are granted based on unjust litigation claims
`or defenses that were observably “exceptional” over the
`course of the litigation.
`
`

`
`13
`
`A. The analysis for an “exceptional” case should
`remain a two-part test
`
`The two-part test applied below for analyzing whether
`a case is “exceptional” was adopted by the Federal Circuit
`in Brooks Furniture Mfg. v . Dutailier Int’l, Inc., 393
`F.3d 1378, 1381 (Fed. Cir. 2005) and extracted from this
`Court’s two-part defi nition of a “sham” litigation in Prof’l
`Real Estate Inve stors v. Columbia Pictures Indus., 508
`U.S. 49, 60 (1993) (“PRE”). In PRE, this Court outlined
`a two-part defi nition of “sham” litigation in the context of
`an antitrust violation as (1) an objectively baseless lawsuit
`“in the sense that no reasonable litigant could realistically
`expect success on the merits” brought in (2) subjectively
`bad faith such that it attempts to “interfere directly with
`the business relationships of a competitor.” Id. (emphasis
`in original).
`
`In Brooks Furniture, the Federal Circuit applied that
`antitrust standard from PRE to help defi ne “exceptional”
`cases in patent law, such that a case is only considered
`“exceptional” for a prevailing accused infringer “if both
`(1) the litigation is brought in subjective bad faith, and (2)
`the litigation is objectively baseless.” 393 F.3d at 1381.
`However, as this two-part test was originally developed to
`determine whether to grant immunity from an antitrust
`claim, it is too rigorous a standard to effectively include
`the numerous situations under which an “exceptional”
`patent case might arise.
`
`Thus, the proposed test adopts the rationale of PRE
`to have a two-part test including both subjective and
`objective prongs, but lowers the threshold of each prong
`to account for the different standards in an antitrust
`
`

`
`14
`
`action—which impose treble damages in civil cases and
`can have criminal consequences—and a civil tort action
`under the patent laws. These lower bars are intended to
`more appropriately address the differences in the effects
`and the pertinent evidentiary support for an award of fees
`for an “exceptional” case under Section 285 as compared
`to a “sham litigation” that may deprive a party of antitrust
`immunity. For example, the assertion of exclusionary
`rights under copyright in just one lawsuit against one
`party, without more, may provide objectively little proof
`of anticompetitive behavior. Thus, a high standard for
`“sham litigation” before removing antitrust immunity
`corresponds with a possible severe penalty once that
`immunity is removed. In contrast, meritless arguments
`made for an improper purpose in one patent lawsuit is a
`fi tting guideline for awarding fees under Section 285 in
`that particular lawsuit.
`
`B. The objective prong should be slightly easier
`to meet, but still subject to de novo review
`
`1. Arguments asserted with a low likelihood of
`success may contribute to an “exceptional”
`case
`
`NYIPLA’s proposed test slightly lowers the bars for
`fi nding a case “exceptional.” For the objective prong, the
`proposed test changes the required “baselessness” of the
`merits from:
`
`“[O]bjectively baseless . . . such that no
`reasonable litigant could reasonably expect
`success on the merits.”
`
`

`
`15
`
` Highmark, Inc. v. Allcare Health Mgmt. Sys., 687
`F.3d 1300, 1309 (Fed. Cir. 2012) (quoting Dominant
`Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d
`1254, 1260 (Fed. Cir. 2008)) (emphasis added).
`
`to:
`
`Objectively meritless (absent, e.g., advocacy for
`a change in the law) such that any reasonable
`litigant would expect a low likelihood of success
`on the merits.
`
`Notably, a case that has a low level of merit such
`that it satisfi es the objective prong is not automatically
`“exceptional.” Because both the objective and subjective
`prongs must be met under this two-part test, a run-of-
`the-mill case that would allow a patent holder or accused
`infringer to fairly test the strength of their respective
`claims or defenses will continue to be ineligible to be
`named an “exceptional” case. Further, by advocating
`this test, the NYIPLA does not mean to suggest that
`any case with less than a 50% chance of success on the
`merits automatically meets the objective prong. Rather,
`the likelihood of success on the merits must be suffi ciently
`low objectively, to any reasonable litigant who is not,
`for example, advocating for a change in the law or not
`reasonably advocating that the existing law should not
`apply to the particular facts of the case.
`
`2. The objective test should be reviewed
`de novo
`
`Although NYIPLA proposes using a lower standard
`for each of the prongs of the two-part objective/subjective
`
`

`
`16
`
`test, because the structure of the proposed test is
`unchanged from PRE, the standards of review for each of
`the pron

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