Federal Circuit Rigid and Mechanical Formulations and Sweeping De Novo Reviews Have Got to Stop
On April 29, 2014, the Supreme Court issued opinions in both Octane Fitness v. ICON and Highmark v. Allcare. The Court reversed and remanded Octane and vacated and remanded Highmark.
In Octane, the Court struck down the standard set by the Federal Circuit in 2005 for exceptionality. “The Federal Circuit’s formulation is overly rigid,” Justice Sotomayor writing for the Supreme Court opined. Op. 8
The Federal Circuit standard held a case to be “exceptional” under §285 for award of attorney fees only “when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions.” Op. 4. The Federal Circuit got it wrong, Justice Sotomayor explained. Sanctionable conduct is not the appropriate benchmark. A party’s unreasonable conduct may also be so “exceptional” as to justify an award of fees.
Nor does the statute require as the Federal Circuit standard provides that “absent misconduct in conduct of the litigation or in securing the patent, the standard permitted award of fees only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. Id. According to the Court, a case presenting either subjective bad faith or exceptionally meritless claims may sufficiently set itself apart from [run-of-the-mill] cases to warrant a fee award.” Op. 9.
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,” the Court explained. Octane 7 – 8. “District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” Id., at 8. The Octane Court reversed the judgment of the Federal Circuit and remanded for further proceedings consistent with this opinion.
Relying on Octane for precedent, the Court in Highmark emphasized that “district courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.” The Court explained that decisions on “questions of law are reviewable de novo,” decisions on “questions of fact” are reviewable for “clear error,” and decisions on “matters of discretion” are “reviewable for “abuse of discretion.” Highmark 4. “Although questions of law may in some cases be relevant to the §285 inquiry, that inquiry generally is, as here, “rooted in factual determinations.” Id, at 5. The Highmark Court vacated the judgment of the Federal Circuit and remanded for further proceedings consistent with this opinion.
In Octane and Highmark, the Supreme Court message to the Federal Circuit is clear. The more rigid and mechanical formulations and sweeping de novo reviews employed by the Federal Circuit have got to stop. The Federal Circuit needs to return to a less rigid, more standards based approach, mindful of the limit of the appellate function in deciding cases.
About Paul R. Juhasz