One of the more important intellectual property cases decided in 2014 is the U.S. Supreme Court’s decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc. (2014) 134 S.Ct. 1749.  In that case, the Supreme Court announced a new test for awarding attorneys’ fees in patent infringement cases, holding that the existing test used by the Federal Circuit Court of Appeals was “overly rigid.”

The plaintiff, Octane Fitness, and the defendant, ICON Health, both made elliptical exercise machines.  ICON owned a U.S. patent for its machine.  ICON sued Octane for patent infringement.  The district court granted summary judgment of noninfringement in favor of Octane.  Octane filed a motion to seeking its attorneys’ fees under 35 U.S.C. section 285.  The district court denied the motion.  On appeal, the Federal Circuit Court of Appeals affirmed.

The Supreme Court reversed, stating that “the framework established by the Federal Circuit in Brooks Furniture Mfg. v. Dutailier International (Fed. Cir. 2005) 393 F.3d 1378 is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts.”  Id. at 1755.  The Court held that the Federal Circuit’s test in Brooks Furniture was “overly rigid.”  Id. at 1756.  Under that test, a case was exceptional if there was either:  (1) litigation-related misconduct, or (2) subjective bad faith and objective baselessness.  According to the Federal Circuit, the first alternative, litigation misconduct, would be found it there was willful infringement, vexatious litigation, a Rule 11 violation, or fraud or inequitable conduct in obtaining the patent.  Under the second alternative, subjective bad faith was met only if the plaintiff actually knew that its suit was objectively baseless, and objective baselessness was met if no reasonable litigant could believe they would prevail.  In addition, the Brooks court held that a defendant had to prove an exceptional case by clear and convincing evidence.

With respect to the litigation misconduct test, the Supreme Court said that this conduct was independently sanctionable, and that sanctionable conduct was not the proper test for an “exceptional case.”  With respect to the second test, the Court held it was too restrictive, explaining that any case where there was either subjective bad faith or objective baselessness should qualify as “exceptional.”  According to the Court, the Brooks test is “so demanding that it would appear to render section 285 superfluous.”  Id. at 1758.

The Court held that the Brooks test is a “rigid and mechanical formulation” that “superimposes an inflexible framework onto statutory text that is inherently flexible.”  Id. at 1754 and 1756.  The Court announced a new, more flexible test for an exceptional case: a case is exceptional if it “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.”  Id. at 1756.  In applying this test, the district courts must utilize their discretion in a case-by-case basis, considering “the totality of the circumstances.”  Id.  There is no “precise rule or formula.”  Id.  The Court also rejected the Federal Circuit’s requirement of clear and convincing evidence, holding that such a standard was too onerous, and that the proper standard of proof is a preponderance of the evidence. Id. at 1758.

The new test set forth by the Court is actually an old test.  As the Court noted, at 1754, before Brooks, the Federal Circuit applied a “totality of the circumstances” test and exercised its discretion in a “holistic, equitable approach.”  The return to this test will likely make attorneys’ fees in patent infringement cases a little easier to recover.