|May 2, 2014|
Previously published on April 2014
On April 29, 2014, the Supreme Court issued two opinions that will make it easier to obtain sanctions for frivolous patent suits. In our recent white paper, How to Defend Patent Trolls Without Breaking The Bank, we advocate seeking sanctions when faced with a frivolous patent suit.
- Rule 11 of the Federal Rules of Civil Procedure allows for sanctions against a party and its lawyers if (i) the case is brought for an improper purpose, such as to harass, cause delay, or needlessly increase the cost of litigation; (ii) the claims are not warranted under the law; or (iii) the factual assertions lack evidentiary support, or are likely to after reasonable investigation.
- 28 United States Code §1927 authorizes an award of excess costs, expenses, and attorney fees against an attorney who “multiplies the proceedings in any case unreasonably and vexatiously.”
- Section 285 of the Patent Statute (35 U.S.C. §285) authorizes the court to award reasonable attorney fees to the prevailing party in “exceptional cases.” This section on its face applies to both prevailing patent owners as well as prevailing accused infringers.
On April 29, 2014, the Supreme Court, in Octane Fitness, LLC v. Icon Health & Fitness, Inc., made it easier to get sanctions under Section 285 of the Patent Statute. First, the Supreme Court lowered the standard for proving an “exceptional case.” Rather than having to show that the litigation was both “brought in subjective bad faith” and is “objectively baseless,” one merely has to show that the case “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and facts of the case) or the unreasonable manner in which the case was litigated.” The new standard is flexible and gives courts the discretion to award sanctions under Section 285 of the Patent Statute “considering the totality of the circumstances” and even where the conduct does not rise to the level that warrants sanctions under Rule 11. Second, the Supreme Court lowered the burden for proving an entitlement to sanctions. Rather than having to meet the very high standard of a clear and convincing right to sanctions, one merely has to show a right to sanctions by a preponderance of the evidence—just over 50%.
At the same time, in Highmark Inc. v. Allcare Health Management System, Inc., the Supreme Court reduced the chances that sanctions will be overturned on appeal. Rather than considering whether sanctions are appropriate from its own perspective, the Federal Circuit will now be required to give deference to the lower court’s decision and only reverse sanctions if the lower court abused its discretion.*
One of the most hotly debated and controversial provisions Congress is considering as part of its effort to curb litigation brought by patent trolls is fee shifting, i.e., requiring the loser to pay the other side’s attorneys fees unless the loser’s positions were reasonable. The Supreme Court’s lowering the standard for proving an exceptional case and an entitlement to attorneys fees may solve the conundrum Congress is facing by negating the need for that provision and allowing a bill to be passed.
* Of course, a party found to be a willful infringer will also have a more difficult time on appeal.