Supreme Court of the United States to Hear Arguments from Texas and Minnesota Petitioners Seeking to Recoup Attorney Fees

Supreme Court of the United States to Hear Arguments from Texas and Minnesota Petitioners Seeking to Recoup Attorney Fees

Friday 24, 2014, 8:00 A.M.
Supreme Court Stair Case. Photo credit here.
Supreme Court Stair Case. Photo credit here.

A minimum of four oral arguments are scheduled to be heard by The Supreme Court of the United States on February 26th.   The arguments will be presented by two appellate petitioners and the two named respondents.  Nothing unusual so far, except the petitioners and respondents represent 2 separate and distinct cases, docket numbers 12-1163 & 12-1184.  It is somewhat unusual for the highest court to review two unrelated cases on the same day, under the same itinerary with two unaffiliated respondents.

Although at first glance the cases are not related, the merit of the day’s arguments will focus on 35 U.S.C. § 285, (35 U.S. Code, Section 285).  35 U.S.C. is patent code which gives discretionary latitude to district civil court judges in awarding compensation for attorney fees and other expenses to a prevailing party following a patent dispute.

Both of the petitioners being heard next month are seeking to recoup attorney fees from their respective patent cases.

Patent litigation may be initiated by a patent holder or licensor against a business or entity if the patent holder believes their patent is being infringed upon.  The patent holder must perform methodical due diligence and investigate the alleged infringement prior to burdening the courts and subsequent defendant(s) with a civil complaint.

In the Supreme Court cases being heard next month, both petitioners were originally defendants sued by patent holders or licensors.  The current petitioners won their cases and they are no longer defendants.  They are appealing to the Supreme Court to recover their attorney fees and other related costs against the patent holders who took them to court initially.

One of the two petitioners, Highmark, Inc., Pittsburgh, PA, (Highmark) is a major health insurance provider with over 20,000 employees in the U.S.  Highmark successfully defended itself against a Texas based patent licensor in 2008.  The District Court judge who presided over the Texas trial subsequently ordered the licensor to pay Highmark’s attorney fees and other expenses totaling over 5 million dollars.  The District court’s decision was overturned in August 2012, in Federal Court by the U.S. Court of Appeals for the Fifth Circuit in Gretna, Louisiana.

Highmark is requesting that the Supreme Court reverse the 5th Circuit decision and reinstate the original District (trial court) compensation award.

The second petitioner, Octane Fitness, LLC, Brooklyn Park, MN, (Octane) is a fitness manufacturer dedicated exclusively to creating and producing elliptical machines.  In 2011 Octane successfully defended itself against a patent infringement claim by a larger competitor.  After the victory, Octane petitioned the Minnesota District trial court judge to order plaintiffs to pay or reimburse their attorney fees and other expenses totaling 1.3 million dollars.  Octane was denied the fees by the District court.

They appealed to the U.S. Court of Appeals for the Eighth Circuit in St Lois, Mo. and in October 2012, the eighth circuit upheld the lower court’s decision and Octane was denied fees again.

Octane is requesting that the Supreme Court over-turn the District and Federal Court decisions and award them compensation for attorney fees and other expenses in the original case of Icon Health & Fitness, Inc V. Octane Fitness, LLC.

The discretionary authority to award legal fees to a prevailing party by the trial judge is a pro-active mechanism intended to discourage frivolous, costly lawsuits.  In the matter of patent infringement cases, specifically concerning intellectual property, the authority of the trial judge may dissuade predatory patent holders and licensors from using the threat of lawsuits to intimidate business entities into purchasing licensing rights.

It also works the other way, when it can be proven that a business entity knowingly and willfully has infringed on the patent rights of another.  In those cases, a judge may triple the damages in their award judgment to make it right for the patent holder.

Although the trial judge may order the losing side to pay attorney fees and reimburse other expenses to the victor, the victor must first compel the judge to make such a ruling.  The prevailing party must persuade the judge that material and inappropriate conduct has taken place and that the inappropriate conduct is exceptional.  Three elements must be proven before attorney fees and other expenses may be awarded in exceptional cases:

  • deliberate infringement or fraud on the part of the defendant or the plaintiff
  • the case was brought forth in bad faith or without a methodical and thorough investigation into the merits of the claim before pressing ahead with litigation
  • inequitable conduct in procuring the patent

The threshold to prove an exceptional case is the same for patent plaintiffs and defendants.  Patent holders and licensors may not arbitrarily file infringement claims against an entity without practicing thoughtful due diligence.

On the other side, an entity may not knowingly and willfully infringe on the patent of another without negotiating the appropriate licensing fees with the holder of the patent.

If you’ve ever wondered why many traditional upright vacuum [models] are equipped with quirky or inconvenient mechanisms to lower the suction head until it is flush with the floor surface, it’s because many companies do not care to pay the proprietary licensing fee attached to  previously patented, more conventional mechanisms.

It is interesting that the Supreme Court agreed to hear arguments from Highmark and Octane who are 1 for 4 in the lower courts.  The momentum is currently against them recouping attorney fees and other expenses.