Patent Trolling in the Wake of the Octane Fitness Case
| Citation | Vol. 40 No. 3 |
| Publication year | 2015 |
| Author | ROBERT W. FLETCHER IPISC |
ROBERT W. FLETCHER IPISC
Octane Fitness, LLC v. Icon Health & Fitness, Inc.1 was decided by the U.S. Supreme Court on April 29, 2014. Since that time, it has become more and more of a landmark decision. While the case itself was between competitors the issue to be decided was more far reaching. It required resolution of the question of whether or not the lower court erred in holding that the facts did not support the case being "exceptional" under 35 U.S.C. § 285. The Supreme Court reversed the Court of Appeals for the Federal Circuit (CAFC), which had affirmed that the case was not exceptional. The decision opened the door to a significant uptick in the finding of exceptional cases and thus fee awards. It further has had a significant impact upon the practice of patent trolling and actions of the Executive and Legislative branches of government in addressing such practices. It is important to take cognizance of the fact that everything done to curtail the practice of patent trolling has the potential to have a negative impact upon the legitimate efforts to monetize inventions by making patent enforcement more difficult.
Much has been written about the Octane Fitness case (Octane Fitness vs. Icon Health and Fitness) and its companion case Highmark vs. All Care Health Management.2 The cases have significance for certain questionable patent litigation practices. These practices have gained the label of "patent trolling." Patent trolling is the term applied to parties who recognize that the high cost of litigation creates the perfect platform from which to launch extortionist-type activities in which non-manufacturing entities purchase relatively unworthy patents and assert them against unsuspecting parties and then settle the cases using as leverage the high cost of the legal defense. These parties have from time to time been referred to by various names, such as non-producing entities (NPEs) or patent assertion entities (PAEs), but "Patent Trolls" seems to be a more colorful and, from the defendant's point of view, an appropriate label.
The issue in Octane Fitness was the standard to be used in applying 35 U.S.C. § 2853 when determining when a case was exceptional and thus enabling the court to award attorney's fees to a defendant. The Highmark case involved the standard of review on appeal.
It was first reported4 that the U.S. Supreme Court agreed with the patent holder in both cases. In the Octane Fitness case that is not correct. In Octane Fitness, the issue squarely before the court was the lower court's holding that the case was "not exceptional." The Supreme Court reversed the CAFC's affirmance of the lower court decision and remanded. This gave the defendant and petitioner Octane Fitness an opportunity to show that the case was "exceptional" under less rigorous standards for applying Section 285.
The case was interesting in that it is typically viewed as a troll case. However, even though Icon Health and Fitness and Octane Fitness are both manufacturers and thus competitors, Icon Health and Fitness was acting in a troll-like fashion. The evidence revealed that Icon Fitness was feeling competitive pressure from Octane Fitness in the marketplace and that Icon Fitness searched for a patent that it could assert against Octane Fitness. The patent Icon Fitness found did not cover its products nor had it ever made a product using the patent's claimed design. icon's strategy was to sue Octane Fitness out of business rather than to compete with it on the basis of better price and quality. However, the district court found that the Octane Fitness product did not infringe the patent. So while the case was not premised upon acts of trolling per se it clearly and cleanly raised the issue of when a case should be found to be exceptional.
As is well known, the U.S. Supreme Court does not take cases simply to decide disputes between parties, but rather it takes cases where a fundamental issue exists which, when decided, will provide clarity and instruction to the lower courts and the public in general concerning the law that applies to that issue. Here, presumably, the underlying premise was that clarification of what it takes to show an exceptional case would result in a higher probability that patent trolling cases would be found to be "exceptional." Such behavior then would be easier to thwart using existing law. In the Octane Fitness case, the Supreme Court did more than squarely rule that the legal standard for exceptionality applied by the CAFC was incorrect, thus
[Page 24]
opening the door for Octane to recoup its legal expenses in defending itself against Icon. The Court also held in Hallmark Inc v. Allcare Health Management System Inc. that the CAFC should give deference to the district's court's findings.5 Ironically the Supreme Court was overruling the district court's finding in Octane but was nevertheless saying in Highmark that deference should be given to the federal district courts.
If deference is given to the lower court's finding, then the review by a higher court is limited to the abuse of discretion standard. It is much more difficult to prove that a federal district court abused its discretion than to prove it made a legal error. Hearing a case de novo means that the appeal court is not required to give deference to the lower court's opinion. Essentially the appeal court can consider the case as if the lower court's opinion never existed. One could say that it gives the defendant two bites at the apple. In Highmark, however, the court made it quite clear that the standard for review was for abuse of discretion and not de novo.6 This holding empowers the lower courts to have a bigger voice in the outcome of cases on appeal and, arguably, rightfully so because the district court heard and saw the evidence and the presentation of the case at trial. It is closer to the facts.
Many court watchers have concluded that the U.S. Supreme Court does not respect the jurisprudence of the CAFC and thus frequently overrules the CAFC. The holding on giving deference to the district courts on appeal in determining exceptional case status would seem to limit the CAFC's power to reverse federal district courts.
The U.S. Supreme Court did not stop there, however, because the holding further instructed that the required standard of proof is...
To continue reading
Request your trial