Octane Fitness prevails in U.S. Supreme Court fee-shifting case

The standard for awarding attorneys’ fees for prevailing defendants in patent cases is “unduly rigid,” the U.S. Supreme Court found in a decision announced Tuesday that involved a manufacturer represented by a team of Missouri attorneys.

The court reversed and remanded the decision by the U.S. Court of Appeals for the Federal Circuit in Octane Fitness v. Icon Health and Fitness, which had denied the prevailing party’s attorneys’ fees.

The case was closely watched because of its likely bearing on so-called “patent trolls,” companies that file lots of infringement suits. With the high standard in place, filing such suits came with little financial risk — even if the trolls lost, they would be unlikely to have to pay attorneys’ fees.

A team of St. Louis attorneys at Harness, Dickey & Pierce represented Octane Fitness, which was seeking $2 million in fees when the Supreme Court granted cert.

“The standard is much, much easier but still appropriately hard,” Rudolph A. Telscher of Harness Dickey, who argued the case, said in an interview Tuesday. He asked the Supreme Court to award fees, now up to more than $2.5 million, in their decision. The court did not do so, which Telscher said was not unexpected.

In the underlying case between the two fitness equipment manufacturers, Icon had sued Octane in the U.S. District Court for the District of Minnesota, claiming patent infringement related to an elliptical exercise machine. That court found Octane had not infringed, but it rebuffed Octane’s attempt to collect attorneys’ fees in the case.  Both parties appealed, and the U.S. Court of Appeals for the Federal Circuit upheld the infringement decision as well as the fee rejection.

The federal circuit — which has exclusive appellate jurisdiction in patent cases — can award attorneys’ fees to prevailing parties in “exceptional” cases, according to 35 U.S. Code 285, from 1952. In 2005, the federal circuit set up a test for exceptionality in Brooks Furniture Manufacturing v. Dutailier International. In that case, where a patented chair design was at issue, the court created a two-pronged standard: If the case was filed in subjective bad faith, and if the claim was objectively baseless, courts could award fees to prevailing parties.

“The framework established by the Federal Circuit in Brooks Furniture is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district courts,” the decision, written by Justice Sonia Sotomayor, reads. The Court found that Brooks is not consistent with Section 285 of the Patent Act.

All the justices joined Sotomayor’s opinion, although Justice Antonin Scalia agreed with the exception of three footnotes.

In a related opinion, the court also limited the ability of an appeals court to overturn a trial judge’s decision in such cases. In that case, Highmark v. Allcare Health Management Systems, the court said the Federal Circuit should be more deferential to trial judges on the issue and review such decisions only to see whether there was an abuse of discretion.

The cases are Octane Fitness v. Icon Health & Fitness, 12-1184, and Highmark v. Allcare Health Management Systems, 12-1163.

Bloomberg News contributed to this report.