Cert Grant in Texas Case Could Impact Attorney Fees in Patent Suits

, Texas Lawyer

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The U.S. Supreme Court will review two important appeals in patent-infringement cases, including one from the Lone Star State. The pair of disputes will determine how much discretion trial courts have in determining what constitute "exceptional cases" — frivolous-claim findings that allow prevailing parties to recover reasonable attorney fees. The grants of certiorari in the Texas case and the Minnesota case came on Oct. 1.

In Highmark Inc. v. Allcare Health Management Systems, U.S. District Judge Terry Means of the Northern District of Texas in Fort Worth awarded a defendant more than $5 million in attorney fees after finding some of the plaintiff's claims were frivolous. Means ruled that the case qualified as "exceptional" under 35 U.S.C. §285 after concluding that Allcare allegedly had pursued frivolous infringement claims and asserted meritless legal positions during the course of the litigation.

In Highmark, Means also issued $35,000 in sanctions against four firms and seven lawyers who represented Allcare, a nonpracticing entity, but he later vacated those sanctions in 2010. [See "About-Face: Firms, Lawyers Persuade Judge to Vacate Sua Sponte Rule 11 Sanctions" Texas Lawyer, Aug. 19, 2010, page 1.]

On appeal the U.S. Court of Appeals for the Federal Circuit in a 2-1 decision affirmed one of Means' "exceptional" findings but reversed another. The Federal Circuit also reversed Means' attorney fee award, because he did not specify the amount of fees were tied to his specific "exceptional" findings.

In the other patent case, Octane Fitness v. Icon Health & Fitness, the U.S. District Court for the District of Minnesota denied a prevailing party's motion for an "exceptional" finding under §285, a decision the Federal Circuit affirmed.

The issue in Octane is whether the Federal Circuit's two-part test for determining whether a case is exceptional contravenes §285's intent by raising the standard for accused infringers — but not patentees — to recoup attorney fees and encourages patent plaintiffs to bring spurious cases to cause competitive harm or coerce unwarranted settlements.

Neal Katyal, a partner in Washington D.C.'s Hogan Lovells who represents Highmark, refers a call for comment to a Highmark spokesman, who declines comment. Donald Dunner, a partner in Washington D.C.'s Finnegan, Henderson, Farabow, Garrett & Dunner who represents Allcare, did not return a call for comment.

Rudy Telscher, a partner in St. Louis' Harness, Dickey & Pierce who represents Octane, says his client's case and Highmark's will be argued before the high court on the same day in February, although the exact date has yet to be determined. Both cases have important implications for how trial court judges award attorney fees in patent cases, Telscher says.

"To our way of thinking the standard for prevailing plaintiffs is easier than for prevailing defendants," Telscher says of the test the Federal Circuit has created before parties are awarded attorney fees. "We challenge whether there should be a subjective bad-faith analysis here. Did someone bring a bad lawsuit intentionally? Why should a prevailing defendant have to show that a plaintiff patent owner brought a bad case?"

Larry Laycock, a partner in Salt Lake City's Maschoff Brennan Laycock Gilmore Israelsen & Wright who represents Icon, did not return a call for comment.

NPE Controversy

The high court's decision to hear Highmark and Octane comes when both the Federal Trade Commission and President Barack Obama have expressed interest in limiting suits brought by nonpracticing entities (NPEs), which are businesses that own patents, do not produce a product and sue alleged infringers.

"The Supreme Court's interest in these cases reflects a growing interest by the federal government in the nonpracticing entity," says Mark Nelson, a patent attorney and partner in Dentons in Dallas.

Octane, however, does not involve an NPE party.

Peter Corcoran, an associate with Winston & Strawn in Houston, clerked for former U.S. District Judge David Folsom in the patent-heavy Eastern District of Texas and Federal Circuit Chief Judge Randall Radar. He says a big issue in both cases is how much leeway the Federal Circuit gives trial courts in finding that a case is exceptional.

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What's being said

  • Avon

    This article is too polite!
    You don't have to actually say that a "non-practicing entity" is the "t-word."
    But that's what the rest of America calls it.
    So it would be useful, if not necessary, to at least mention parenthetically that there IS another word people sometimes use for a "non-practicing entity," and it's TROLL!

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