No. 12-1163

IN THE

Supreme Court of the United States ––––––

HIGHMARK INC., Petitioner,

V. ALLCARE HEALTH MANAGEMENT SYSTEMS, INC.,

Respondent. ––––––

On Writ of Certiorari to the United States Court of Appeals

for the Federal Circuit _________

BRIEF OF AMICUS CURIAE, AMERICAN INTELLECTUAL PROPERTY LAW

ASSOCIATION IN SUPPORT OF NEITHER PARTY __________________

WAYNE P. SOBON, President AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION 241 18th Street, South Suite 700 Arlington, VA 22202 (703) 415-0780

BARBARA A. FIACCO Counsel of Record DONALD R. WARE STACY A. ANDERSON FOLEY HOAG LLP 155 Seaport Boulevard Boston, MA 02210 (617) 832-1000 bfiacco@foleyhoag.com

December 9, 2013

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...................................... iii

STATEMENT OF INTEREST .................................... 1

SUMMARY OF ARGUMENT ..................................... 2

ARGUMENT ............................................................... 3

I. The Highmark Decision Is a Significant Departure from the Well-Established Abuse-of-Discretion Standard Applied to Exceptional Case Determinations. ...................................... 3

II. The Text of Section 285 and its Legislative History Support Deferential Review of a District Court’s Exceptional Case Determination. ................................................. 6

III. The Federal Circuit’s Recent Substitution of De Novo Review Conflicts with this Court’s Precedent Mandating Deferential Review of District Courts’ Fee Awards. ......................... 11

A. This Court’s decisions in Pierce and Cooter mandate deferential review of all aspects of district courts’ determinations under Section 285. ............................... 11

B. As in Cooter and Pierce, the district court is best positioned to decide “objective baselessness.” ............................ 15

ii

C. As in Cooter and Pierce, the objective baselessness inquiry resists generalization that might otherwise support a less deferential review. .................... 22

D.  Under the Cooter and Pierce framework, the return to a more flexible test for the district court’s exceptional case determination would appropriately be reviewed under an abuse-of-discretion standard. ................................... 26 

IV.  Deferential Review of Exceptional Case Determinations Will Advance the Policy Goals of Section 285 by Enhancing the Deterrence Function of the Statute. .............. 28 

V.  This Court’s Reaffirmation of the District Courts’ Discretionary Authority Under Section 285 and the Deferential Standard of Review Will Help Guide District Courts in Managing Abusive Litigation Tactics. ........... 30 

CONCLUSION .......................................................... 34

iii

TABLE OF AUTHORITIES

CASES

Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003 (Fed. Cir. 2012) .......................... 24

Bayer Aktiengesellschaft v. Duphar Int’l Research B.V., 738 F.2d 1237 (Fed. Cir. 1984) ...................... 4, 10

Brooks Furniture Mfg. Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005) ................. 5, 6, 26

Brooktree Corp. v. Advanced Micro Devices, 977 F.2d 1555 (Fed. Cir. 1992) .................... 10, 19

Chambers v. Nasco, Inc., 501 U.S. 32 (1991) ............................................. 29

Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978) ............................................. 7

Computer Docking Station Corp. v. Dell, Inc., 519 F.3d 1366 (Fed. Cir. 2008) .......................... 20

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) .................................... passim

Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed. Cir. 1998) .......................... 19

Dixie Cup Co. v. Paper Container Mfg. Co., 174 F.2d 834 (7th Cir. 1949) ............................... 9

iv

Dubil v. Rayford Camp & Co., 184 F.2d. 899 ((9th Cir. 1950) ............................. 9

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) ........................................... 32

Eltech Sys. Corp v. PPG Indus., Inc., 903 F.2d 805 (Fed. Cir. 1990) ...................... 20, 22

Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314 (Fed. Cir. 2011) .................. 4, 5, 19

Hartman v. Hallmark Cards, Inc., 833 F.2d 117 (8th Cir. 1987) ............................. 10

Highmark, Inc. v. Allcare Health Mgmt., Inc., 687 F.3d. 1300 (Fed. Cir. 2012), reh’g en banc denied, 701 F.3d 1351 (Fed. Cir. 2012) ............................................................ passim

Hoge Warren Zimmermann Co. v. Nourse & Co., 293 F.2d 779 (6th Cir. 1961) ............................... 9

ICU Med., Inc. v. Alaris Med. Sys., Inc., 558 F.3d 1368 (Fed. Cir. 2009) .......................... 20

Johnson v. Jones, 149 F.3d 494 (6th Cir. 1998) ............................. 10

KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007) ..................................... 33, 34

Lipscher v. LRP Publs., Inc., 266 F.3d 1305 (11th Cir. 2001) ......................... 10

v

Mathis v. Spears, 857 F.2d 749 (Fed. Cir. 1988) ............................ 28

Miller v. Fenton, 474 U.S. 104 (1985) ........................................... 23

Multiform Desiccants, Inc. v. Medzam Ltd., 133 F.3d 1473 (Fed. Cir. 1998) ............................ 4

Nat’l Brass Co. v. Michigan Hardware Co., 75 F. Supp. 140 (W.D. Mich. 1948) ..................... 9

Nat’l Hockey League. v. Metropolitan Hockey Club, 427 U.S. 639 (1976) ........................................... 30

Nat’l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185 (Fed. Cir. 1996) .............................. 4

Octane Fitness, LLC v. Icon Health & Fitness, Inc., 12-1184 .............................. 5, 26, 27

Pierce v. Underwood, 487 U.S. 552 (1988) .................................... passim

Procter & Gamble Co. v. Amway Corp., 280 F.3d 519 (5th Cir. 2002) ............................. 10

Prof’l Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993) ............................................. 14

Reader’s Digest Assoc. v. Conservative Digest, 821 F.2d 800 (D.C. Cir. 1987) ........................... 10

vi

Retail Servs. v. Freebies Publ’g, 364 F.3d 535 (4th Cir. 2004) ............................. 10

S Indus. v. Centra 2000, 249 F.3d 625 (7th Cir. 2001) ............................. 10

Securacomm Consulting v. Securacom, 224 F.3d 273 (3d Cir. 2000) ............................... 10

Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358 (Fed. Cir. 2001) .......................... 10

Swann v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1 (1971) ............................................... 29

Symbol Techs., Inc. v. Lemelson Med., 277 F.3d 1361 (Fed. Cir. 2002) ............................ 8

Synthes USA, LLC v. Spinal Kinetics, Inc., -- F.3d, --, 2013 WL 5788675 (Fed. Cir. Oct. 29, 2013) ....................................................... 6

Twin Peaks Prods. v. Publ’ns Int’l, Ltd., 996 F.2d 1366 (2d Cir. 1993) ............................ 10

RULES

Fed. R. Civ. P. 11 ..................................... 13, 14, 22, 33

D. Minn. L. R., 2005 Patent Advisory Committee Preface ............................................... 16

E. D. Tex. Patent R. 3-6(a) & (b).............................. 17

N. D. Cal. Patent L.R. 4-3 ........................................ 17

vii

N. D. Cal. Patent L.R. 4-4 ........................................ 17

N. D. Ill. Patent L.R., Preamble .............................. 17

Sup. Ct. R. 37.3(a) ...................................................... 2

Sup. Ct. R. 37.6 .......................................................... 1

STATUTES

15 U.S.C. § 1117(a) ................................................... 10

28 U.S.C. §2412 ....................................................... 11

35 U.S.C. § 284 ................................................... 24, 28

35 U.S.C. § 285 .................................................. passim

35 U.S.C. 102(g) ....................................................... 22

Pub. L. No. 587, 60 Stat. 778 (codified at 35 U.S.C. § 70 (1946)) ........................................ 7, 8

Pub. L. No. 82-593, 1952 U.S.C.C.A.N. 753 (66 Stat. 792, 813) .................................................. 8

LEGISLATIVE MATERIALS

H.R. Rep. No. 1587 (1946) ......................................... 7

H.R. Rep. No. 1587, Part 2 (1946) ............................. 7

H.R. 5231, 79th Cong. (1946) ..................................... 7

Recovery in Patent Infringement Suits: Hearing on H.R. 5231 Before the Comm. on Patents, 79th Cong. 10-14 (1946) .......................... 7

viii

S. Rep. No. 1503 (1946) .............................................. 7

OTHER AUTHORITIES

Am. Intellectual Property Law Ass’n, Report of the Economic Survey (2013) ............................ 28

Steven Alan Childress & Martha S. Davis, Standards of Review § 4.16 (4th ed. 2010) ......... 29

P.J. Federico, Commentary on the New Patent Act, 75 J. Pat & Trademark Off. Soc’y 161 (1993) ...................................................... 8

Robert M. Isackson, After ‘eBay,’ Injunctions Decrease, 30 Nat’l L. J., Dec. 3, 2007, at S1. ........................................................................ 33

Emery G. Lee & Thomas E. Willging, Fed. Judicial Ctr., Litigation Costs in Civil Cases Multivariate Analysis (2010), available at http://www.fjc.gov/public/pdf.nsf/lookup/ (2010) .................................................................... 28

Stevan D. Porter, Jr., Post-eBay Economic Standards for Assessing Irreparable Harm, 94 J. Pat. & Trademark Off. Soc’y 250 (2011) .................................................................... 33

PricewaterhouseCoopers LLP, 2012 Patent Litigation Study (2012), available at http://www.pwc.com/en_US/us/forensic-services/publications/assets/2012-patent-litigation-study.pdf. ............................................ 17

ix

Randall R. Rader et al., Make Patent Trolls Pay in Court, N.Y. Times, June 4, 2013, at A25 ................ 31 Randall R. Rader, The State of Patent

Litigation, 21 Fed. Cir. B.J. 331 (2011) ............... 31

Greg Upchurch, Effect of KSR on Summary Judgment Decisions on Obviousness, www.legalmetric.com/presentations/ksr_summary_judgment_obviousness.ppt (last visited Nov. 15, 2013) .......................................... 34

James Ware & Brian Davy, The History, Content, Application and Influence of the Northern District of California’s Local Patent Rules, 25 Santa Clara Computer & High Tech. L.J. 965 (2009) .................................. 16

Harold C. Wegner, The Disclosure Requirements of the 1952 Patent Act: Looking Back and a New Statute for the Next Fifty Years, 37 Akron L. Rev. 243 (2004) ..................................................................... 8

STATEMENT OF INTEREST

The American Intellectual Property Law Association (“AIPLA”) is a voluntary bar association with approximately 15,000 members who are lawyers in both private and corporate practice, judges, patent agents, academics, law students, and USPTO professionals. Our members practice in a wide and diverse spectrum of intellectual property fields, including patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property. They represent both owners and users of intellectual property, as well as those who litigate and prosecute before patent and trademark offices, giving AIPLA a unique and varied perspective on patent litigation practices.1

AIPLA has no interest in any party to this litigation or stake in the outcome of this case, other than its interest in seeking a correct and consistent

1 In accordance with Supreme Court Rule 37.6, AIPLA states that this brief was not authored, in whole or in part, by counsel to a party, and that no monetary contribution to the preparation or submission of this brief was made by any person or entity other than AIPLA or its counsel. After reasonable investigation, AIPLA believes that (i) no member of its Board or Amicus Committee who voted to file this brief, or any attorney in the law firm or corporation of such a member, represents a party to this litigation in this matter, (ii) no representative of any party to this litigation participated in the authorship of this brief, and (iii) no one other than AIPLA, or its members who authored this brief and their law firms or employers, made a monetary contribution to the preparation or submission of this brief.

2

interpretation of the law affecting intellectual property.2

SUMMARY OF ARGUMENT

AIPLA urges the Court to reverse the recent decision of the Court of Appeals for the Federal Circuit applying a de novo standard of review to the district court’s “exceptional case” determination, the predicate for an award of attorneys’ fees under 35 U.S.C. § 285. In doing so, this Court should reaffirm the deferential abuse-of-discretion standard of review for Section 285 determinations, as firmly established by statute and more than 60 years of precedent.

The district courts are in the best position to make the fact-bound determinations associated with fee awards under Section 285, including the determination of whether a litigant’s position was objectively baseless in the circumstances of a given case. Because such determinations cannot be generalized to other cases, de novo review of objective baselessness determinations is not justified under this Court’s precedent. Requiring appellate courts to evaluate these questions anew, without the benefit of the trial court’s full knowledge of the record and history of the proceedings, undermines

2 AIPLA sought consent to file this brief from the counsel of record for all parties, pursuant to Supreme Court Rule 37.3(a). Counsel for petitioner filed a general consent letter with the Clerk, and counsel for respondent informed AIPLA of respondent’s consent in an email filed with this brief.

3

the authority of district court judges to award fees as a means to deter spurious claims and defenses, and to manage the conduct of the parties and attorneys who appear before them.

The district courts’ authority to award fees under Section 285 is an important tool to discourage patent litigation abuses that damage our patent system and tax the limited resources of our already over-burdened federal courts. The judges who preside over lengthy, complex, and often contentious patent cases are best situated to make exceptional case determinations and exercise equitable discretion in awarding attorneys’ fees. It is unwise to undermine the discretion of district court judges in overseeing patent cases by adopting a new and unprecedented de novo standard of review under Section 285.

ARGUMENT

I. The Highmark Decision Is a Significant Departure from the Well-Established Abuse-of-Discretion Standard Applied to Exceptional Case Determinations.

In Highmark, Inc. v. Allcare Health Management Systems, Inc., 687 F.3d 1300 (Fed. Cir. 2012), reh’g en banc denied, 701 F.3d 1351 (Fed. Cir. 2012), a highly fractured Federal Circuit held for the first time that de novo review applies to a district court’s finding that a litigant’s position was objectively baseless for purposes of evaluating whether the case is “exceptional” under Section 285. Rather than applying an abuse-of-discretion standard to all aspects of a district court’s decision

4

on fees as it had in the past, the Federal Circuit singled out the “objective baselessness” element of the analysis for de novo review. Its holding cannot be reconciled with this Court’s precedent and the analytical framework this Court has established, nor is it consistent with the deferential standard of review applied for more than 60 years, first by the regional circuits and then by the Federal Circuit after its creation in 1982.

Under Federal Circuit precedent, the district court’s determination whether to award attorneys’ fees under Section 285 is a two-step process. First, the court determines whether the case is exceptional, which the party seeking fees must establish by clear and convincing evidence. Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1323 (Fed. Cir. 2011). Second, if the court finds the case exceptional, it then decides what amount, if any, of attorneys’ fees are appropriate under the circumstances. Nat’l Presto Indus., Inc. v. West Bend Co., 76 F.3d 1185, 1197 (Fed. Cir. 1996) (district court has discretion not to award attorneys’ fees, even where case is exceptional). Traditionally, factors that may result in an exceptional case finding have included instances of inequitable conduct in obtaining the asserted patent, willful infringement, litigation misconduct, vexatious litigation, or the pursuit of frivolous claims. See Multiform Desiccants, Inc. v. Medzam Ltd., 133 F.3d 1473, 1481-82 (Fed. Cir. 1998); Bayer Aktiengesellschaft v. Duphar Int’l Research B.V., 738 F.2d 1237, 1242 (Fed. Cir. 1984).

5

For many years, the Federal Circuit reviewed a district court’s exceptional case finding for clear error and its decision whether to award fees and the amount of fees for abuse of discretion. Eon-Net LP, 653 F.3d at 1323. As a practical matter, though, as this Court has noted, when an appellate court is reviewing a district court’s factual findings, the clearly erroneous standard of review is “indistinguishable” from the abuse-of-discretion standard. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 401 (1990). “A court of appeals would be justified in concluding that a district court had abused its discretion in making a factual finding only if the finding were clearly erroneous.” Id. (emphasis added).3

In a 2005 panel decision, Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), the Federal Circuit articulated the current exceptional case test under Section 285. Under that decision, absent litigation misconduct, willful infringement, or inequitable conduct before the USPTO, sanctions may be imposed only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.4 Id. at 1381. The Federal

3 Likewise, a district court ruling based on a clearly erroneous view of the applicable law is “necessarily” an abuse of discretion. Id. at 405.

4 This test to determine whether a case is “exceptional” within the meaning of Section 285 is currently under review by this Court in Octane Fitness, LLC v. Icon Health & Fitness, Inc., No. 12-1184. AIPLA has concurrently filed an amicus brief in

6

Circuit has subsequently emphasized that the “objective baselessness” analysis includes “the totality of the circumstances surrounding not just the initial allegations of infringement, but the maintenance of those claims throughout the litigation.” See, e.g., Synthes USA, LLC v. Spinal Kinetics, Inc., --F.3d --, 2013 WL 5788675 (Fed. Cir. Oct. 29, 2013).

In Highmark, the Federal Circuit departed from its long-standing abuse-of-discretion review standard and held for the first time that de novo review applies to a district court’s determination of objective baselessness—even though the rest of the determination (including the bad-faith prong of the Brooks Furniture test) is reviewed for clear error. 687 F.3d at 1300. This extension of de novo review to a district court’s determination of objective baselessness of a party’s claim or defense—in cases over which the district court may have presided for years—cannot be reconciled with the statute, this Court’s precedents, or the policy behind Section 285.

II. The Text of Section 285 and its Legislative History Support Deferential Review of a District Court’s Exceptional Case Determination.

Section 285 provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285

that case, seeking the return to a “totality-of-the-circumstances” test for exceptional case determinations under Section 285. See Section III.D, infra.

7

(emphasis added). Because the statute provides that the court may award fees in an exceptional case, the language unmistakably contemplates the exercise of discretion on the part of the district court. See Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 416 n.7 (1978) (explaining that statutes providing that the court may award fees “entrust[] the effectuation of the statutory policy to the discretion of the district courts.”).

The legislative history confirms Congress’s intent to confer discretion upon the district court in deciding whether to award attorneys’ fees. The legislative authorization for an award of attorneys’ fees in patent cases was first codified in 1946. Pub. L. No. 587, 60 Stat. 778 (codified at 35 U.S.C. § 70 (1946)). Section 70 of the Patent Act provided that “[t]he court may in its discretion award reasonable attorney’s fees to the prevailing party upon the entry of judgment on any patent case.” Id.

The House bill provided for “reasonable attorneys fees to be fixed by the court.” H.R. 5231, 79th Cong. (1946). See Recovery in Patent Infringement Suits: Hearing on H.R. 5231 Before the Comm. on Patents, 79th Cong. 10-14 (1946); H.R. Rep. No. 1587, at 1 (1946); H.R. Rep. No. 1587, Part 2, at 1 (1946). The Senate amended the bill to emphasize that “the provision relating to attorney’s fees is made discretionary with the court.” S. Rep. No. 1503 (1946), reprinted in 1946 U.S. Code Congressional Service 1386, 1387. As enacted, Section 70 of the Patent Act provided that “[t]he court may in its discretion award reasonable

8

attorney’s fees.” Pub. L. No. 587, 60 Stat. 778 (codified at 35 U.S.C. 70 (1946)).

In 1952, as part of a general movement to revise and codify the laws of the United States, the patent laws were restated and codified with the passage of the Patent Act of 1952. See P.J. Federico, Commentary on the New Patent Act, 75 J. Pat & Trademark Off. Soc’y 161, 166 (1993). Section 70, recodified as Section 285, was amended to recite the current language of the statute: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” Pub. L. No. 82-593, 1952 U.S.C.C.A.N. 753, 772 (66 Stat. 792, 813) (emphasis added). The legislative history of the 1952 Act underscores that this amendment was not intended to alter the meaning of the statute or diminish the discretion afforded to district courts. P.J. Federico, supra, at 216.5 Thus, as courts interpreting the provision recognized, the 1952

5 Federico was one of the 1952 Act’s original drafters. His commentary was included in the annotated version of volume 35 of the U.S. Code for many years, and when the West Publishing Company ended this practice it was reprinted in the Journal of the Patent and Trademark Office Society. See generally Harold C. Wegner, The Disclosure Requirements of the 1952 Patent Act: Looking Back and a New Statute for the Next Fifty Years, 37 Akron L. Rev. 243, 243 n.1 (2004). Federico’s commentary was reviewed by the other drafters of the 1952 Act prior to its publication and the Federal Circuit has referred to Federico’s commentary as “an invaluable insight into the intentions of the drafters of the Act.” Symbol Techs., Inc. v. Lemelson Med., 277 F.3d 1361, 1366 (Fed. Cir. 2002).

9

amendment did not alter the discretionary nature of fees awards. See Hoge Warren Zimmerman Co. v. Nourse & Co., 293 F.2d 779, 783 (6th Cir. 1961) (The 1952 amendment “has not done away with the discretionary feature.”).

Early decisions by courts of appeals interpreting the statute and its legislative history consistently held that Section 285 confers discretion on the district court to award attorneys’ fees and, for that reason, applied a deferential standard of review. For example, in National Brass Co. v. Michigan Hardware Co., a court considered whether an award was “dictated by equity and good conscience” and denied fees because the case “was the usual and ordinary suit for infringement” and “[t]here appear to be no special circumstances and no equitable considerations which would justify an award.” 75 F. Supp. 140, 142 (W.D. Mich. 1948). See also Dubil v. Rayford Camp & Co., 184 F.2d 899, 903 (9th Cir. 1950) (applying abuse of discretion standard); Dixie Cup Co. v. Paper Container Mfg. Co., 174 F.2d 834, 836 – 37 (7th Cir. 1949) (applying abuse of discretion standard). The federal appellate courts continued to apply a deferential standard after the adoption of the 1952 Act.6 See, e.g, Hoge Warren Zimmermann Co., 293 F.2d at 783.

6 Application of deferential review to district courts’ fee determinations is in accord with the great weight of regional circuit court authority regarding the standard of review for fee determinations under the Lanham Act. Like Section 285 of the Patent Act, Section 35(a) of the Lanham Act states that “[t]he

10

Indeed, from its creation in 1982 until this year, the Court of Appeals for the Federal Circuit consistently afforded deferential review to district courts’ determinations under Section 285. See, e.g., Superior Fireplace Co. v. Majestic Prods. Co., 270 F.3d 1358, 1376 (Fed. Cir. 2001) (“The determination of whether a case is exceptional, and, thus, eligible for an award of attorney fees under § 285 is a factual determination reviewed for clear error. The subsequent determination of whether attorney fees are appropriate is reviewed for an abuse of discretion.”); Brooktree Corp. v. Advanced Micro Devices, 977 F.2d 1555, 1582 (Fed. Cir. 1992) (“The award of attorney fees is within the informed discretion of the trial court”); Bayer Aktiengesellschaft v. Duphar Int’l Research B.V., 738 F.2d 1237, 1242 (Fed. Cir. 1984) (holding that an award of fees “cannot be overturned unless the district court abused its discretion, or made its

court in exceptional cases may award reasonable attorney fees to the prevailing party.” See 15 U.S.C. § 1117(a).

The clear weight of regional circuit authority applying the Lanham Act holds that a district court’s fee determinations are subject to deferential review. See, e.g., Twin Peaks Prods. v. Publ’ns Int’l, Ltd., 996 F.2d 1366, 1383 (2d Cir. 1993); Securacomm Consulting, Inc. v. Securacom, 224 F.3d 273, 279 (3d Cir. 2000); Retail Servs. v. Freebies Publ’g, 364 F.3d 535, 550 (4th Cir. 2004); Procter & Gamble Co. v. Amway Corp., 280 F.3d 519, 527 (5th Cir. 2002); Johnson v. Jones, 149 F.3d 494, 503 (6th Cir. 1998); S Indus. v. Centra 2000, 249 F.3d 625, 627 (7th Cir. 2001); Hartman v. Hallmark Cards, Inc., 833 F.2d 117, 123 (8th Cir. 1987); Lipscher v. LRP Publs., Inc., 266 F.3d 1305, 1319-20 (11th Cir. 2001); Reader’s Digest Ass’n, Inc. v. Conservative Digest, 821 F.2d 800, 808 (D.C. Cir. 1987).

11

determination with an erroneous conception of the law” (internal citation omitted)).

Under the abuse-of-discretion standard, the appellate court’s review of the trial court’s decision is set aside only where it is based on an erroneous view of the law or clearly erroneous findings of fact. Cooter & Gell v. Hartmarx Corp, 496 U.S. 384, 405 (1990). The long tradition of affording deferential review to district courts’ fee determinations under Section 285 is consistent with the statutory language, legislative history, and early circuit court precedent recognizing the district courts’ discretion in making exceptional case determinations, including both their determinations as to the objective baselessness of claims and their awards of attorneys’ fees.

III. The Federal Circuit’s Recent Substitution of De Novo Review Conflicts with this Court’s Precedent Mandating Deferential Review of District Courts’ Fee Awards.

A. This Court’s decisions in Pierce and Cooter mandate deferential review of all aspects of district courts’ determinations under Section 285.

For decades, this Court has held that appellate courts should apply the abuse-of-discretion standard to district court fee awards. In Pierce v. Underwood, this Court considered the standard of review for a district court’s award of fees under the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412, which provides for payment of fees to a prevailing party

12

unless the court determines that the government’s position is “substantially justified.” 487 U.S. 552, 555 (1988). Noting that “[i]t is especially common for issues involving what can broadly be labeled ‘supervision of litigation’ … to be given abuse-of-discretion review,” this Court held that abuse-of-discretion review applied to the question whether the government’s position was substantially justified. Id. at 559 (emphasis added).

The Court explained that several considerations warranted a deferential standard of review in this context. Id. First, the Court noted that the statutory language itself suggested a measure of deference to the district court on appeal. Id. The Court then considered whether “one judicial actor is better positioned than another to decide the issue in question.” Id. at 560. It observed that whether a position is substantially justified will often “turn upon not merely what the law is, but what was the evidence regarding the facts.” Id. “[T]he district court may have insights not conveyed by the record, into such matters as whether particular evidence was worthy of being relied upon, or whether critical facts could easily have been verified ….” Id. In the circumstances where the district court’s full knowledge can be acquired by the appellate court, that would require the appellate court’s review of the entire record at unusual expense. Id.

Even as to legal questions surrounding an award of fees under the EAJA, the Court noted that the question is “not what the law now is, but what the Government was substantially justified in believing it to have been.” Id. at 561. Under the

13

circumstances, any development in the law on de novo review would occur in a “most peculiar, secondhanded fashion” and could encourage needless merits appeals. Id. Finally, the Court noted that the question was “such a multifarious and novel question, little susceptible, for the time being at least, of useful generalization.” Id. at 562-63.

In the second case, Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990), this Court applied the considerations discussed in Pierce to the review of a Rule 11 determination. The Court rejected the proposition that legal conclusions underlying a district court’s award of sanctions under Rule 11 should be reviewed de novo. Instead, the Court held that a “unitary abuse-of-discretion standard [applies] to all aspects of a Rule 11 proceeding.” Id. at 403. The Court reasoned that, like the “substantially justified” determination considered in Pierce, a district court’s determination for Rule 11 purposes that a party’s position is “factually well grounded and legally tenable” is fact-specific. Id. The district court is “better situated than the court of appeals to marshal the pertinent facts and apply the fact-dependent legal standard.” Id. at 402.

The Court also explained that only deferential review would grant the district court “the necessary flexibility to resolve questions involving multifarious, fleeting, special, narrow facts that utterly resist generalization.” Id. at 404. Moreover, because Rule 11 requires the court to make “fact-intensive, close calls” that are “little susceptible … of useful generalization,” district court’s fact-bound resolutions cannot be made uniform through

14

appellate review. As in the EAJA context, an appellate court’s de novo review of Rule 11 decisions would not “establish clear guidelines” for lower courts or “clarify the underlying principles of law.” Id. at 405.

This Court’s decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (“PRE”), 508 U.S. 49 (1993) did not alter the analytical framework set forth in Pierce and Cooter for fee cases. The PRE case involved an appeal of the grant of summary judgment under the doctrine of antitrust immunity. Defining the “sham litigation” exception to the doctrine of antitrust immunity, this Court held that litigation is not a “sham” unless it is objectively baseless. 508 U.S. at 62. Because there were no facts in dispute, this Court concluded that a court could decide the issue of probable cause—an absolute defense to liability—as a matter of law. Id. Under such circumstances, there was no need for a jury to determine whether the complainant had actual malice, and no opportunity for the jury to infer the absence of probable cause from a finding of malice. Id. The PRE Court did not hold that an objective baselessness determination in any context must be reviewed de novo, even when the material facts are disputed. Nor did the PRE Court call into question the Cooter and Pierce framework applicable in the context of fee awards.

15

B. As in Cooter and Pierce, the district court is best positioned to decide “objective baselessness.”

The reasons for deferential review of district court fee determinations set forth in Cooter and Pierce apply equally in patent cases involving Section 285 fee determinations. The question of objective baselessness is not a legal inquiry into whether a litigant’s position was incorrect as a matter of law. Rather, it calls on the trial court to assess whether a reasonable attorney would view the litigant’s position to be without merit under the circumstances. This requires an understanding of the litigant’s evolving knowledge of the facts over the course of the entire litigation as well as any changes in the applicable law over that time.

The court must analyze the reasonableness of the litigant’s legal position during the period when that position was advanced and maintained, as well as the evidentiary basis for that position and the development of evidence over the course of the litigation. This fact-intensive inquiry often requires the district court to assess the testimony and credibility of witnesses on topics ranging from infringement testing to the meaning of claim terms. The district court also must evaluate the strength and availability of evidence during the course of the proceedings in light of the state of the law at the time. As a result, a district court’s determination of objective baselessness, including the maintenance of claims throughout the litigation, is a fact-intensive inquiry that the trial judge is best positioned to decide. Moreover, the district court is less likely to

16

be affected by hindsight bias than is an appellate court reviewing a cold record at a single point in time.

Analyzing the reasonableness of a party’s position over the course of litigation is complicated, as recognized by this Court in Pierce. Pierce, 487 U.S. at 560. This is particularly true in patent cases, which commonly involve lengthy proceedings, voluminous discovery, and the application of evolving substantive law. In many districts, specialized local patent rules, varying considerably from district to district, have been developed to help manage costs and streamline cases. See, e.g., D. Minn. L. R., 2005 Patent Advisory Committee’s Preface (explaining that district’s local patent rules are designed to “ease, simplify, and reduce the cost” of patent cases, which are “frequently complex.”); see also James Ware & Brian Davy, The History, Content, Application and Influence of the Northern District of California’s Local Patent Rules, 25 Santa Clara Computer & High Tech. L.J. 965, 1019-1031 (2009) (noting considerable variation across the districts).

Some districts’ local rules require early disclosure of “core documents” about the asserted patents and accused products, along with detailed infringement and invalidity contentions which may be amended thereafter only by leave of court upon a showing of “good cause.”7 Some districts mandate

7See, e.g., id. at 993 (explaining that Northern District of California local rules require early disclosure of invalidity and infringement contentions and do not permit amendment of

17

early Markman (claim construction) hearings, while other districts allow for Markman hearings after the close of discovery.8

Even with the adoption of local patent rules, the median time to trial is 2.5 years, with a slight trending upward since 2004. PricewaterhouseCoopers, 2012 Patent Litigation Study 21 (2012), available at http://www.pwc.com/en_US/us/forensic-services/ publications/assets/2012-patent-litigation-study.pdf. Because the trial judge has presided over the case—from pleadings to discovery through dispositive motions and trial—and the lawyers for the parties have appeared before her for an extended period, she will have vast, hands-on knowledge that will never appear in the appellate record, including evaluations of the credibility of attorneys and witnesses and knowledge of how the proceedings unfolded. See Pierce, 487 U.S. at 560. She also will have

those contentions absent good cause); see also id. at 1006 (explaining that the Eastern District of Texas permits a party to amend its contentions without leave only when the party believes the court’s claim construction ruling so requires); E.D. Tex. P.R. 3-6(a) and(b).

8Compare N.D. Cal. Patent L.R. 4-3 (2010) (requiring submission of joint claim construction and prehearing statement not later than 60 days after service of invalidity contentions), and 4-4 (closing discovery relating to claim construction 30 days after service of joint claim construction and prehearing statement), with N.D. Ill. Local Patent Rules, Preamble (noting the decision in the Northern District of Illinois to place claim construction near the end of fact discovery).

18

familiarity with the application of the local rules and unique ability to evaluate the impact of those rules on an objective baselessness determination.

For example, a judge in a district requiring early, detailed invalidity contentions may be inclined to view a patentee’s continued pursuit of a claim as unjustified and objectively baseless after the identification of clearly invalidating prior art in the invalidity contentions. A judge in a different district that does not require early disclosure of invalidity contentions may be less disposed to view early stage positions as objectively baseless. The analysis may be impacted by the level of detail provided in the invalidity contentions (as compared to the normal practice in the district) as well as the subsequent availability of expert witness testimony explaining the relevance of the prior art to the claims of the patent in suit. Clearly, the district court is in the best position to assess the reasonableness of a party’s positions in light of the law at the time and as the facts evolve over the course of discovery. See Pierce, 487 U.S. 552, 559 (issues involving what can broadly be labeled “supervision of litigation’” are commonly given abuse-of-discretion review).

As another example, in a case where a plaintiff’s infringement claim hinges on testing results proffered by its expert and a declaration by that expert defeated summary judgment of non-infringement, the trial judge may have unique insight into the basis for the infringement claim based on its observation of the testing expert’s testimony and demeanor on direct and cross-examination at trial. The Federal Circuit—faced

19

with only a “cold record”—can never replace the district court’s ability to assess whether the plaintiff’s claim and its reliance on those tests was baseless.

The Federal Circuit has recognized the unique position of the district courts in making exceptional case determinations, recognizing that it has “only the briefs and the cold record, and with counsel appearing before us for only a short period of time” and is “not in the position to second-guess the trial court’s judgment.” Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1324 (Fed. Cir. 2011). In 1992, the Federal Circuit similarly observed:

For fee-shifting issues particular deference is due to the trial judge, who has the opportunity to observe those intangibles missing from the appellate record. The trial court is in the best position to evaluate the conduct of the parties throughout the period of patent infringement, and to allocate the burdens of litigation commensurate with the interest of justice.

Brooktree Corp. v. Advanced Micro Devices, 977 F.2d 1555, 1582 (Fed. Cir. 1992).

A long line of Federal Circuit precedent acknowledges the fact-intensive nature of this inquiry and the deference that should be accorded a district judge’s exceptional case determination, including on the question of objective baselessness. See, e.g., Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1459 (Fed. Cir. 1998) (“[T]he district court

20

must determine whether a case is exceptional, a factual determination reviewed for clear error.”); Eltech Sys. Corp v. PPG Indus., Inc., 903 F.2d 805, 811 (Fed. Cir. 1990) (“OxyTech has not persuaded us that the court’s exceptional case finding based on all the circumstances cited by the court was clearly erroneous.”); ICU Med., Inc. v. Alaris Med. Sys., Inc., 558 F.3d 1368, 1380 (Fed. Cir. 2009) (district court’s exceptional case finding affirmed where the court did not clearly err in finding claims objectively baseless); Computer Docking Station Corp. v. Dell, Inc., 519 F.3d 1366, 1380 (Fed. Cir. 2008) (“The district court’s finding that the action was not objectively baseless was not clearly erroneous.”).

This line of cases conformed to this Court’s holdings in Pierce and Cooter. Like appellate review of the fact-bound determinations at issue in Pierce and Cooter, de novo review of objective baselessness would require the Federal Circuit to “undertake the unaccustomed task of reviewing the entire record, not just to determine whether there existed the usual minimum support for the merits determination made by the factfinder below, but to determine whether urging of the opposite merits determination” was objectively baseless. Pierce, 487 U.S. at 560. The district court, with its “full knowledge of the factual setting” and “insights not conveyed by the record,” is far better positioned to conduct the necessary inquiry and evaluate the merits of the entire litigation. Id.

The Federal Circuit’s change of course as to the standard of review overemphasized the role of claim construction in analyzing objective baselessness,

21

assuming that the scope of the patent claims is unknown until the district court’s ultimate Markman ruling and perhaps the appellate court’s review of that ruling. That reasoning oversimplifies and unduly narrows the objective baselessness inquiry.

While claim interpretation is often relevant to the inquiry, determining objective baselessness depends not on the ultimate claim construction, but on whether a reasonable attorney would believe that a particular construction had factual or legal basis. In other words, the question for purposes of Section 285 is whether the construction advanced by a litigant falls within a range of possible constructions that were reasonable under existing law and facts at the time. These questions are not abstract inquiries to district judges, who will often have lived with the case for years and will have watched the parties’ positions develop and evolve over the course of that time. Under these circumstances, the district judge is the judicial actor best able to evaluate objective baselessness.

Moreover, many fee awards turn on issues wholly independent of claim construction. These include, among others: pre-suit investigations of the accused product (and the reasonableness of those investigations under the factual circumstances, including the credibility of fact witnesses); knowledge of the accused product’s features and when that knowledge was obtained; the credibility of testimony regarding testing of the accused product in light of the patent claims; prior art disclosures identified during the course of litigation (including

22

prior invention by others under 35 U.S.C. § 102(g)); facts supporting an inequitable conduct claim that were not previously known to the current patent holder; and the credibility of expert witnesses’ testimony on the issues of infringement and invalidity. See, e.g., Eltech Sys. Corp., 903 F.2d at 810-11 (affirming award of fees based on inadequate testing and lack of credibility of expert testimony on infringement).

C. As in Cooter and Pierce, the objective baselessness inquiry resists generalization that might otherwise support a less deferential review.

As in the Rule 11 context, determining objective baselessness requires district courts “to resolve questions involving multifarious, fleeting, special, narrow facts that utterly resist generalization.” Cooter, 496 U.S. at 404. The court’s determination depends on the court’s assessment of all the facts and circumstances of the case. For example, a determination that an infringement allegation in one case was baseless in view of particular test results or the credibility of expert witnesses offers little or no insight into whether an infringement allegation in another case is objectively baseless. Similarly, a determination that an asserted claim construction was objectively baseless in the face of particular evidence and the state of law at one point in time offers no insight into whether an asserted claim construction in a different case will fall within the range of reasonable constructions under the facts and state of the law at a different time.

23

Because these decisions are inherently fact-bound, de novo review cannot “assure uniformity in the treatment of patent litigation, insofar as reasonableness is the governing issue.” Highmark, 701 F.3d at 1356. As this Court has recognized, “[a]n appellate court’s review of whether a legal position was reasonable … under the circumstances is unlikely to establish clear guidelines for lower courts nor will it clarify the underlying principles of law.” Cooter, 496 U.S. at 405 (emphasis added); see also Pierce, 487 U.S. at 562.

The Federal Circuit’s characterization of objective baselessness as a “question of law based on underlying mixed questions of law and fact” does not justify de novo review and runs contrary to this Court’s precedent. Highmark, 687 F.3d at 1309. Before Cooter, some circuit courts applied different standards of review to different issues in Rule 11 proceedings and refused to defer to district court’s conclusions on mixed questions on fact and law. 496 U.S. at 401. Noting the difficulty of distinguishing between factual findings and legal conclusions, this Court flatly rejected that approach. Instead, the Court held that abuse-of-discretion review applied to all aspects of a district court’s ruling in Rule 11 proceedings. Id. at 401; see also Miller v. Fenton, 474 U.S. 104, 114 (1985) (“[T]he fact/law distinction at times has turned on a determination that, as a matter of the sound administration of justice, one judicial actor is better positioned to decide the issue in question.”). The logic of Cooter applies equally in the context of an award of fees under Section 285.

24

The Highmark court’s reliance on the Federal Circuit’s earlier willfulness precedent, Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc., 682 F.3d 1003 (Fed. Cir. 2012), is misguided. The Bard decision concerns a different issue, and it does not trump the analytical framework established by this Court in Cooter and Pierce.

In Bard, the Federal Circuit clarified the legal standard for the objective prong of its two-prong test for proof of willful infringement and stated that this prong implicates a question of law for the district court to decide, subject to de novo appellate review. 682 F.3d at 1006-7.9 The court focused largely on the proper allocation of decision-making between the district court judge and the jury, not between the district court and the appellate court. See id. at 1006-8. Determining whether a question is one for the trial court or the jury is distinct from the question of the appropriate standard of review on appeal. In its brief discussion of the standard of

9 Section 284 provides that “the court may increase damages up to three times the amount found or assessed.” 35 U.S.C. § 284. Under Federal Circuit precedent, the court may award such enhanced damages if the court finds willful infringement. Bard, 682 F.2d at 1005. The Federal Circuit’s two-prong test for willful infringement requires a threshold showing that the infringer acted “despite an objectively high likelihood that its actions constituted infringement of a valid patent.” Id. After satisfying the objective standard, the patentee must “demonstrate that this objectively-defined risk … was either known or so obvious that it should have been known to the accused infringer.” Id. (internal quotations and citation omitted).

25

review, a question it did not need to reach as part of its order vacating and remanding to the district court, the court suggested, without explanation, that there is a need for unified precedent in the context of willful infringement decisions. Id. at 1008. In the Section 285 context, by contrast, the inquiry into objective baselessness involves analysis of a range of reasonable positions that may be have been formulated based upon known facts and the state of the law at a different points in time over the course of years of litigation. This fact-intensive, equity-focused inquiry renders elusive any quest for unified precedent.

The large size of fee awards, another factor cited by the Highmark court, does not justify de novo review. See Highmark, 687 F.3d at 1310 n.1. The amount at stake would only weigh in favor of de novo review if the appellate court were in a position to make a more reliable decision, or were at least equally well-suited to decide the issue as the district court. In the context of Section 285, the magnitude of some awards reflects the amount at stake, the complexity of the issues, and how intensely the case has been litigated. These considerations only reinforce how difficult, if not impossible, it will be for the appellate court to obtain the knowledge acquired by the district court in the course of multiple hearings over years of litigation. De novo review under these circumstances would only heighten the odds that fee awards will be upset on appeal, discouraging trial judges from exercising their authority under Section 285 in the first place and increasing the likelihood that prevailing litigants

26

will bear the burden of unreasonably and unnecessarily costly patent litigation.

Returning to an abuse-of-discretion standard does not mean that the district court’s decision will go unreviewed, or that mistakes of fact or law will be overlooked on appeal. As this Court has noted, a district court would “necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.” Cooter, 496 U.S. at 405. The deferential standard simply recognizes that the district court is in the best position to decide the question, and its determination should not be easily second-guessed based upon review of the cold record by a judicial actor far removed from events as they unfolded.

D. Under the Cooter and Pierce framework, the return to a more flexible test for the district court’s exceptional case determination would appropriately be reviewed under an abuse-of-discretion standard.

AIPLA appreciates that the test for exceptional case articulated in Brooks Furniture Manufacturing Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), is under review by this Court in the pending case Octane Fitness, LLC v. Icon Health & Fitness, Inc., 12-1184. Should this Court reject the Brooks Furniture test in favor of a more flexible approach, as proposed by AIPLA in its concurrently-filed amicus brief in that case, the reasons for deferential review of district court fee determinations will be even stronger. Adoption of a more flexible test that examines the totality of the

27

circumstances will require district courts to weigh multiple factors and reach an equitable result. In view of the district court’s “full knowledge of the factual setting,” that court is far better positioned than an appellate court to make an equitable determination based on the entire record. Pierce, 487 U.S. at 561.

A flexible test based upon multiple factors and equitable considerations is simply not susceptible to useful generalization by a court of appeals. A totality-of-the-circumstances test will by definition be limited to the circumstances of a particular case, and de novo review of any or all aspects of such a determination will offer no insight into whether fees are appropriate in a different case litigated under different circumstances.

If, in Octane, this Court endorses a flexible test under which objective baselessness is one of many considerations, de novo review of objective baselessness would “distort the appellate process” by encouraging satellite litigation around the application of that test to a particular case, often requiring the review of an extensive record. Appellate litigation of this nature would not advance the law, nor would it enhance the reliability of fee determinations. Moreover, a flexible test is “likely to profit from the experience that an abuse-of-discretion rule will permit to develop.” Id. at 562 (explaining that application of an abuse-of-discretion standard to a question not susceptible to generalization will permit needed flexibility for district courts).

28

IV. Deferential Review of Exceptional Case Determinations Will Advance the Policy Goals of Section 285 by Enhancing the Deterrence Function of the Statute.

Patent cases routinely cost millions of dollars to litigate. AIPLA’s bi-annual economic survey reveals that the median cost of a patent infringement action ranges from $2 million for a case with $1 million to $10 million at risk up to $5.5 million for cases with more than $25 million at risk. Am. Intellectual Property Law Ass’n, Report of the Economic Survey 34 (2013). Indeed, in a 2010 Study for the Federal Judicial Center, it was noted that intellectual property cases report costs almost 62% higher than baseline categories of cases. Emery G. Lee & Thomas E. Willging, Fed. Judicial Ctr., Litigation Costs in Civil Cases: Multivariate Analysis 8 (2010), available at http://www.fjc.gov/public/pdf.nsf/lookup/ costciv1/$file/.

When a patent holder pursues a meritless case, when an accused infringer asserts meritless defenses to avoid accountability, or when any party uses “scorched earth” litigation tactics to gain unfair settlement leverage in a litigation, the opposing party is forced to defend itself or enforce its statutory rights at “monstrous expense.” Mathis v. Spears, 857 F.2d 749, 754 (Fed. Cir. 1988). An award of attorneys’ fees under Section 285 serves to deter litigants from such abusive and improper litigation practices. See id. (“Provisions for increased damages under 35 U.S.C. § 284 and attorney fees under 35 U.S.C. § 285 are available as deterrents to blatant, blind, willful infringement of valid patents. The only

29

deterrent to the equally improper bringing of clearly unwarranted suits on obviously invalid or unenforceable patents is Section 285.”).

This deterrence goal is best served by deferential review of district courts’ fee determinations. An abuse-of-discretion standard communicates to the district court and the parties that the court has broad authority to award fees where necessary to prevent injustice and undue expense. By contrast, if the Federal Circuit reviews district judges’ findings of objective baselessness de novo, it removes authority from the judicial actor best positioned to make the fact-based determinations at issue.10 See supra Section III.B.

10 Because Section 285 rests on equitable principles of justice and fairness, the district court’s discretionary fee determinations should be afforded the same deference that is afforded to other remedial decisions in equity. See, e.g., Chambers v. Nasco, Inc., 501 U.S. 32, 55 (1991) (“We review a court’s imposition of sanctions under its inherent power for abuse of discretion.”). As leading treatise explains:

The district court, when fashioning appropriate permanent relief for an injury found actionable and redressable, is sitting in equity. … [T]he scope of a district court’s equitable powers to remedy past wrongs is broad, for breadth and flexibility are inherent in equitable remedies.’

1 Steven Alan Childress & Martha S. Davis, Standards of Review § 4.16 (4th ed. 2010) (quoting Swann v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1, 15 (1971)).

30

A deferential standard of review also enhances the deterrence goal by creating greater certainty earlier in the course of a prolonged litigation. When litigants know that a district court is empowered to award fees for the continued pursuit of baseless claims and that the award is likely to stand on appeal, they will be encouraged to settle those claims and avoid fees. By contrast, the expectation that a district court’s fee award can be relitigated before the appellate court increases uncertainty and only emboldens those who are inclined toward abusive litigation practices, by encouraging appeals and reducing the litigant’s apprehension that the district court will issue a fee award that withstands appellate review. Cf. National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 643 (1976) (recognizing that overturning a sanction of dismissal would lead litigants in other cases to feel freer to flout discovery orders of other courts).

V. This Court’s Reaffirmation of the District Courts’ Discretionary Authority Under Section 285 and the Deferential Standard of Review Will Help Guide District Courts in Managing Abusive Litigation Tactics.

The past decade has seen rising concern in the profession that the patent system is vulnerable to abuses by parties who pursue frivolous claims or defenses or otherwise attempt to use the high cost (in terms of both time and money) of patent litigation as a business strategy. As Chief Judge Rader of the Court of Appeals for the Federal Circuit admonished at the 2011 Judicial Conference of the Eastern District of Texas—a district having one of

31

the highest rates of patent complaint filings: “[w]e need to ensure that patent law continues to serve its purpose of fostering innovation and that patent litigation does not become an unwieldy, unpredictable, and unaffordable burden on innovation.” Randall R. Rader, The State of Patent Litigation, 21 Fed. Cir. B.J. 331, 345 (2011) (emphasis added).

Indeed, there are multiple bills pending before Congress today proposing various new tools to address perceived patent litigation abuses, including fee-shifting provisions and other procedures to dictate the courts’ handling of patent cases. AIPLA respectfully suggests that the courts need not await legislative solutions to perceived flaws that can be constructively addressed through existing case management tools, including Section 285.

To restore the balance between patent enforcement litigation that fosters innovation and that which imposes undue burdens on it, AIPLA urges this Court to (1) reaffirm the discretionary authority afforded the district courts to make exceptional case determinations and award fees under existing law and (2) clarify the deferential standard of review applicable to those determinations on appeal. Section 285 already gives district judges the authority they need to curtail litigation abuse. However, as Chief Judge Rader has noted, they exercise that authority only rarely today. The data show that, in 2011, fees were shifted under Section 285 in only 20 cases annually out of nearly 3,000 patent cases filed. Randall R. Rader et al., Make Patent Trolls Pay in Court, N.Y. Times, June

32

4, 2013, at A25. District judges’ reluctance to shift fees under Section 285 will only grow if the de novo standard of review were legitimized by this Court and they were to face even greater likelihood of reversal on appeal.

In recent years, in the face of public and sometimes legislative debate, this Court’s articulation and reaffirmation of basic legal principles has often altered the conduct of patent litigation and role of the federal bench.

In the mid-2000s, for example, there were growing concerns about the development of a new industry in which the assertion of patents was directed primarily to obtaining licensing fees. While patent licensing has long contributed to the dissemination of ideas and the commercialization of new technologies, in some cases these patent assertion entities used the threat of an injunction “as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 396-97 (2006) (Kennedy, J., concurring). This Court reaffirmed that traditional principles of equity apply to the district courts’ grant of injunctive relief in patent cases no less than in other cases, reversing the Federal Circuit’s presumptive rule that a patentee was entitled to injunctive relief except in unusual cases.

Following this Court’s guidance, district courts no longer presumed irreparable injury to the patent owner and instead, in weighing the arguments for an injunction, balanced such factors as whether the

33

patent owner was facing actual competition from the infringer and whether an adequate remedy at law existed to remedy the infringement. This Court’s decision had a palpable effect on the district courts’ conduct of patent litigation: prior to eBay, the district courts granted permanent injunctions in 84% of patent cases in which the patent holder prevailed. Robert M. Isackson, After ‘eBay,’ Injunctions Decrease, 30 Nat’l L. J., Dec. 3, 2007 at S1. As of early December 2011, that figure had declined to 75%. Stevan D. Porter, Jr., Post-Ebay Economic Standards for Assessing Irreparable Harm, 94 J. Pat. & Trademark Off. Soc’y 250, 251 (2011). After eBay, the existence of actual competition between the parties has been a defining feature in cases where injunctive relief was granted. Id. In most of the remaining cases in which injunctive relief was denied, by contrast, the patent holder was described as a non-practicing entity. Id.

As another example, in 2007, at a time when concerns were being expressed about patent quality in technologies where there is little traditional published prior art, this Court clarified the standard for determining obviousness. In rejecting the rigid “Teaching/Suggestion/Motivation” test and returning to a flexible, common sense approach, this Court noted that “[t]he diversity of inventive pursuits and of modern technology counsels against limiting the analysis … .” KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 419 (2007). In KSR, the Court also affirmed that summary judgment is an appropriate vehicle to resolve obviousness where the content of the prior art, the scope of the patent claim and the level of ordinary skill in the art are not in material dispute.

34

Id. at 427. After KSR, the percentage of cases in which district courts granted summary judgment of obviousness rose markedly from 12% to 26%. See Greg Upchurch, Effect of KSR on Summary Judgment Decisions on Obviousness, www.legalmetric.com/presentations/ksr_summary_judgment_obviousness.ppt (last visited Nov. 15, 2013).

In sum, this Court plays an instrumental role in shaping and guiding the actions and attitudes of the federal bench in their efforts to manage patent litigation. By reaffirming the district courts’ discretion in making exceptional case determinations, this Court can reinvigorate Section 285 as a case management tool to reign in abusive litigation conduct by parties in patent disputes. AIPLA urges the Court to take this opportunity to help manage and alleviate the costs of patent litigation and reduce the burden on our over-taxed federal district courts.

CONCLUSION

For the foregoing reasons, AIPLA respectfully requests that the Court overrule the Federal Circuit’s application in Highmark of de novo review to the district courts’ “objective baselessness” determination and require that all aspects of a district court’s rulings under Section 285 be reviewed under the abuse-of-discretion standard.

35

Respectfully submitted,

WAYNE P. SOBON, President AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION 241 18th Street, South Suite 700 Arlington, VA 22202 (703) 415-0780

BARBARA A. FIACCO Counsel of Record DONALD R. WARE STACY A. ANDERSON FOLEY HOAG LLP 155 Seaport Boulevard Boston, MA 02210 (617) 832-1000 bfiacco@foleyhoag.com

December 9, 2013