Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc.

• Decision Date: 06 December 2012
• Docket Number: No. 2011–1219.,2011–1219.
• Citation: 701 F.3d 1351
• Parties: HIGHMARK, INC., Plaintiff–Appellee, v. ALLCARE HEALTH MANAGEMENT SYSTEMS, INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

701 F.3d 1351

HIGHMARK, INC., Plaintiff–Appellee,

v.ALLCARE HEALTH MANAGEMENT SYSTEMS, INC., Defendant–Appellant.

No. 2011–1219.

United States Court of Appeals, Federal Circuit.

Dec. 6, 2012.

Appeal from the United States District Court for the Northern District of Texas in case no. 03–CV–1384, Judge Terry Means.

ON PETITION FOR PANEL REHEARING and ON PETITION FOR PANEL REHEARING AND REHEARING EN BANC

Cynthia E. Kernick, Reed Smith LLP, of Pittsburgh, PA, filed a combined petition for panel rehearing and rehearing en banc for plaintiff-appellee and a response to defendant-appellant's petition for panel rehearing. With her on the petition and response were James C. Martin, Kevin S. Katona and Thomas M. Pohl.

Donald R. Dunner, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, of Washington, DC, filed a petition for panel rehearing for defendant-appellant and a response to plaintiff-appellee's combined petition for rehearing. With him on the petition and response was Erik R. Puknys, of Palo Alto, CA. Of counsel on the petition and response was Dan S. Boyd, The Boyd Law Firm, P.C., of Dallas, TX.

Before RADER, Chief Judge, NEWMAN, MAYER, LOURIE, BRYSON, LINN, DYK, PROST, MOORE, O'MALLEY, REYNA, and WALLACH, Circuit Judges.

DYK, Circuit Judge, with whom NEWMAN, Circuit Judge, joins, concurs in the denial of the petition for rehearing en banc.

MOORE, Circuit Judge, with whom RADER, Chief Judge, O'MALLEY, REYNA, and WALLACH, Circuit Judges, join, dissents from the denial of the petition for rehearing en banc.

REYNA, Circuit Judge, with whom MOORE, O'MALLEY, and WALLACH, Circuit Judges, join, dissents from the denial of the petition for rehearing en banc. RADER, Chief Judge, joins in Parts I–II of the dissent.

ORDER

PER CURIAM.

A petition for panel rehearing was filed by Defendant–Appellant Allcare Health Management Systems, Inc. (“Allcare”), and a response thereto was invited by the panel and filed by Plaintiff–Appellee Highmark, Inc. (“Highmark”). A combined petition for panel rehearing and rehearing en banc was also filed by Highmark, and a response thereto was invited by the court and filed by Allcare.

The petitions for panel rehearing and responses were referred to the panel that heard the appeal, and thereafter the petition for rehearing en banc and the response were referred to the circuit judges who are authorized to request a poll of whether to rehear the appeal en banc.^* A poll was requested, taken, and failed.

Upon consideration thereof,

It Is Ordered That:

(1) The petitions of Allcare and Highmark for panel rehearing are denied.

(2) The petition of Highmark for rehearing en banc is denied.

(3) The mandate of the court will issue on December 13, 2012.

DYK, Circuit Judge, with whom NEWMAN, Circuit Judge, joins, concurring in the denial of the petition for rehearing en banc.

We agree that rehearing en banc is properly denied. We write briefly to respond to the dissents.

I

Section 284, 35 U.S.C., allows the award of enhanced damages at the conclusion of a patent case based on a finding of willful infringement. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed.Cir.2007) (en banc); see also Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576, 1578 (Fed.Cir.1991) (collecting cases). Section 285, 35 U.S.C., allows the award of attorneys' fees at the conclusion of the case, against either a patentee or an accused infringer, if the court finds the case “exceptional.” Following the Supreme Court's decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (“PRE”), 508 U.S. 49, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993), we have long held that the standard for both inquiries is the same, and that it requires a dual determination that the position of the sanctioned party is (1) objectively unreasonable, and (2) asserted in subjective bad faith. See, e.g., Old Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539, 543–44 (Fed.Cir.2011); iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1377 (Fed.Cir.2011); Seagate, 497 F.3d at 1370–71;Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378, 1381 (Fed.Cir.2005).

We all agree that the ultimate decision to award enhanced damages and attorneys' fees (once the predicate tests have been satisfied) is committed to the district court's discretion, and that the district court's findings on the bad faith component are subject to review for clear error. See Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1310 (Fed.Cir.2012). The dissents also seem to agree that the objective reasonableness determination should be made by the court, not the jury. The question on which we divide is whether that determination should be subject to de novo review, as this court held in Bard, and as this panel (following Bard ) held here. See Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003, 1005 (Fed.Cir.2012).¹ In particular, the question in this case is whether claim construction, which is a question of law in a merits determination, see Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454–55 (Fed.Cir.1998) (en banc), should nonetheless be treated as something else in an objective reasonableness determination.

That such legal questions invoke de novo review is clear. Our cases based the objective reasonableness standard directly on the Supreme Court's decision in PRE, 508 U.S. at 60–63, 113 S.Ct. 1920.PRE held that litigation could not be sanctioned unless a suit was objectively baseless, and objective baselessness requires a probable cause determination. Id. at 62, 113 S.Ct. 1920.PRE also held that “[w]here, as here, there is no dispute over the predicate facts of the underlying legal proceeding, a court may decide probable cause as a matter of law.” Id. at 63, 113 S.Ct. 1920. Under PRE, the reasonableness of a legal position in the context of a probable cause determination is itself a question of law, as the Supreme Court has recently confirmed. See Scott v. Harris, 550 U.S. 372, 381 n. 8, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (once the relevant facts are determined and inferences drawn “in favor of the nonmoving party to the extent supportable by the record, the reasonableness of Scott's actions ... is a pure question of law”); see also Stewart v. Sonneborn, 98 U.S. 187, 194, 25 L.Ed. 116 (1878) (“[P]robable cause is a question of law in a very important sense.... Whether the circumstances alleged to show it probable are true, and existed, is a matter of fact; but whether, supposing them to be true, they amount to a probable cause, is a question of law.”) (internal quotation marks omitted). Judge Moore's suggestion that PRE did not decide what it explicitly decided is not well taken. And Judge Moore cites no authority for the proposition that under PRE, a determination of probable cause for legal arguments is not subject to de novo review.

II

Judge Moore, Judge Reyna, and Judge Mayer in his panel dissent, urge that both this decision and Bard are inconsistent with our prior authority. This is incorrect.² More fundamentally, they assert that the de novo standard is inconsistent with the Supreme Court's decisions in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990), and Pierce v. Underwood, 487 U.S. 552, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988), which dealt with the standard of review for awards of attorneys' fees under Rule 11 and the Equal Access to Justice Act (“EAJA”). But those cases arose in quite different contexts, and are no basis for reading sections 284 and 285 as requiring deference to district courts on the objective reasonableness issue.

First, the language of sections 284 and 285 does not mandate deference to the district court's discretion on questions of law. To the contrary, section 285 was amended to replace an open-ended discretionary standard, and to restrict the discretion in the district courts. Section 285, as originally enacted, provided that the district court “may in its discretion award reasonable attorney[s'] fees.” Patent Act of Aug. 1, 1946, ch. 726, 60 Stat. 778. The 1952 Patent Act deleted the “in its discretion” language and replaced it with the “exceptional case” standard that exists today. 35 U.S.C. § 285 (2006) (“The court in exceptional cases may award reasonable attorney fees to the prevailing party.”); see also Rohm & Haas Co. v. Crystal Chem. Co., 736 F.2d 688, 691 (1984); Alan M. Ahart, Attorneys' Fees: The Patent Experience, 57 J. Pat. Off. Soc'y 608, 617 n. 37 (1975).

Second, the relevant policy considerations behind sections 284 and 285 are quite different from those involved in EAJA and Rule 11. Those provisions are addressed to the award of attorneys' fees, not enhanced damages, as provided in section 284. Even as to the attorneys' fees provision of section 285, the considerations are different. Rule 11 deters abusive litigation practices, Cooter & Gell, 496 U.S. at 393, 110 S.Ct. 2447, and EAJA discourages the government from initiating unjustified litigation by evening the playing field, “eliminat[ing] for the average person the financial disincentive to challenge unreasonable governmental actions.” Comm'r, INS v. Jean, 496 U.S. 154, 163, 110 S.Ct. 2316, 110 L.Ed.2d 134 (1990). In contrast, section 285, while it serves deterrent purposes, is a primarily compensatory provision. See, e.g., Mathis v. Spears, 857 F.2d 749, 753 (Fed.Cir.1988) (“The purpose of Section 285 is to reimburse a party injured when forced to undergo an ‘exceptional’ case.” (emphasis omitted)). Early on, it was recognized that attorneys' fee awards were “not to be regarded as a penalty for failure to win a patent infringement suit,” and should only be allowed where it would be “grossly unjust that the winner ... be left to bear the burden of his own counsel fees.” Rohm & Haas, 736 F.2d at 691 (quoting Park–In Theatres, Inc. v. Perkins, 190 F.2d 137, 142 (9th Cir.1951)).

Third, unlike sanctions under Rule 11 or attorneys' fees...