Octane Fitness, LLC v. Icon Health

• Court: U.S. Supreme Court
• Writing for the Court: Justice SOTOMAYOR delivered the opinion of the Court.
• Citation: Octane Fitness, LLC v. Icon Health, 134 S.Ct. 1749, 188 L.Ed.2d 816, 572 U.S. 545 (2014)
• Decision Date: 29 April 2014
• Docket Number: No. 12–1184.,12–1184.
• Parties: OCTANE FITNESS, LLC, Petitioner v. ICON HEALTH & FITNESS, INC.

572 U.S. 545

134 S.Ct. 1749

188 L.Ed.2d 816

OCTANE FITNESS, LLC, Petitioner

v.ICON HEALTH & FITNESS, INC.

No. 12–1184.

Supreme Court of the United States

Argued Feb. 26, 2014.

Decided April 29, 2014.

Rudolph A. Telscher, Jr., St. Louis, MO, for Petitioner.

Roman Martinez, for the United States as amicus curiae, by special leave of the Court, supporting the Petitioner.

Carter G. Phillips, Washington, DC, for the Respondent.

Rudolph A. Telscher, Jr., Counsel of Record, Kara R. Fussner, Steven E. Holtshouser, Daisy Manning, Harness, Dickey & Pierce, PLC, St. Louis, MO, for Petitioner.

Carter G. Phillips, Ryan C. Morris, Sidley Austin LLP, Washington, DC, Constantine L. Trela, Jr., Sidley Austin LLP, Chicago, IL, Larry R. Laycock, David R. Wright, Jared J. Braithwaite, Maschoff Brennan, Laycock Gilmore, Israelsen & Wright, Salt Lake City, UT, for Respondent.

Justice SOTOMAYOR delivered the opinion of the Court.^*

Section 285 of the Patent Act authorizes a district court to award attorney's fees in patent litigation. It provides, in its entirety, that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." 35 U.S.C. § 285. In Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378 (2005), the United States Court of Appeals for the Federal Circuit held that "[a] case may be deemed exceptional" under § 285 only in two limited circumstances: "when there has been some material inappropriate conduct," or when the litigation is both "brought in subjective bad faith" and "objectively baseless." Id., at 1381. The question before us is whether the Brooks Furniture framework is consistent with the statutory text. We hold that it is not.

I

A

Prior to 1946, the Patent Act did not authorize the awarding of attorney's fees to the prevailing party in patent litigation. Rather, the "American Rule" governed: " '[E]ach litigant pa[id] his own attorney's fees, win or lose....' " Marx v. General Revenue Corp., 568 U.S. ––––, ––––, 133 S.Ct. 1166, 1175, 185 L.Ed.2d 242 (2013). In 1946, Congress amended the Patent Act to add a discretionary fee-shifting provision, then codified in § 70, which stated that a court "may in its discretion award reasonable attorney's fees to the prevailing party upon the entry of judgment in any patent case." 35 U.S.C. § 70 (1946 ed.).¹

Courts did not award fees under § 70 as a matter of course. They viewed the award of fees not "as a penalty for failure to win a patent infringement suit," but as appropriate "only in extraordinary circumstances." Park–In–Theatres, Inc. v. Perkins,

190 F.2d 137, 142 (C.A.9 1951). The provision enabled them to address "unfairness or bad faith in the conduct of the losing party, or some other equitable consideration of similar force," which made a case so unusual as to warrant fee-shifting. Ibid. ; see also Pennsylvania Crusher Co. v. Bethlehem Steel Co., 193 F.2d 445, 451 (C.A.3 1951) (listing as "adequate justification[s]" for fee awards "fraud practiced on the Patent Office or vexatious or unjustified litigation").

Six years later, Congress amended the fee-shifting provision and recodified it as § 285. Whereas § 70 had specified that a district court could "in its discretion award reasonable attorney's fees to the prevailing party," the revised language of § 285 (which remains in force today) provides that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party." We have observed, in interpreting the damages provision of the Patent Act, that the addition of the phrase "exceptional cases" to § 285 was "for purposes of clarification only."² General Motors Corp. v. Devex Corp., 461 U.S. 648, 653, n. 8, 103 S.Ct. 2058, 76 L.Ed.2d 211 (1983) ; see also id., at 652, n. 6, 103 S.Ct. 2058. And the parties agree that the recodification did not substantively alter the meaning of the statute.³

For three decades after the enactment of § 285, courts applied it—as they had applied § 70—in a discretionary manner, assessing various factors to determine whether a given case was sufficiently "exceptional" to warrant a fee award. See, e.g., True Temper Corp. v. CF & I Steel Corp., 601 F.2d 495, 508–509 (C.A.10 1979) ; Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F.2d 579, 597 (C.A.7 1971) ; Siebring v. Hansen, 346 F.2d 474, 480–481 (C.A.8 1965).

In 1982, Congress created the Federal Circuit and vested it with exclusive appellate jurisdiction in patent cases. 28 U.S.C. § 1295. In the two decades that followed, the Federal Circuit, like the regional circuits before it, instructed district courts to consider the totality of the circumstances when making fee determinations under § 285. See, e.g., Rohm & Haas Co. v. Crystal Chemical Co., 736 F.2d 688, 691 (C.A.Fed.1984) ("Cases decided under § 285 have noted that 'the substitution of the phrase "in exceptional cases" has not done away with the discretionary feature' "); Yamanouchi Pharmaceutical Co., Ltd. v. Danbury Pharmacal, Inc., 231 F.3d 1339, 1347 (C.A.Fed.2000) ("In assessing whether a case qualifies as exceptional, the district court must look at the totality of the circumstances").

In 2005, however, the Federal Circuit abandoned that holistic, equitable approach in favor of a more rigid and mechanical formulation. In Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc., 393 F.3d 1378 (2005), the court held that a case is "exceptional" under § 285 only "when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed.R.Civ.P. 11, or like infractions." Id., at 1381."Absent misconduct in conduct of the litigation or in securing the patent," the Federal Circuit continued, fees "may be imposed against the patentee only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless." Ibid. The Federal Circuit subsequently clarified that litigation is objectively baseless only if it is "so unreasonable that no reasonable litigant could believe it would succeed," iLOR, LLC v. Google, Inc., 631 F.3d 1372, 1378 (2011), and that litigation is brought in subjective bad faith only if the plaintiff "actually know[s]" that it is objectively baseless, id., at 1377.⁴

Finally, Brooks Furniture held that because "[t]here is a presumption that the assertion of infringement of a duly granted patent is made in good faith[,] ... the underlying improper conduct and the characterization of the case as exceptional must be established by clear and convincing evidence." 393 F.3d, at 1382.

B

The parties to this litigation are manufacturers of exercise equipment. The respondent, ICON Health & Fitness, Inc., owns U.S. Patent No. 6,019,710 (′710 patent), which discloses an elliptical exercise machine that allows for adjustments to fit the individual stride paths of users. ICON is a major manufacturer of exercise equipment, but it has never commercially sold the machine disclosed in the ′ 710 patent. The petitioner, Octane Fitness, LLC, also manufactures exercise equipment, including elliptical machines known as the Q45 and Q47.

ICON sued Octane, alleging that the Q45 and Q47 infringed several claims of the ′ 710 patent. The District Court granted Octane's motion for summary judgment, concluding that Octane's machines did not infringe ICON's patent. 2011 WL 2457914 (D.Minn., June 17, 2011). Octane then moved for attorney's fees under § 285. Applying the Brooks Furniture standard, the District Court denied Octane's motion. 2011 WL 3900975 (D.Minn., Sept. 6, 2011). It determined that Octane could show neither that ICON's claim was objectively baseless nor that ICON had brought it in subjective bad faith. As to objective baselessness, the District Court rejected Octane's argument that the judgment of noninfringement "should have been a foregone conclusion to anyone who visually inspected" Octane's machines. Id., *2. The court explained that although it had rejected ICON's infringement arguments, they were neither "frivolous" nor "objectively baseless." Id., *2–*3. The court also found no subjective bad faith on ICON's part, dismissing as insufficient both "the fact that [ICON] is a bigger company which never commercialized the ′ 710 patent" and an e-mail exchange between two ICON sales executives, which Octane had offered as evidence that ICON had brought the infringement action "as a matter of commercial strategy."⁵ Id., *4.

ICON appealed the judgment of noninfringement, and Octane cross-appealed the denial of attorney's fees. The Federal Circuit affirmed both orders. 496 Fed.Appx. 57 (2012). In upholding the denial of attorney's fees, it rejected Octane's argument that the District Court had "applied an overly restrictive standard in refusing to find the case exceptional under § 285." Id., at 65. The Federal Circuit declined to "revisit the settled standard for exceptionality." Ibid.

We granted certiorari, 570 U.S. ––––, 134 S.Ct. 49, 186 L.Ed.2d 962 (2013), and now reverse.

II

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.

A

Our analysis begins and ends with the text of § 285 : "The court in exceptional cases may award reasonable attorney fees to the prevailing party." This text is patently clear. It imposes one and only one constraint on district courts' discretion to award attorney's fees in patent litigation:

The power is reserved for "exceptional" cases.

The Patent Act does not define "exceptional," so we construe it " 'in accordance with [its] ordinary meaning.' " Sebelius v. Cloer, 569 U.S. ––––, ––––, 133 S.Ct. 1886, 1893, 185 L.Ed.2d 1003 (2013); see also Bilski v. Kappos, 561 U.S. 593, ––––, 130 S.Ct. 3218, 3226, 177 L.Ed.2d 792 (2010) ("In patent law, as in all statutory construction, '[u]nless otherwise defined, ...