UPDATE 2-U.S. top court overturns appeals court on fees in patent cases

Tue Apr 29, 2014 2:16pm EDT

(Adds details from opinions, context from patent experts)

By Diane Bartz

WASHINGTON, April 29 (Reuters) - The U.S. Supreme Court threw out appeals court rulings in two patent cases on Tuesday, potentially making it easier for the winner of a patent lawsuit to have its legal fees paid by the losing party.

Patent experts said the cases would have a significant effect on the torrent of unwarranted patent litigation, some of it brought by companies derisively called "patent trolls."

In the first case, ICON Health & Fitness Inc sued a rival, Octane Fitness LLC, accusing Octane of infringing one of its patents on elliptical trainers. Octane won, and asked to be reimbursed for the $1.3 million it spent fighting the lawsuit. Both the U.S. district court and an appeals court that specializes in patents declined to award the fees.

The high court also threw out a ruling in a case regarding fee-shifting, where the loser pays in some instances. In that case, Allcare Health Management accused health insurer Highmark Inc of patent infringement but lost. The district court awarded Highmark attorney fees, but they were tossed out by the U.S. Court of Appeals for the Federal Circuit.

The Supreme Court sent both cases back to the lower court for reconsideration.

Justice Sonia Sotomayor, who wrote both opinions, said in the Octane case that the U.S. Court of Appeals for the Federal Circuit erred by being "too restrictive" in establishing standards for awarding attorney's fees.

"A district court may award fees in the rare case in which a party's unreasonable, though not independently sanctionable, conduct is so 'exceptional' as to justify an award," she wrote.

The high court also made it easier for companies to show that they should be reimbursed for legal fees by reducing the standard of proof from "clear and convincing evidence" to a "preponderance of the evidence."

Once a decision is made by a district court on awarding fees, the court's ruling in Highmark made it harder for an appeals court to overturn the award.

The Octane decision will give district court judges more leeway in awarding attorneys fees in cases that they think should not have been brought, said Jeanne Gills, a patent attorney with Foley & Lardner LLP. "I don't know that it's a game-changer but it's significant," she said.

Some companies, including big technology firms and retailers, complain about unwarranted lawsuits. Others, including some inventors, worry that their ability to fight infringement could be harmed if the rules are changed.

"It (the decisions) will make patent trolls think twice about bringing cases," said Stephen Holmes, a patent expert with Kaye Scholer LLP. "If they (patent holders) have a good case, and they litigate properly, they should still bring it."

The issue has been hotly lobbied in Washington. President Barack Obama has called on Congress to pass legislation aimed at reining in frivolous patent infringement lawsuits.

The U.S. House of Representatives voted on Dec. 5 to approve a bill that encourages judges hearing patent cases to award fees to the winner of an infringement lawsuit. The bill also requires companies filing such suits to detail which patent is infringed - something that does not now reliably happen.

Senator Patrick Leahy, chairman of the Judiciary Committee, has sponsored similar legislation which is scheduled to be considered on Thursday. (Reporting by Diane Bartz; editing by Susan Heavey, Phil Berlowitz and Tom Brown)

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