On October 1, 2013, the Supreme Court granted certiorari in two cases dealing with the fee-shifting provision in patent cases: Highmark Inc. v. Allcare Health Management Systems (No. 12-1163) and Octane Fitness, LLC v. ICON Health & Fitness, Inc. (No. 12-1184). The fee-shifting provision states that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285 (emphasis added).

Federal Circuit’s Definition of “Exceptional Cases”

At issue is the Federal Circuit’s “rigid and exclusive” (according to petitioners) two-part test for finding a patent case “exceptional”:

“Absent misconduct in conduct of the litigation or in securing the patent, sanctions 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.”

Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (Fed. Cir. 2005) (emphasis added).

Apart from the Supreme Court’s recent distaste for “rigid” Federal Circuit tests, the Justices were likely persuaded to grant certiorari in order to examine why the identical phrase—“exceptional cases”—in the Lanham Act has been interpreted by various regional circuits to permit fee-shifting to the prevailing party in trademark cases even in the absence of subjective bad faith. See 15 U.S.C. § 1117(a) (“The court in exceptional cases may award reasonable attorney fees to the prevailing party.”); Hartman v. Hallmark Cards, Inc., 833 F.2d 117, 123 (8th Cir. 1987) (“Bad faith is not a prerequisite to a Lanham Act fee award.”).

One regional circuit that has taken an expansive reading of “exceptional” is the D.C. Circuit. In Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521, 526 (D.C. Cir. 1985) (Ginsburg, Scalia, JJ.), the D.C. Circuit held that under the Lanham Act “[s]omething less than ‘bad faith,’ we believe, suffices to mark a case as ‘exceptional.’” The “we” in this sentence refers to then-circuit judge Ruth Bader Ginsburg, author of the Noxell opinion, joined by then-circuit judge Antonin Scalia.

Ginsburg and Scalia views in Noxell v. Firehouse No. 1 Bar-B-Que Restaurant (D.C. Cir. 1985)

Before being elevated to the Supreme Court, Justices Ginsburg and Scalia both served together as circuit judges in the U.S. Court of Appeals for the D.C. Circuit. In a case of first impression in the circuit, a prevailing trademark defendant (a San Francisco-based barbeque restaurant and its sole proprietor) moved for attorney fees under the Lanham Act, and in so doing presented the court with “the question whether an appellate court may award fees under [15 U.S.C. § 1117(a)] to a litigant who demonstrates that the trademark infringement action instituted against him warrants dismissal on the ground that plaintiff’s venue selection was improper and unreasonably imposed hardship on the fee applicant.” Noxell, 771 F.2d at 524. Notably, while the plaintiff’s choice of venue was “unreasonable” and “contrary to established law,” there was no evidence that Noxell, the trademark owner, brought the case with subjective bad faith when it filed suit in the District of Columbia.

Judges Ginsburg and Scalia formed the Noxell majority, over a dissent by a third member of the panel, Judge Wald. The dissent would have permitted a Lanham Act fee award “only if a litigant acts in bad faith or asserts claims so frivolous that the litigant could not have had a bona fide belief in their merit.” 771 F.2d at 532 (Wald, J., dissenting).

In colorful disagreement with the dissent, Judges Ginsburg and Scalia adopted a broad reading of “exceptional,” explaining in part:

“[W]e think it fair to assume that Congress did not intend rigidly to limit recovery of fees by a defendant to the rare case in which a court finds that the plaintiff ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons’; that exception to the ‘American rule,’ the Supreme Court has clarified, is always available unless Congress expressly forbids its operation. Something less than ‘bad faith,’ we believe, suffices to mark a case as ‘exceptional.’

“The dissent appears to recognize, albeit haltingly, that the terse legislative history of the Lanham Act’s fee provision is ambivalent on the point. Nonetheless, the dissent divines that Congress really wanted to do no more (on second thought, perhaps ‘marginally’ more) than disapprove Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 87 S. Ct. 1404, 18 L. Ed. 2d 475 (1967), and thereby restore the bad faith exception to the American rule in trademark cases. While the legislative history, thin as it is, supplies no clearly right answer to the question at hand, we do not find in its brief compass warrant for the severe constraint the dissent would impose. In our judgment, when Congress “limit[ed] attorney fees to ‘exceptional case’ and [placed] the award of attorney fees . . . within the discretion of the court,” the legislature did not intend to harness judges to a ‘hardly ever’ rule. Instead of the niggardly reading the dissent proffers (only ‘overt bad faith,’ possibly a smidgen less), we think ‘exceptional,’ as Congress used the word in section 35 of the Lanham Act, is most reasonably read to mean that the word is generally understood to indicate—uncommon, not run-of-the-mine. On that familiar construction, we regard as ‘exceptional’ Noxell’s decision to locate in the District of Columbia its suit against San Francisco firefighter English and the fledgling San Francisco barbeque business English organized and operated.”

Noxell, 771 F.2d at 526 (Ginsburg, Scalia, JJ.) (citations and footnote omitted; emphasis added).

Of Bar-B-Que and Supreme Court Tea Leaves

Whether Justices Ginsburg and Scalia will carry their Lanham Act interpretation over to the Patent Act will depend, in part, on the extent to which the congressional purpose of the two “exceptional case” provisions are aligned. Compare S. Rep. No. 1503, 79th Cong., 2d Sess. 1386, 1387 (1946) (“The provision [allowing fee-shifting in patent cases] is also made general as to enable the court to prevent a gross injustice to the alleged infringer.”), with S. Rep. No. 1400, 93d Cong., 2d Sess. 5, 6 (1974) (seeking to provide “protection against unfounded suits brought by trademark owners for harassment and the like”).

No prediction can be made at this time, but it will certainly be interesting to see if the Federal Circuit’s bad-faith requirement gets Bar-B-Que’ed at the Supreme Court.

*Andrew Baluch is an attorney at Foley & Lardner. He previously served in the White House Office of the IP Enforcement Coordinator and as expert advisor to the USPTO Director and Deputy Director. He served as a law clerk to Judge Linn of the Federal Circuit.