IP Law Daily, PATENT—D. Minn.: Octane finally gets its “exceptional case” ruling for fees against Icon, (Jul 2, 2015)

By Peter Reap, J.D., LL.M.

After the announcement of a new standard for the award of attorney fees under §285 of the Patent Act by the U.S. Supreme Court, followed by a remand by the Federal Circuit, fitness equipment maker Octane Fitness was granted attorney fees and costs against Icon Health & Fitness on the ground that the case is “exceptional,” the federal district court in Minneapolis has ruled (Icon Health & Fitness, Inc. v. Octane Fitness, LLC, July 1, 2015, Montgomery, A.).

Background. ICON owned U.S. Patent No. 6,019,710, which was directed to an elliptical exercise machine that allowed users to adjust their stride length. ICON sued Octane for the infringement of that patent. According to ICON, two of Octane’s elliptical machines infringed eight claims of the asserted patent. The district decided that Octane’s elliptical machines did not infringe the asserted patent, either directly or under the doctrine of equivalents, and granted summary judgment to Octane.

Octane asked the district court to deem the case exceptional under the “totality of the circumstances” and to award attorney fees under §285. The district court applied the Federal Circuit’s then-authoritative two-part test, which required Octane to show by clear and convincing evidence that ICON’s claim was objectively baseless and was brought in subjective bad faith. Because the district court determined that the case was not exceptional, it denied Octane’s request for attorney’s fees.

The Federal Circuit affirmed the district court’s denial of Octane’s motion to find the case exceptional and to award attorney fees. The appellate court found no clear error in the district court’s factual findings or conclusions and declined to reconsider the established test for exceptionality.

On appeal, the Supreme Court abrogated the “clear and convincing evidence” standard and the Federal Circuit’s two-part test for determining exceptionality. The High Court held that, within the context of §285, an “exceptional” case was simply one that “st[ood] out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

In addition, the High Court concluded that district courts could determine whether a case was exceptional in a “case-by-case exercise of their discretion, considering the totality of the circumstances.” The Court explained that no precise rule or formula existed for making those determinations and noted that district courts should exercise “equitable discretion” in considering a nonexclusive list of factors that could include frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case), and the need in particular circumstances to advance the considerations of compensation and deterrence.

To allow the district court to apply the Supreme Court’s “totality of the circumstances” standard to the facts of this case, the Federal Circuit vacated the district court’s denial of Octane’s motion to find the case exceptional, and to award attorney fees, and remanded the case for further consideration of Octane’s §285 motion under the totality of the circumstances, to determine whether the case “st[ood] out from others with respect to the substantive strength” of ICON’s litigation position, or was litigated in an unreasonable manner.

Substantive strength of litigation position. On remand, district court judge Ann Montgomery found that in comparing this case to the many patent cases over which she has presided during the past 22, Icon’s litigation position stood out as a particularly and unusually weak case on the merits. The arguments advanced by Icon bore no relation to what the ’710 patent disclosed and covered. The claim language, specification, prosecution history, inventor testimony, and Icon’s own expert testimony posed major obstacles to Icon’s success on the merits. Icon must have known that the odds of winning this lawsuit were very slim.

Although Octane, in its original motion for attorney fees, did not establish by clear and convincing evidence that Icon’s claims were objectively baseless, it showed by a preponderance of the evidence that Icon’s litigation position was exceptionally weak, the court held.

Unreasonable manner of litigation. Octane also argued that this lawsuit was exceptional in that it was contrived by industry giant Icon to punish Octane for its success in the market and to bully Octane into paying royalties to which Icon was not entitled.

When viewed cumulatively, these circumstances demonstrated that the case was litigated in a manner that stood out from more routine patent cases, according to the court. The preponderance of the evidence showed that Icon spent substantial time and expense searching its patent portfolio for a lawsuit to “throw” at Octane, and ultimately landed on a 10-year old patent that was never commercialized and was merely “sitting on the shelf.” Additionally, Icon employed litigation tactics designed to accelerate Octane’s litigation costs in an effort to force Octane to settle rather than defend the suit. Icon’s motive and behavior in litigating this lawsuit were “‘uncommon,’ ‘rare,’ [and] ‘not ordinary.’” Octane, 134 S.Ct. at 1756. Thus, the manner of litigation was exceptionally unreasonable and that the imposition of fees was appropriate, the court determined.

Reasonableness of fees. Having determined that this case is exceptional and that fees were warranted under § 285, the court must determine the amount of the award. Octane contended that it incurred nearly $2 million in connection with this case, including appeals, and requested that it be awarded all of its attorney fees. However, Octane did not provide evidence to establish the amount of its attorney fees and reasonableness of the fees. Octane was ordered to file documentation of attorney fees and shall include itemized billing statements, expense reports, documentation of local billing rates for the type of work involved, and other evidence demonstrating the amount of attorney fees and costs reasonably incurred by Octane in litigating this case.

The case is No.09-319 ADM/SER.

Attorneys: Larry R. Laycock (Greene Espel, PLLP) for Icon Health & Fitness, Inc. Rudolph A. Telscher Jr. (Dickey & Pierce, P.L.C.) for Octane Fitness, LLC.

Companies: Icon Health & Fitness, Inc.; Octane Fitness, LLC

Cases: Patent MinnesotaNews