Supreme Court of the United States

Transcription

1 No IN THE Supreme Court of the United States OCTANE FITNESS, LLC, v. Petitioner, ICON HEALTH & FITNESS, INC., Respondent. On Writ of Certiorari to the United States Court of Appeals for the Federal Circuit BRIEF OF RESPONDENT CARTER G. PHILLIPS LARRY R. LAYCOCK * RYAN C. MORRIS DAVID R. WRIGHT SIDLEY AUSTIN LLP JARED J. BRAITHWAITE 1501 K Street, NW MASCHOFF BRENNAN Washington, DC LAYCOCK GILMORE (202) ISRAELSEN & WRIGHT cphillips@sidley.com 201 S. Main Street Suite 600 CONSTANTINE L. TRELA, JR. Salt Lake City, UT Sidley Austin LLP One South Dearborn St. (435) Chicago, IL llaycock@mabr.com (612) ctrela@sidley.com Counsel for ICON Health & Fitness, Inc. January 17, 2014 * Counsel of Record

2 QUESTION PRESENTED The district court resolved ICON Health & Fitness, Inc. s patent infringement claims against industry competitor Octane Fitness, LLC, on summary judgment. Octane sought an award of attorney fees under 35 U.S.C The district court applied the settled standard under 285 and found that this was not an exceptional case that warrants an award of attorney fees. The Federal Circuit agreed. The question presented is: Whether this Court should reject the settled standard applied in this case and expand the scope of feeshifting under 285 so that virtually any patent infringement case will qualify as an exceptional case. (i)

3 ii PARTIES TO THE PROCEEDING AND COR- PORATE DISCLOSURE STATEMENT Respondent and plaintiff-below is ICON Health & Fitness, Inc. HF Holdings, Inc. is the parent corporation of ICON. Credit Suisse Group, a publicly held corporation, owns 10% or more of the stock of ICON. Petitioner is Octane Fitness, LLC.

4 TABLE OF CONTENTS QUESTION PRESENTED... PARTIES TO THE PROCEEDING AND COR- PORATE DISCLOSURE STATEMENT... TABLE OF AUTHORITIES... Page INTRODUCTION... 1 COUNTERSTATEMENT OF THE CASE... 3 A. Statutory Background... 3 B. Factual Background The 710 Patent ICON s Lawsuit Against Octane Claim Construction and Summary Judgment Octane s Motion for Attorney Fees C. The Federal Circuit Appeal SUMMARY OF THE ARGUMENT ARGUMENT I. THE LOWER COURTS APPLIED THE CORRECT STANDARD TO DETERMINE THAT THIS IS NOT AN EXCEPTIONAL CASE UNDER A. Section 285 s Exceptional Case Language Incorporates The Prior Judicial Standards B. The Federal Circuit s Exceptional Case Standard Appropriately Follows Prior Judicial Standards i ii vi (iii)

5 iv TABLE OF CONTENTS continued Page C. The Brooks Court Properly Relied On PRE D. The Arguments Presented By Octane And Its Amici Are Without Merit Octane s Arguments are Premised on the Fiction that an Exceptional Case Finding Always Requires Objective Baselessness and Bad Faith Octane s Interpretation of 285 Renders the Phrase In Exceptional Cases Superfluous and Directly Contravenes Congressional Intent In the Absence of Specific Misconduct, Objective Baselessness is a Necessary Requirement for a Case to be Exceptional Although Fees may be Awarded Based on Other Exceptions to the American Rule, 285 has Independent Effect Application of 285 is Party Neutral.. 32 II. OTHER INTELLECTUAL PROPERTY FEE-SHIFTING STATUTES DO NOT JUSTIFY OCTANE S PROPOSED EX- PANSION OF A. The Copyright Act s Fee-Shifting Provision Is Distinguishable From B. Cases Interpreting The Lanham Act s Fee-Shifting Provision Do Not Dictate The Meaning Of

6 v TABLE OF CONTENTS continued Page III. THE CURRENT DEBATE REGARDING PATENT TROLLS CANNOT AFFECT THE PROPER INTERPRETATION OF IV. THE APPLICABLE STANDARD OF PROOF IS NOT PROPERLY BEFORE THE COURT V. THE LOWER COURTS PROPERLY CONCLUDED THAT THIS IS NOT AN EXCEPTIONAL CASE THAT COULD QUALIFY FOR AN AWARD OF ATTOR- NEY FEES CONCLUSION... 46

7 CASES vi TABLE OF AUTHORITIES Page Ali v. Fed. Bureau of Prisons, 552 U.S. 214 (2008) Am. Chain & Cable Co. v. Rochester Ropes, Inc., 199 F.2d 325 (4th Cir. 1952)... passim Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F.3d 1003 (Fed. Cir. 2012), cert. denied, 133 S. Ct. 932 (2013)... 33, 34, 43 Barnhart v. Sigmon Coal Co., 534 U.S. 438 (2002) Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 550 F.3d 465 (5th Cir. 2008) BE & K Constr. Co. v. NLRB, 536 U.S. 516 (2002)... 20, 22 Brooks Furniture Mfg., Inc. v. Dutailier Int l, Inc., 393 F.3d 1378 (Fed. Cir. 2005)... passim Burger King Corp. v. Pilgrim s Pride Corp., 15 F.3d 166 (11th Cir. 1994) Chambers v. NASCO, Inc., 501 U.S. 32 (1991)... 23, 31 Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119 (3d Cir. 1999) Corley v. United States, 556 U.S. 303 (2009) Day v. Woodworth, 54 U.S. (13 How.) 363 (1851)... 3 Dubil v. Rayford Camp & Co., 184 F.2d 899 (9th Cir. 1950)... 4, 18 E-Pass Techs., Inc. v. 3Com Corp., 559 F.3d 1374 (Fed. Cir. 2009) E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961)... 22, 27

8 vii TABLE OF AUTHORITIES continued Page Eastway Constr. Corp. v. City of N.Y., 762 F.2d 243 (2d Cir. 1985), superseded on other grounds by Fed. R. Civ. P. 11, as recognized in Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58 (2d Cir. 2012) ebay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006) Eisemann v. Greene, 204 F.3d 393 (2d Cir. 2000) Eltech Sys. Corp. v. PPG Indus., Inc., 903 F.2d 805 (Fed. Cir. 1990)... 32, 33 Eon-Net LP v. Flagstar Bancorp, 653 F.3d 1314 (Fed. Cir. 2011), cert denied sub nom. 132 S. Ct (2012) Fin. Inv. (Bermuda) Ltd. v. Geberit AG, 165 F.3d 526 (7th Cir. 1998) Fla. Dep t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33 (2008) Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994)... 3, 24, 35 Friesing v. Vandergrift, 126 F.R.D. 527 (S.D. Tex. 1989) Gen. Instrument Corp. v. Hughes Aircraft Co., 399 F.2d 373 (1st Cir. 1968) Hughes Aircraft Co. v. Messerschmitt- Boelkow-Blohm, GmbH, 625 F.2d 580 (5th Cir. 1980) IGEN Int l, Inc. v. Roche Diagnostics GmbH, 335 F.3d 303 (4th Cir. 2003) ilor, LLC v. Google, Inc., 631 F.3d 1372 (Fed. Cir. 2011) Kahn v. Dynamics Corp of Am., 508 F.2d 939 (2d Cir. 1974)... 26

9 viii TABLE OF AUTHORITIES continued Page Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F.2d 579 (7th Cir. 1971).. 26 Kilopass Tech., Inc. v. Sidense Corp., F.3d, 2013 WL (Fed. Cir. Dec. 26, 2013)... 22, 32, 39, 44 Kirk Capital Corp. v. Bailey, 16 F.3d 1485 (8th Cir. 1994) La Maur, Inc. v. DeMert & Dougherty, Inc., 265 F. Supp. 961 (N.D. Ill. 1965), aff d, 1966 WL 7671 (7th Cir. Oct. 3, 1966) Laufenberg, Inc. v. Goldblatt Bros., 187 F.2d 823 (7th Cir. 1951)... 4, 18, 26, 38 Lipscher v. LRP Publ ns, Inc., 266 F.3d 1305 (11th Cir. 2001) Livesay Window Co. v. Licesay Indus., Inc., 251 F.2d 469 (5th Cir. 1958)... 6, 21 MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907 (Fed. Cir. 2012) Markman v. Westview Instruments, Inc., 52 F.3d 967 (Fed. Cir. 1995), aff d, 517 U.S. 370 (1996) Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp., 407 F.2d 288 (9th Cir. 1969)... 5, 17 Monolithic Power Sys., Inc. v. O2 Micro Int l Ltd., 726 F.3d 1359 (Fed. Cir. 2013)... 23, 24 Moore v. W. Sur. Co., 140 F.R.D. 340 (N.D. Miss. 1991), aff d, 977 F.2d 578 (5th Cir. 1992) Namet v. United States, 373 U.S. 179 (1963)... 42

10 ix TABLE OF AUTHORITIES continued Page Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 626 F.3d 958 (7th Cir. 2010) Noxell Corp. v. Firehouse No. 1 Bar-B-Que Rest., 771 F.2d 521 (D.C. Cir. 1985)... 38, 39 Old Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539 (Fed. Cir. 2011) Park-in-Theatres v. Perkins, 190 F.2d 137 (9th Cir. 1951)... 4, 5, 20, 40 Parks v. Booth, 102 U.S. 96 (1880)... 3 Patsy s Brand, Inc. v. I.O.B. Realty, Inc., 317 F.3d 209 (2d Cir. 2003) Philip v. Nock, 84 U.S. (17 Wall.) 460 (1873)... 3 Phillips Petroleum Co. v. Esso Standard Oil Co., 91 F. Supp. 215 (D. Md.), aff d, 185 F.2d 672 (4th Cir. 1950)... 4, 40, 42 Procter & Gamble Co. v. Amway Corp., 280 F.3d 519 (5th Cir. 2002) Prof l Real Estate Investors v. Columbia Pictures Indus., 508 U.S. 49 (1993)... 2, 19, 20 Purer & Co. v. Aktiebolaget Addo, 410 F.2d 871 (9th Cir. 1969)... 5 Q-Panel Co. v. Newfield, 482 F.2d 210 (10th Cir. 1973) Sarkes Tarzian, Inc. v. Philco Corp., 351 F.2d 557 (7th Cir. 1965)... 5 Siebring v. Hansen, 346 F.2d 474 (8th Cir. 1965) Skilling v. United States, 130 S. Ct (2010) Sosa v. DIRECTV, Inc., 437 F.3d 923 (9th Cir. 2006)... 20, 22, 27, 33 Takeda Chem. Indus., Ltd. v. Mylan Labs., Inc., 549 F.3d 1381 (Fed. Cir. 2008)... 43

11 x TABLE OF AUTHORITIES continued Page Taltech Ltd. v. Esquel Enters. Ltd., 604 F.3d 1324 (Fed. Cir. 2010) Taurus IP, LLC v. DaimlerChrysler Corp., 726 F.3d 1306 (Fed. Cir. 2013) Teese v. Huntgingdon, 64 U.S. (23 How.) 2 (1859)... 3 Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1279 (Fed. Cir. 2011) United States v. Menasche, 348 U.S. 528 (1955) Vischer Prods. Co. v. Nat l Pressure Cooker Co., 92 F. Supp. 138 (W.D. Wis. 1950)... 4, 18 Warner-Jenkinson Co. v. Hilton Davis Chem. Co, 520 U.S. 17 (1997) Yamanouchi Pharm. Co. v. Danbury Pharm. Inc., 231 F.3d 1339 (Fed. Cir. 2000) CONSTITUTION AND STATUTES U.S. Const. art. I, 8, cl amend. I Pub. L. No , 88 Stat (1975) U.S.C 1117(a) U.S.C , U.S.C. 70 (1946)... 3, (f) , (1952) , U.S.C. 285, Historical and Revision Notes... 5, 17

12 xi TABLE OF AUTHORITIES continued RULES Page Fed. R. Civ. P. 11 (1937) (1983) , 30 Fed. R. Civ. P. 11, Notes of Advisory Committee on Rules 1983 Amendment Sup. Ct. R. 14.1(a) LEGISLATIVE HISTORY H.R. 3309, 113th Cong. (2013) H.R. 845, 113th Cong. (2013) S. Rep. No (1946)... 4 S. Rep. No (1974), as reprinted in 1974 U.S.C.C.A.N , 37 SCHOLARLY AUTHORITY J.P. Federico, Commentary on the New Patent Act, 75 J. Pat. & Trademark Off. Soc y 161 (1993)... 5, 17, 26, 38 OTHER AUTHORITIES American Heritage Dictionary (4th ed. 2009) Ryan Davis, After Legal Win, Nintendo Buys Patents of Failed Troll, Law 360 (Jan. 10, 2014), /ip/articles/500282?utm_source=sharedarticles&utm_medium= &utm_ campaign=shared-articles ICON Health & Fitness, iconfitness.com... 7

13 xii TABLE OF AUTHORITIES continued Page David J. Kappos, Facts Show Patent Trolls Not Behind Rise In Suits, Law360 (Jan. 15, 2014), articles/501142?utm_source=sharedarticles&utm_medium= &utm_ campaign=shared-articles... 40

14 INTRODUCTION Petitioner and its amici identify what they characterize as a serious policy problem namely, increased litigation by so-called patent trolls and ask this Court to solve that problem by adopting a construction of 285 contrary to its language and to Congress s intent. Section 285, which Congress adopted in 1952 (long before a troll was anything other than a fairy tale villain), targets neither plaintiffs nor defendants and allows awards of attorney fees where a case meets a specific standard, namely, the case is exceptional. The Federal Circuit, which Congress has charged with interpreting and applying the United States patent laws, has developed specific criteria for identifying such exceptional cases criteria consistent with the statute s text and history and the protections of the First Amendment and it is undisputed that, under those criteria, the district court correctly denied Octane an award of fees in this nonexceptional case. The policy problem petitioner and its amici want this Court to solve is not presented in this case, which all concede does not involve a patent troll, and this Court would not be the proper body to craft a solution, even if the problem were presented here. Section 285 grants courts discretion to award attorney fees only in exceptional cases. The exceptional case language was Congress s attempt to codify judicial interpretations of a previous statutory provision that created a narrow exception to the general American rule against awarding attorney fees to a prevailing party. Those earlier judicial interpretations permitted an award of attorney fees for specific instances of misconduct or more generally if, and only

15 2 if, the court found that the suit was vexatious and unjustified. In 2005, the Federal Circuit concisely restated the law regarding 285 in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005). The court identified the same categories of misconduct that had long been held to qualify as exceptional. Recognizing that, even without specific misconduct, pursuit of a vexatious and unjustified lawsuit may also qualify as exceptional, the court explained that [a]bsent misconduct in [the] 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. Id. at In articulating this standard, the Federal Circuit recognized, as did courts before it, that the filing of a lawsuit is constitutionally protected, and that, absent specific wrongful acts, a party s exercise of its right to petition the government cannot be deemed misconduct unless the party is engaged in a sham. See Prof l Real Estate Investors v. Columbia Pictures Indus., 508 U.S. 49, (1993) ( PRE ). Indeed, these principles had been recognized by the circuit courts since the enactment of 285. Ignoring all of this, Octane contends that the Court should conclude that 285 gives district courts unfettered discretion to base an award of attorney fees on some sort of evaluation of the totality of circumstances in all cases under the inherently imprecise unreasonableness standard. Although Octane purports to rely on the statutory text, its proposal would effectively read the phrase exceptional cases out of the statute and eliminate a key limitation Congress imposed on court authority to award attorney fees to

16 3 prevailing parties. Not only would Octane s reading of 285 render its language superfluous, but it would upend Congress s intent to incorporate specific principles governing when discretion to award attorney fees in patent cases may appropriately be exercised. Finally, despite Octane s assertions regarding ICON and this litigation, neither the district court nor the Federal Circuit had any difficultly rejecting Octane s contention that this case is exceptional. Under any standard, this is not an exceptional case. It is merely an ordinary intellectual property dispute between industry competitors, and the parties should bear their own costs of litigation. COUNTERSTATEMENT OF THE CASE A. Statutory Background Following the traditional American Rule for awards of attorney fees, this Court held many years ago that an award of attorney fees was unavailable in patent infringement lawsuits. See Parks v. Booth, 102 U.S. 96, 107 (1880); Philip v. Nock, 84 U.S. (17 Wall.) 460, 462 (1873); Teese v. Huntingdon, 64 U.S. (23 How.) 2, 8 (1859); Day v. Woodworth, 54 U.S. (13 How.) 363, (1851). In 1946, Congress adopted an exception to the prohibition against awards of attorney fees in patent infringement cases, providing that a court may in its discretion award reasonable attorney s fees to the prevailing party upon the entry of judgment on any patent case. 35 U.S.C. 70 (1946). 1 Notwithstand- 1 The text of 35 U.S.C. 70 (1946), is comparable to the feeshifting provision of the Copyright Act, which allows courts to consider awarding attorney fees in all cases. See 17 U.S.C. 505 ( the court may also award a reasonable attorney s fee to the prevailing party as part of the costs. ); see also Fogerty v. Fanta-

17 4 ing this seemingly broad language, Congress indicated that an award of fees should not be an ordinary thing, and that an award of attorney fees should serve to discourage infringement, as well as to prevent a gross injustice to an alleged infringer. S. Rep. No , at 2 (1946). Consistent with the purpose of ensuring that an award of fees not be ordinary, courts typically interpreted 70 to allow them to exercise their discretion to award fees in circumstances involving misconduct by a party. As one court explained, the 1946 statute should be bottomed upon a finding of unfairness or bad faith in the conduct of the losing party. Park-in- Theatres v. Perkins, 190 F.2d 137, 142 (9th Cir. 1951); see also Am. Chain & Cable Co. v. Rochester Ropes, Inc., 199 F.2d 325, 330 (4th Cir. 1952). Thus, for example, fraud on the Patent Office or litigation misconduct could serve as the basis for an award of fees. See Dubil v. Rayford Camp & Co., 184 F.2d 899, 903 (9th Cir. 1950); Vischer Prods. Co. v. Nat l Pressure Cooker Co., 92 F. Supp. 138, 139 (W.D. Wis. 1950). Absent such misconduct, courts held that they should not exercise their discretion to award fees except in situations involving vexatious and unjustified litigation. Am. Chain & Cable Co., 199 F.2d at 330; Laufenberg, Inc. v. Goldblatt Bros., 187 F.2d 823, 825 (7th Cir. 1951) ( statute should be invoked only where vexatious or unjustified litigation is shown ); Phillips Petroleum Co. v. Esso Standard Oil Co., 91 F. Supp. 215, 217 (D. Md.) ( [O]ne of the objects is to discourage vexatious and unjustified litigation, and [the statute] should be invoked when, but only when, such is clearly shown. ), aff d, 185 F.2d 672 (4th Cir. sy, Inc., 510 U.S. 517, 533 (1994) ( The word may clearly connotes discretion. ).

18 5 1950); Park-in-Theaters, 190 F.2d at 142; Am. Chain & Cable Co., 199 F.2d at 330 ( discretion should not be exercised except in situations involving vexatious and unjustified litigation ). In the Patent Act of 1952, just six years after the enactment of 70, Congress overhauled the patent laws, including the provision governing attorney fees. In 35 U.S.C. 285, Congress provided that a court in exceptional cases may award reasonable attorney fees to the prevailing party. 35 U.S.C. 285 (1952). Congress specifically removed the phrase in its discretion that had been in 70, and added the phrase in exceptional cases to express the intention of the old statute not only as shown by its legislative history, but also as interpreted by the courts. J.P. Federico, Commentary on the New Patent Act, 75 J. Pat. & Trademark Off. Soc y 161, 216 (1993); see also Monolith Portland Midwest Co. v. Kaiser Aluminum & Chem. Corp., 407 F.2d 288, 293 (9th Cir. 1969) ( The present section 285 is a codification of the interpretation placed by the courts upon the prior statute. ); 35 U.S.C. 285, Historical and Revision Notes. In the wake of 285 s enactment and before the Federal Circuit s formation in 1982, regional circuit courts interpreted the phrase exceptional cases to mean those cases involving the same inappropriate conduct recognized by courts interpreting the 1946 statute, such as willful patent infringement, inequitable conduct or fraud in procuring a patent, other affirmative misconduct, or vexatious or unjustified litigation. See, e.g., Purer & Co. v. Aktiebolaget Addo, 410 F.2d 871, 880 (9th Cir. 1969); Sarkes Tarzian, Inc. v. Philco Corp., 351 F.2d 557, 560 (7th Cir. 1965) ( fees should not be awarded under 35 U.S.C. 285 except where fraud and wrong-doing are clearly

19 6 proved ); Livesay Window Co. v. Livesay Indus., Inc., 251 F.2d 469, 475 (5th Cir. 1958). After the Federal Circuit s creation, that court followed the standards articulated by earlier courts. In Brooks, the court of appeals distilled the governing standard, explaining that a case may be found exceptional 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. Brooks Furniture, 393 F.3d at To spell out when a case may be considered unjustified or vexatious, absent specifically identifiable misconduct, the Brooks court stated that a patent owner s infringement case may be found exceptional only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless. Id. In stating this test, the court recognized that initiating a patent infringement lawsuit is activity protected by the Petition Clause of the U.S. Constitution, and thus ensured that for a case not involving fraud or similar specific misconduct to be exceptional, the lawsuit itself must be a form of misconduct that takes it outside the constitutionally protected sphere. See id. (citing PRE, 508 U.S. at 60 61). B. Factual Background ICON is a fitness industry leader in the innovation, manufacture, and sale of consumer fitness and exercise products and services. It consistently engages in research and development of new products and technologies, resulting in hundreds of patents. ICON manufactures and sells its innovative products and services to home-users as well as commercial customers under well-known brand names such as Nor-

20 7 dictrack, Pro-Form, HealthRider, ifit, and Free- Motion. (See Federal Circuit Appendix at , ICON Health & Fitness, Inc. v. Octane Fitness, LLC, Nos , (Fed. Cir. May 14, 2012) ( CAFC JA ).) See generally com. ICON s products include elliptical exercise machines. These machines usually include two spacedapart foot pads that, when engaged by a user, follow an elliptical path generally intended to simulate the natural motion of running or walking. (J.A. 106a 108a; SA-10.) 1. The 710 Patent As part of ICON s research and development efforts, ICON employees invented an improved elliptical exercise machine that required less floor space and allowed adjustments to the size of the elliptical path to fit the different strides of individual users. (SA-17.) This invention is disclosed and patented in U.S. Patent No. 6,019,710 ( the 710 patent ). (SA- 10.) The patent, in part, describes an elliptical exercise machine that uses linear reciprocating displacement of a first end of a stroke rail to convert the motion of the second end of the stroke rail to follow an elliptical path:

21 8 (SA-13; Octane Br. 6.) During the development of the invention, ICON built a prototype. (J.A. 102a 104a.) 2 However, despite the innovation reflected in the invention, ICON decided not to commercialize it, because of cost and other market considerations. (J.A. 106a 108a.) 2. ICON s Lawsuit Against Octane Octane s founders, as former executives of one of ICON s competitors, were aware of ICON and its intellectual property rights from Octane s inception. 2 Octane also built a similar working prototype. (See Octane Br. 10 n.3. But see id. at 8, 51.)

22 9 (CAFC JA 1939; see also J.A. 109a). 3 Octane discovered ICON s 710 patent in a patent search that Octane commissioned to find patents that potentially might be infringed by Octane s products. (Dep. of Timothy J. Porth (Dkt ) at 81 82, ICON Health & Fitness, Inc. v. Octane Fitness, LLC, No. 09-cv-319 (D. Minn. Aug. 4, 2011).) 4 Octane asserts that it sought and received an opinion concluding that its products did not infringe the 710 patent. (Id.) Octane also claims it received another non-infringement opinion from the third-party from which it licensed other elliptical-related patents. (Id. at ) Notwithstanding these opinions, however, Octane purchased patent infringement insurance to protect it against a potential lawsuit. (Id. at ) Unaware of Octane s private opinions, ICON filed a patent infringement lawsuit in 2008 against Octane and one of Octane s distributors in the United States District Court for the Central District of California, one of ICON s principal strategic markets. ICON alleged infringement of U.S. Patent No. 5,104,120 ( the 120 patent ) and the 710 patent. (J.A. 1a.) In ICON s view, Octane s machines infringed the 710 patent because, among other things, they used linear reciprocating displacement of a first end of a stroke rail to convert the motion of the second end of the stroke rail to follow an elliptical path. (CAFC JA ) Shown below is one of Octane s machines and ICON s understanding of how the constrained movement back-and-forth between two points of one 3 One of Octane s executives also had been employed by NordicTrack, which was acquired by ICON. (See Dep. of Timothy J. Porth (Dkt ) at 38.) 4 All Dkt. entries refer to materials filed in the district court that are available through the District of Minnesota PACER system for electronic record access.

23 10 end of the stroke rail results in movement of the other end of the stroke rail along an elliptical path as required by the 710 patent: (See Br. for Appellant ICON Health & Fitness, Inc. at 27, ICON Health & Fitness, Inc. v. Octane Fitness, LLC, No (Fed. Cir. Nov. 10, 2011).) Shortly after ICON filed suit, the district court severed ICON s case against Octane s distributor from the case against Octane, and dismissed the case against the distributor without prejudice. (J.A. 51a, 59a.) The court then transferred ICON s case against

24 11 Octane to the United States District Court for the District of Minnesota. (Id. at 57a.) In a separate lawsuit in a different district against a different defendant, the court construed the claims of the 120 patent in a manner that affected ICON s claims against Octane in this case. Although the order was neither binding nor preclusive in this case, ICON voluntarily withdrew its claims against Octane for infringement of the 120 patent. 5 (J.A. 60a.) This voluntary dismissal of the 120 patent left only ICON s infringement allegations based on the 710 patent, which were the subject of discovery, claim construction, and summary judgment. 3. Claim Construction and Summary Judgment Between September and October 2009, the parties disclosed their respective proposed constructions of certain terms in the asserted claims of the 710 patent. (J.A. 63a 91a.) The parties focused on four terms in need of construction. At the time, neither party offered a construction of the term stroke rail. There was no need, because Octane admitted that its accused products included the claimed stroke rail. (J.A. 171a.) Nine months later, Octane supplemented its claim construction disclosures and non-infringement contentions to, for the first time, raise disputes with respect to the stroke rail element. (Pet. App. 56a n.4.) Five business days after injecting this new stroke rail issue into the case, Octane moved for summary 5 Octane asserts that the dismissal was forced yet voluntary. (Octane Br. 11.) In actuality, ICON worked with Octane to streamline the case by dismissing the claims by stipulation. (J.A. 60a.)

25 12 judgment of non-infringement, even as the parties prepared for the Markman hearing on claim construction. See Markman v. Westview Instruments, Inc., 52 F.3d 967, 976 (Fed. Cir. 1995) (en banc) ( An infringement analysis entails two steps determining the meaning and scope of the patent claims. [and] comparing the properly construed claims to the device accused of infringing. ), aff d, 517 U.S. 370 (1996). (J.A. 14a.) In October 2010, the district court conducted the Markman hearing and, in December 2010, issued its decision construing various claim terms. The court adopted Octane s late-proposed construction of stroke rail and held that linear reciprocating displacement was displacement along the path of a straight line. (Pet. App. 69a 71a.) The court then turned to Octane s motion for summary judgment of non-infringement. (J.A. 20a 30a.) Aside from its literal infringement arguments, ICON had opposed Octane s summary judgment motion by relying on the doctrine of equivalents. 6 ICON presented evidence that Octane s accused devices included the equivalent of a stroke rail and linear reciprocating displacement. Although the district court found the testimony and analysis of ICON s expert relevant and sufficiently reliable to warrant consideration (Pet. App. 45a 48a), the court nonetheless concluded that Octane s accused products did not include a stroke rail or linear reciprocating displacement and granted Octane s motion for summary judgment. 6 Infringement under the doctrine of equivalents is found if the differences between a claim element and a corresponding component in the accused device are insubstantial. Warner- Jenkinson Co. v. Hilton Davis Chem. Co, 520 U.S. 17, 34, 40 (1997).

26 13 4. Octane s Motion for Attorney Fees After prevailing on summary judgment, Octane moved for an award of attorney fees under (Pet. App. 19a 28a.) Octane asserted that ICON s case was vexatious, abusive, baseless, and brought in bad faith. (J.A. 266a 267a, 271a.) The district court denied Octane s motion, finding that the case was not an exceptional one that would qualify for a fee award. Because Octane did not argue that ICON committed litigation misconduct, inequitable conduct, Rule 11 violations, or similar specific acts of misconduct (id. at 257a 272a), the district court analyzed Octane s request under the vexatious and unjustified litigation test from Brooks, concluding that ICON s case was neither objectively baseless nor brought in bad faith. (Pet. App. 25a, 28a.) The court first found that ICON s suit was not objectively baseless and rejected Octane s assertions that the court s non-infringement conclusions were clearly evident and easily reached. (Pet. App. 22a.) The court found that ICON reasonably relied on presuit testing and expert opinion regarding its infringement claims. (Id. at 25a.) And the court found it irrelevant that Octane s products were visually distinct from the figures in the 710 patent, because [i]nfringement is determined by comparing the accused devices to the properly-construed claims. (Id. (citing IMS Tech., Inc. v. Haas Automation, Inc., 206 F.3d 1422, 1429 (Fed. Cir. 2000)).) Moreover, the asserted claims were means-plus-function claims, and 7 At the time, Octane asserted that its attorney fees were about $1.3 million but provided no description of how those fees were incurred. There is no record support for the $1.8 million in fees that Octane now claims, nor is there anything to show that Octane s fees, whatever their amount, were reasonably incurred.

27 14 ICON had relied on Federal Circuit case law to show that such claims require a structure that is merely capable of performing the function, rather than actual performance. (Id. at 24a.) Because the court found ICON s case was not objectively baseless, it explained that its inquiry could end here. (Id. at 25a.) Nonetheless, the court also rejected Octane s other arguments and found that ICON had not acted in bad faith. It rejected Octane s suggestions that an award of attorney fees was appropriate because ICON is a bigger company that never commercialized the invention claimed by the 710 patent. (Pet. App. 27a 28a.) And the court found that two s between ICON sales personnel did not evidence bad faith. It explained that the s, viewed in the light most favorable to Octane, exhibited nothing more than stray comments by employees with no demonstrated connection to the lawsuit. (Id. at 27a.) Ultimately, the fact that Octane, and the court, disagreed with ICON s infringement analysis was not evidence of either baselessness or bad faith. (Id. at 25a, 27a.) C. The Federal Circuit Appeal ICON appealed the summary judgment of noninfringement, and Octane cross-appealed the denial of its request for attorney fees. (Pet. App. 1a.) Octane argued that the district court should have evaluated the totality of circumstances rather than whether ICON s suit was objectively baseless and brought in bad faith. (Br. for Defendant-Cross Appellant Octane Fitness, LLC at 55 60, ICON Health & Fitness, Inc. v. Octane Fitness, LLC, Nos , (Fed. Cir. Jan. 27, 2012) ( Octane Fed. Cir. Brief ).) After full briefing and oral argument, the Federal Circuit affirmed the district court s decisions. With

28 15 respect to Octane s request for attorney fees, the court of appeals found no error in the district court s application of the law. (Pet. App. 17a.) Upon review of the record, the court agreed that this was not an exceptional case. (Id.) SUMMARY OF THE ARGUMENT When Congress enacted 285 of the Patent Act, it codified existing judicial interpretations of 285 s predecessor, which held that attorney fee awards in patent cases were limited to situations involving specific litigation misconduct, willful patent infringement, inequitable conduct or fraud in procuring a patent, or vexatious or unjustified litigation on the part of the losing party in other words exceptional cases. Absent such misconduct, courts were not authorized to exercise discretion to award attorney fees. The Federal Circuit concisely articulated the law regarding 285 in Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d In Brooks, the court identified the categories of inappropriate conduct that would allow courts to exercise discretion to award attorney fees, including vexatious and unjustified litigation. The court also adopted a test to determine whether the very lawsuit itself constituted such vexatious or unjustified litigation. The Federal Circuit recognized, as did courts before it, that the filing of a lawsuit is constitutionally protected unless it is a sham and that exceptional cases are grounded in misconduct. Indeed, these principles had been recognized by the circuit courts since the enactment of 285. Octane and its amici ask the Court to reinterpret 285, contrary to 60 years of consistent interpretation, to give district courts full discretion to determine additional types of cases that would permit an

29 16 award of attorney fees along with the discretion to award those fees in those cases. However, this request is inconsistent with the text of 285 and with its legislative history. Octane s arguments rest on the fiction that the Federal Circuit has tied the hands of the district courts by allowing only sham litigation to qualify as an exceptional case. To the contrary, the Federal Circuit has repeatedly stated and held, consistent with prior authority, that the exceptional case inquiry is much broader and may be based on various forms of misconduct. Because the text and legislative history of 285 and its long-standing interpretation by the courts do not support Octane s proposed change in the law, Octane looks beyond patent law to the fee provision of the Lanham Act. But Octane s arguments are still without support. Despite significant disagreement among the circuit courts of appeals, their interpretations of the Lanham Act show that, as is true under 285, exceptional cases under the Lanham Act are also grounded in misconduct. Lastly, although Octane recasts the facts of this case to focus on the patent troll debate, Congress enacted 285 long before the arrival of patent trolls, and this Court does not engage in policy-making through statutory interpretation. Today, 285 means what Congress intended it to mean in 1952, namely, that courts may exercise discretion to award attorney fees in cases of specific litigation misconduct, willful patent infringement, inequitable conduct or fraud in procuring a patent, or vexatious or unjustified litigation on the part of the losing party. Because this case is devoid of any such misconduct, the Court should affirm the judgment of the district court and Federal Circuit that an award of attorney fees is inappropriate.

30 17 ARGUMENT I. THE LOWER COURTS APPLIED THE CORRECT STANDARD TO DETERMINE THAT THIS IS NOT AN EXCEPTIONAL CASE UNDER 285. Section 285 creates a narrow exception to the American Rule against awarding attorney fees to a prevailing party by granting courts discretion to award fees only in exceptional cases. Congressional intent and long-standing precedent make clear that absent specific misconduct, a case is exceptional only when it is objectively baseless and involves bad faith. A. Section 285 s Exceptional Case Language Incorporates The Prior Judicial Standards. When it enacted 285, as the historical notes to this provision make clear, Congress adopted the standards applied by courts interpreting that statute s predecessor, 70 of the 1946 statute. Congress explained that 285 is substantially the same as the corresponding provision in U.S.C. 285, Historical and Revision Notes. The phrase in exceptional cases has been added as expressing the intention of 70, as shown by its legislative history and as interpreted by the courts. Id. (emphasis added); see Federico, supra, at 216. Thus, the statutory phrase exceptional cases necessarily draws its meaning from the decisions interpreting 70. Monolith, 407 F.2d at 293 ( The present section 285 is a codification of the interpretation placed by the courts upon the prior statute. ); Cf. Skilling v. United States, 130 S. Ct. 2896, 2932 (2010) (interpreting 18 U.S.C. 1346, according to the pre-existing honest-

31 18 services fraud cases that Congress intended to incorporate into the statute). Contrary to the suggestion of both Octane and the United States (Octane Br ; U.S. Br. 9 14), the courts interpreting 70 had not merely applied that statute according to some unmoored assessment of reasonableness or the totality of the circumstances. Rather, courts exercised their discretion in particular circumstances, typically involving misconduct by a party, and adopted particular standards governing when an award of fees would be appropriate. Fraud on the patent office or litigation misconduct, for example, could warrant an award of fees. See Dubil, 184 F.2d at 903; Vischer Prods., 92 F. Supp. at 139. The courts also explained that in the absence of specific misconduct of this kind, the discretion to award fees should not be exercised except in situations involving vexatious and unjustified litigation. Am. Chain & Cable Co., 199 F.2d at 330; Laufenberg, 187 F.2d at 825 ( statute should be invoked only where vexatious or unjustified litigation is shown ). Indeed, the United States in its brief provides examples of conduct that could support a fee award under the 1946 statute, and they fall into these precise categories: fraud on the Patent Office, willful infringement, litigation misconduct, or vexatious and unjustified litigation. (U.S. Br ) B. The Federal Circuit s Exceptional Case Standard Appropriately Follows Prior Judicial Standards. The Federal Circuit s standard for determining whether a case is exceptional under 285 correctly incorporates the case law standards that Congress sought to codify with the phrase exceptional cases. As the Federal Circuit explained in Brooks, courts may find a case exceptional when there has been

32 19 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. Brooks Furniture, 393 F.3d at This standard tracks the prior case law interpreting 70 that Congress incorporated into 285. Throughout its brief, Octane ignores the numerous grounds upon which an exceptional case finding may be based and pretends that Brooks adopted a single standard based on PRE that a case must be objectively baseless and brought in bad faith. 393 F.3d at Octane misunderstands Brooks. The Federal Circuit laid out the various grounds that would support an exceptional case determination and stated that the objectively baseless and bad faith test applies only in the absence of misconduct in conduct of the litigation or in securing the patent. Id. Once litigation misconduct and inequitable conduct are removed from the list in Brooks, the only remaining category recognized by courts applying 285 and its predecessor is vexatious or unjustified litigation. Id. And that category, as the Brooks court recognized, corresponds to the sham litigation category identified in PRE, i.e., a case that is objectively baseless and brought in bad faith. Among the bundle of rights given to patent holders is the right to exclude others and to petition the courts to resolve any dispute concerning that right to exclude. See U.S. Const. art. I, 8, cl. 8; U.S. Const. amend. I; PRE, 508 U.S. at This right to petition 8 The First Amendment provides that Congress shall make no law abridging the right of the people to petition the Government for a redress of grievances. U.S. Const. amend. I.

33 20 is one of the most precious of the liberties safeguarded by the Bill of Rights. BE & K Constr. Co. v. NLRB, 536 U.S. 516, 524 (2002). The right to file and maintain a lawsuit is constitutionally protected unless, as this Court recognized in PRE, the lawsuit is a sham. PRE, 508 U.S. at 60 61; BE & K Constr., 536 U.S. at 525 ( [T]he right of access to the courts is but one aspect of the right to petition. ). 9 For the lawsuit to be a sham, it must first be objectively baseless, PRE, 508 U.S. at 60, in other words unjustified, as cases applying the 1946 attorney fee statute stated. And a sham lawsuit also requires bad faith, id., another requirement consistent with cases interpreting the 1946 law, see Park-in-Theatres, 190 F.2d at 142, and consistent with the notion of vexatious, which is commonly understood to mean [c]ausing vexation or [i]ntend[ing] to harass or annoy. See The American Heritage Dictionary 1915 (4th ed. 2009). Indeed, the relationship between the concerns at issue in PRE and the vexatious and unjustified litigation standard was recognized and adopted by circuit courts in early interpretations of 285. As one court explained shortly after the enactment of 285: In order to make certain that awarding of attorney s fees should not thwart the general policy 9 This protection was originally recognized and formalized in the antitrust context; however, the antitrust Noerr-Pennington doctrine is widely applied outside the antitrust context. See, e.g., BE & K Constr., 536 U.S. at 525; Sosa v. DIRECTV, Inc., 437 F.3d 923, 931 (9th Cir. 2006); IGEN Int l, Inc. v. Roche Diagnostics GmbH, 335 F.3d 303, 310 (4th Cir. 2003); Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119, (3d Cir. 1999). The Noerr-Pennington doctrine serves to ensure that, absent misconduct, the exercise of constitutionally protected rights will not expose a party to liability that would not otherwise exist.

34 21 that Courts are open for resolution of controversy without the litigants bearing the ultimate actual costs of the machinery, this has given rise to the rule that to award attorney s fees to the defendant, the plaintiff's action must have been instituted in bad faith, as vexatious, unjustifiable litigation with no real basis. Livesay Window, 251 F.2d at 475. The Federal Circuit in Brooks merely restated the long-standing view of exceptional cases under 285, a view firmly based on congressional intent and the cases decided under the 1946 statute. See also Am. Chain & Cable Co., 199 F.2d at 330 ( discretion should not be exercised except in situations involving vexatious and unjustified litigation ). C. The Brooks Court Properly Relied On PRE. Despite the match between the vexatious-andunjustified-litigation standard and the sham litigation standard from PRE, Octane and its amici contend that PRE is inapplicable. (Octane Br ; U.S. Br ) They are wrong. Octane argues that the First Amendment has no application in the context of allegedly weak patent suits or fee shifting statutes (Octane Br. 24), but offers no support for that proposition. Octane, echoed by the United States, also argues that the Noerr- Pennington doctrine is limited to circumstances where filing a lawsuit could be treated as a distinct and actionable wrong and that the doctrine has no applicability to fee-shifting statutes. (Id. at 23 25; U.S. Br ) Whatever the merit of that argument as applied to fee-shifting statutes that are not premised on wrongdoing or misconduct, it has no relevance here. No one disputes that exceptional cases

35 22 for purposes of 285 are cases involving some form of culpable conduct by a litigant. Where, as here, there is no litigation misconduct or inequitable conduct in procuring the patent, a prevailing accused infringer seeking an award of fees is asking the court to treat the lawsuit itself as misconduct. Under these circumstances, particularly where Congress made clear its intent that fee awards should not be the norm in patent cases, the Court should construe 285 to avoid the risk of burdening the exercise of constitutionally protected rights. See Sosa v. DIRECTV, Inc., 437 F.3d 923, 931 (9th Cir. 2006) ( Under the Noerr-Pennington rule of statutory construction, we must construe federal statutes so as to avoid burdening conduct that implicates the protections afforded by the Petition Clause unless the statutes clearly provide otherwise. ). Cf. BE & K Constr., 536 U.S. at (narrowly construing statute to avoid constitutional question); E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 138 (1961) ( The right of petition is one of the freedoms protected by the Bill of Rights, and we cannot, of course, lightly impute to Congress an intent to invade these freedoms. ). There is no indication in the statutory language or legislative history of 285 that Congress intended to discourage patentees from bringing reasonable claims of infringement by raising the specter of fee shifting even when the patentee s legitimate claims are on less than the firmest ground. See Kilopass Tech., Inc. v. Sidense Corp., F.3d, 2013 WL , at *13 (Fed. Cir. Dec. 26, 2013). Before unleashing a regime that will seriously chill the exercise of First Amendment protected rights, the Court should insist that Congress expressly declare that attorney fees can be imposed on a losing party

36 23 whenever a court determines based on the totality of the circumstances that the litigation was unreasonable. Congress clearly did not do that in 285. D. The Arguments Presented By Octane And Its Amici Are Without Merit. 1. Octane s Arguments are Premised on the Fiction that an Exceptional Case Finding Always Requires Objective Baselessness and Bad Faith. Octane s arguments rest on the fiction that the Federal Circuit permits exceptional case determinations against a patentee only if bad faith and objective baselessness are shown. (See Pet. at i (calling the Brooks two-part determination exclusive ); Octane Br. at i (referring to the Federal Circuit s rigid test ).) Octane therefore asks this Court to hold that district courts may find cases exceptional in the absence of bad faith and objective baselessness based on their assessment of the totality of the circumstances. But courts are already free to find patent cases exceptional in the absence of bad faith or objective baselessness because not all categories of exceptional cases such as cases involving Rule 11 violations require bad faith or objective baselessness. See, e.g., Chambers v. NASCO, Inc., 501 U.S. 32, 47 (1991) (Rule 11 violations do not require a showing of bad faith); Brooks Furniture, 393 F.3d at 1381 (noting that cases may be exceptional for conduct that violates Fed.R.Civ.P. 11, or like infractions ). Indeed, the Federal Circuit has expressly rejected the argument that both bad faith and objective baselessness are always necessary prerequisites for a determination that a case brought by the patentee is exceptional. Monolithic Power Sys., Inc. v. O2 Micro

37 24 Int l Ltd., 726 F.3d 1359, 1367 (Fed. Cir. 2013). In Monolithic Power, the district court, considering the totality of the circumstances, found that the patentee engaged in litigation misconduct and unprofessional behavior and therefore found the case exceptional under 285. Id. On appeal, the patentee argued that Brooks required a showing of both bad faith and objective baselessness. Id. at The Federal Circuit rejected that argument and stated that bad faith, objective basslessness, or [a]dditional components are simply not required for an exceptional case finding based on litigation misconduct. Id. at 1367; see also Old Reliable Wholesale, Inc. v. Cornell Corp., 635 F.3d 539, 549 (Fed. Cir. 2011) ( Where a party engages in litigation misconduct, fees can be awarded pursuant to section 285 even absent clear and convincing evidence that an asserted claim or defense is objectively baseless. ); E-Pass Techs., Inc. v. 3Com Corp., 559 F.3d 1374, 1379 (Fed. Cir. 2009) (noting that the two-part Brooks determination is not exclusive) Octane s Interpretation of 285 Renders the Phrase In Exceptional Cases Superfluous and Directly Contravenes Congressional Intent. Both ICON and Octane agree that the word may in 285 gives courts discretion to award attorney fees. Cf. Fogerty v. Fantasy, Inc., 510 U.S. 517, Citing Old Reliable Wholesale, Octane asserts that the Federal Circuit narrowly defines litigation misconduct to be misconduct independently sanctionable conduct by a party or his counsel during the course of the litigation. (Octane Br. 25 n.5.) In fact, Old Reliable Wholesale states only that [l]itigation misconduct generally involves unethical or unprofessional conduct by a party or his attorneys during the course of adjudicative proceedings. 635 F.3d at 549.

38 25 (1994) ( The word may clearly connotes discretion. ). Where ICON and Octane disagree is whether the phrase in exceptional cases has independent meaning. See United States v. Menasche, 348 U.S. 528, (1955) ( It is our duty to give effect, if possible, to every clause and word of a statute. (quoting Inhabitants of Montclair Twp. v. Ramsdell, 107 U.S. 147, 152 (1883)). Octane argues that the term exceptional, like the term may, gives courts discretion to award attorney fees. (Octane Br ) Under Octane s view of the statute, either in exceptional cases or may award thus is entirely superfluous. Octane s argument ignores one of the most basic interpretive canons that a statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant. Corley v. United States, 556 U.S. 303, 314 (2009). It also ignores the fact that, when Congress actually intends to give district courts discretion in a broad range of patent cases, it does so expressly and does not confine the exercise of discretion to exceptional cases. See 35 U.S.C. 283 (courts may grant injunctions in accordance with the principles of equity ); ebay Inc. v. MercExchange, LLC, 547 U.S. 388, (2006) (explaining the traditional equitable discretion granted to courts under 283). Apart from flying in the face of the statute s language and basic principles of statutory construction, Octane s argument is inconsistent with the legislative history. Congress amended then 70 to indicate that courts discretion to award fees was limited to exceptional cases. 35 U.S.C Section 70, 285 s predecessor, stated that [t]he court may in its discretion award reasonable attorney s fees. 35 U.S.C. 70 (1946). Congress removed language that could