Section 285 of the Patent Act provides that a district “court in exceptional cases may award reasonable attorney fees to the prevailing party.” The Supreme Court in Octane Fitness v. Icon Health held that an exceptional case “is simply one that stands 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.” Under 35 U.S.C. § 285, parties show entitlement to fees by preponderance of the evidence. Id. District courts determine exceptionality using their discretion, considering the totality of the circumstances. Id. The Federal Circuit reviews “all aspects of a district court’s § 285 determination” for abuse of discretion. Highmark v. Allcare Health Mgmt. (“Although questions of law may in some cases be relevant to the § 285 inquiry, that inquiry generally is, at heart, rooted in factual determinations.”)
Prevailing party generally: “Under § 285, a party may not be awarded fees unless it is the prevailing party.” Imperium IP Holdings v. Samsung . (reversing prevailing party finding after reversing the underlying judgment of liability). To be a prevailing party, Federal Circuit law requires that a plaintiff (1) “received at least some relief on the merits, and (2) that relief must materially alter the legal relationship between the parties by modifying one party’s behavior in a way that directly benefits’ the [plaintiff].” SSL Services, LLC v. Citrix Systems. For defendants, the relevant inquiry “is not limited to whether a defendant prevailed on the merits, but also considers whether the district court’s decision…effects or rebuffs a plaintiff’s attempt to effect a material alteration in the legal relationship between the parties.” Raniere v. Microsoft. “A party does not need to prevail on all claims to qualify as the prevailing party.” SSL Services. Moreover, prevailing status “does not automatically entitle [a party] to any particular level of fees.” Id. (“there is a distinction between being eligible for fees as the prevailing party and the discretionary decision to award fees”).
Appellate review. The Federal Circuit “review[s] the district court’s determination of prevailing party status de novo.” Pragmatus Telecom v. Newegg. Moreover, a “decision awarding attorney fees to a prevailing party must be vacated when the underlying decision as to which that party prevailed is reversed” on appeal. See, e.g., TNS Media Research v. TiVo Research & Analytics (vacating attorney fee award after reversing-in-part and vacating-in-part the underlying merits decision in the substantive appeal); see also CellSpin Soft v. Fitbit (“The district court’s error in granting the motions to dismiss necessitates vacatur of its attorney fees award.”); Sealant v. TEK Global; Imperium IP; Chaffin v. Braden.
Prevailing plaintiff. A plaintiff “prevails when actual relief on the merits of his claim materially alters the legal relationship between the parties in a way that directly benefits the [plaintiff].” SSL Services. Despite some success by a defendant in defending against some of the plaintiff’s claims, the plaintiff may still be the prevailing party. Id. (vacating the district court’s finding of no prevailing party and remanding for the district court to assess the amount of fees or costs to award to plaintiff “in connection with the claims on which it prevailed”). In SSL Services, the Federal Circuit held the plaintiff to be the prevailing party despite a finding of non-infringement as to one patent because the lower court found that plaintiff “proved willful infringement of the three asserted claims” of another patent.
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Jurisdictional dismissal with prejudice. A defendant need not prevail on the merits to be the prevailing party for attorney fees under § 285. Raniere. A jurisdictional dismissal with prejudice may entitle a defendant to attorney fees. Id. In Raniere, the Federal Circuit held that the defendants were the prevailing parties where the defendants obtained a “dismissal with prejudice for lack of standing.” The Federal Circuit reasoned that the defendants “won through the court’s dismissal of [plantitff]’s case with prejudice.” Defendants won by preventing the plaintiff “from achieving a material alteration of the relationship between them, based on a decision marked by judicial imprimatur.” In the alternative, the Federal Circuit in Raniere held that a jurisdictional dismissal for lack of standing with prejudice is a decision on the merits. See also Pragmatus (“The dismissal of a claim with prejudice is a judgment on the merits under the law of the Federal Circuit.”) The Federal Circuit in Raniere reasoned that the “dismissal with prejudice of [plaintiff]’s action gave [defendants] the full relief to which they were legally entitled.” In Raniere, “the district court found explicitly that the standing defect was unlikely to be curable.”
Voluntary dismissal with a covenant not to sue. A voluntary dismissal by plaintiff with a covenant not to sue may make the defendant the prevailing party for attorney fees. Pragmatus. In Pragmatus, the Federal Circuit found the defendant to be a prevailing party after the plaintiff voluntarily dismissed its claims against the defendant following settlement with third parties. The Federal Circuit reasoned that “the dismissal includes a covenant not to sue [the defendant] for any of its activities prior to the [voluntary dismissal] motion as to which [the plaintiff] might claim infringement.” Id. Defendant was the prevailing party despite that the district court “made no finding regarding any substantive issue in the case” and that there was not “a single substantial court decision” favoring the defendant. Id.