(AP photo/J. Scott Applewhite)

The Supreme Court has used a case involving Highmark Inc. — a Pittsburgh health insurer — to set guidelines for how federal courts handle awards of legal fees in patent law cases.

Section 285 of the federal Patent Act lets a federal court make one party pay the other party’s legal feels in “exceptional cases” but does not define the term “exceptional cases.”

The Supreme Court ruled today in a high-profile case, Octane Fitness LLC vs. ICON Health & Fitness Inc., that Section 285 gives a U.S. district court discretion to decide whether a party in a patent case has conducted so badly that it ought to pay the other party’s legal fees.

“Under the standard announced today, a district court may award fees in the rare cases in which a party’s unreasonable conduct — while not necessarily independently sanctionable — is nonetheless so ‘exceptional’ as to justify an award of fees,” Justice Sonia Sotomayor wrote in an opinion for that court.

All nine justices agreed with the ruling. One justice, Antonin Scalia, disagreed with three of the footnotes.

In the second decision released today, on Highmark Inc. vs. Allcare Health Management System Inc. (Case Number 12-1163), members of the court ruled unanimously that a federal appeals court has the authority to review a district court’s use of discretion in Section 285 cases “de novo” — from scratch.

Allcare owns U.S. Patent Number 5,301,105. The patent, filed in April 1991, covers methods a managed care company can use to decide whether review of a patient’s use of medical services is necessary. The patent also covers efforts to prevent authorization and payment before a reviewer has approved care.

Allcare sued Highmark over alleged infringement of the patent in April 2002.

Highmark — the holder of the Blue Shield license in central Pennsylvania, and the Blue Cross and Blue Shield licenses in western Pennsylvania, West Virginia and Delaware – won the legal battle, and the Federal Circuit Court of Appeals upheld the district court ruling.

The district court decided in April 2010 that Allcare’s litigation had been so “vexatious” that the company should pay Highmark’s legal bills.

Highmark has been trying to get Allcare to pay $4.9 million in attorney’s fees and other legal costs.

Members of the Federal Circuit eventually voted 6-5 to throw out the award of attorney’s fees, saying it should be able to review whether the original patent infringement case was baseless without deferring to the decision of the district court.

The Supreme Court holds in the new ruling that “an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s Section 285 determination.”

“Although questions of law may in some cases be relevant to the Section 285 inquiry, that inquiry generally is, at heart, ‘rooted in factual determinations,’” Sotomayor writes in the opinion. 

Disputes about “abuse of discretion” often arise in cases involving claim determinations made by administrators of group benefit plans subject to the Employee Retirement Income Security Act (ERISA). Sotomayor does not mention ERISA in the Highmark opinion. 

See also:

  1. Supreme Court hears Highmark arguments
  2. Supreme Court mulls patent case
  3. Highmark Names Winkenwerder CEO