District courts get more discretion — and more scrutiny

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.