High court finds for Minnesota firm in dispute over legal fees

  • Article by: JIM SPENCER , Star Tribune
  • Updated: April 29, 2014 - 9:32 PM

Octane Fitness sought $2.3 million in fees from a company that sued over an unused patent that was “sitting on the shelf.”

Octane is in a legal dispute with Icon over its Q47xi elliptical machine.

– In a decision that experts say could deter frivolous patent lawsuits, the U.S. Supreme Court ruled Tuesday that a Brooklyn Park maker of exercise equipment will be able to collect legal fees from a company that unsuccessfully sued it for patent infringement.

The Minnesota company, Octane Fitness, had sought legal fees after a judge dismissed a patent infringement suit brought by another equipment maker, Icon Health & Fitness.

Lower courts refused the request, citing a 2005 court decision that allows collection of such fees only in patent cases involving “material inappropriate conduct,” cases where claims are “baseless” and in “bad faith.”

The Supreme Court unanimously ruled that this standard was too restrictive and undermined federal law and judges’ discretion. Octane will now be able to seek legal fees from Icon, which at this point total $2.3 million.

“I’m just happy for American business,” said Octane co-founder and CEO Dennis Lee in an interview with the Star Tribune. “This is going to help a lot of folks.”

Icon, one of the country’s major makers of exercise equipment, declined to address the Supreme Court decision.

“The case was remanded back to district court,” said Colleen Logan, the company’s vice president of marketing, in a statement to the Star Tribune. “So we are unable to provide comment on pending litigation.”

The Octane decision, written by Justice Sonia Sotomayor, said judges in district courts need more latitude to determine what makes a patent case “exceptional.” Patent law says that legal fees may be awarded to the winning party in a dispute only in “exceptional cases.”

That does not necessarily mean narrowly defined misconduct, the Supreme Court ruled in the Octane case.

University of Minnesota patent expert Tom Cotter said the ruling should drive off some nuisance lawsuits brought by so-called “patent trolls” who file dozens of suits in hopes of getting cash settlements from firms that can’t afford to fight them in court.

Those suits become “less appealing” as the chance of being socked with legal fees increases, Cotter said. For that reason, he said, the Octane decision “will have an appreciable impact.”

Icon sued Octane for patent infringement on a part for an elliptical trainer that Icon never offered for sale commercially but on which it held a patent. A judge threw out the claim, saying the Octane trainer in question did not violate Icon’s patent.

Icon documents turned over as part of the suit revealed e-mails between Icon officials that Octane claimed showed the patent lawsuit was nothing more than a “commercial strategy.”

“One e-mail, sent from Icon’s vice president of global sales to two employees, read: ‘We are suing Octane. Not only are we coming out with a greater product to go after them, but throwing a lawsuit on top of that,’ ” the Supreme Court decision noted.

In another e-mail a year later, the same executive told a staff member that Icon based its suit on an “old patent we had for a long time that was sitting on the shelf. They are just looking for royalties.”

The appeals court said those e-mails were not enough to establish that the infringement suit was baseless and filed in bad faith.

In overturning the appeals court, the Supreme Court set a more flexible standard for measuring what constitutes the kind of behavior that can result in the imposition of legal fees.

“A district court may award fees in the rare case in which a party’s unreasonable, though not independently sanctionable, conduct is so ‘exceptional’ as to justify an award,” Sotomayor wrote for the court.

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