Background
Allcare Health Management held patents claiming computerized managed care systems for managing healthcare service authorization and billing. Allcare sued Highmark, a major health insurance company, alleging infringement of its managed care patents. After Highmark successfully defended the suit — winning on both non-infringement and invalidity grounds — it sought attorneys’ fees under 35 U.S.C. § 285, arguing the case was exceptional because Allcare had pursued objectively baseless infringement claims and had engaged in litigation misconduct.
The district court agreed, finding the case exceptional under the then-governing Brooks Furniture two-part test: (1) the litigation was objectively baseless because no reasonable litigant could have expected to succeed on the merits; and (2) Allcare had pursued the litigation in subjective bad faith. The district court awarded Highmark several million dollars in attorneys’ fees and costs. Allcare appealed, challenging both the exceptional case finding and the standard of review the Federal Circuit should apply.
The Court’s Holding
The Federal Circuit affirmed. The court applied the Brooks Furniture framework and found the district court had not abused its discretion in finding Allcare’s claims objectively baseless: the asserted claims, when properly construed, did not read on Highmark’s accused products, and Allcare had no reasonable basis to believe otherwise. The court also upheld the subjective bad faith finding, based on Allcare’s continuation of litigation after the objective weakness of its positions became clear.
On the standard of review, the Federal Circuit held that exceptional case determinations under § 285 were reviewed de novo as to objective baselessness, but under an abuse of discretion standard as to the discretionary award decision once exceptionality was established. This bifurcated review standard was itself later addressed by the Supreme Court in Highmark’s subsequent certiorari proceeding.
Key Takeaways
- Under the then-prevailing Brooks Furniture framework, an exceptional case under § 285 required a showing of both objective baselessness (no reasonable litigant could have expected to prevail) and subjective bad faith (the plaintiff knew or should have known the claim lacked merit).
- The Federal Circuit’s de novo review of the objective baselessness prong made exceptional case findings difficult to obtain and sustain on appeal — a concern later addressed by the Supreme Court’s more flexible Octane Fitness standard (2014).
- Continuing to press claims after their legal weakness becomes clear — especially after adverse claim construction — can provide evidence of bad faith supporting an exceptional case finding.
- Both Highmark v. Allcare and Octane Fitness v. ICON Health & Fitness were decided by the Supreme Court in 2014, fundamentally relaxing the § 285 exceptional case standard and clarifying the appropriate standard of review.
Why It Matters
Highmark v. Allcare was part of a growing judicial and public backlash against patent assertion entities — so-called “patent trolls” — that pursued broad infringement claims against operating companies with meritless or overreaching theories. The case exemplified the litigation pattern critics identified: a non-practicing entity asserting broadly claimed business method patents against companies in established markets, pressing claims to settlement rather than adjudication on the merits.
The exceptional case fee award in Highmark’s favor was unusual at the time, given the demanding two-part test that made § 285 relief rarely available. When the Supreme Court revisited both Highmark and Octane Fitness in 2014, it relaxed the exceptional case standard significantly — abandoning the rigid two-part test in favor of a totality-of-circumstances analysis that gave district courts broader discretion to award fees in cases involving unreasonable litigation conduct. The 2014 decisions have made § 285 a meaningfully more available deterrent against frivolous patent litigation.