Octane Fitness' recent victory over a "patent troll" sets an important precedent for other small business owners facing malicious legal action
A seven-year patent infringement battle between Brooklyn Park-based Octane Fitness and Logan, Utah-based ICON Health & Fitness came to a close last month with a decisive ruling by the U.S. District Court for the State of Minnesota.
By the relatively staid standards of patent law, the battle was epic. For starters, the district court’s decision compelled ICON to reimburse Octane’s legal fees and costs to the tune of nearly $2 million.
Perhaps more impressively, the clash — which reached the U.S. Supreme Court in early 2014 — helped establish an important new legal precedent around attorney fee reimbursement for patent infringement litigation defendants.
ICON’s Initial Claims
In our October issue, we took a closer look at patent trolls, also known as non-practicing entities (NPEs). In the most egregious cases, NPEs basically accumulate vaguely worded patents, find companies that may or may not be infringing on them, and send threatening letters demanding payment or else. (Else usually involves a lawsuit, or at least the threat of one.)
ICON Health & Fitness doesn’t fit the mold of a blatant patent troll. It makes and distributes some recognizable fitness equipment brands, including HealthRider, Reebok and Gold’s Gym (though the latter two brands are licensed, not owned).
Still, the legal basis for its initial action against Octane was questionable at best. Beginning in 2009, ICON claimed that two separate components of Octane’s elliptical machines — an electronic heart rate monitor and a pedal linkage system — infringed on patents that it held.
ICON dropped the heart rate claim before the case got very far. The pedal linkage claim made it all the way to the U.S. Court of Appeals, which found it without merit and effectively ended ICON’s challenge. Octane requested reimbursement of its legal costs, which at this point had ballooned into seven-figure territory. But both courts denied its request, using an inflexible standard requiring reimbursement of “reasonable fees” only in “exceptional cases.”
Octane Fitness v. ICON Health & Fitness: A Precedent to Discourage Patent Trolling?
Octane appealed the denial to the U.S. Supreme Court, which heard the case (Octane Fitness v. ICON Health & Fitness) in February 2014. In a unanimous decision authored by Justice Sonia Sotomayor, the Court reversed the lower courts’ decision and effectively established a new precedent for legal fee reimbursement in patent infringement cases with “an objectively low likelihood of success.”
Per Scotus Blog, Justice Sotomayor’s decision noted that the existing court decision establishing the precedent failed to define “exceptional.” Accordingly, courts were forced to rely on the word’s dictionary definition: “rare,” “uncommon,” “not ordinary.” But, since “low likelihood” patent infringement cases (see: patent troll) are distressingly common, such cases are by definition not exceptional.
Ultimately, Sotomayor’s decision reduced the burden of proof necessary for a court to rule a patent infringement case meritless (or “low likelihood”). Her reasoning could increase patent trolls’ financial exposure to meritless cases. If there’s a decent chance that they’ll be forced to pay the defendant’s legal fees after their frivolous case is thrown out, a rational NPE is likely to hesitate before bringing such a case.
And that could be very good news for Minnesota’s small and midsize business owners.