The key litigated issue before the US Court of Appeals for the Federal Circuit was whether to grant en banc review of the panel's decision that an exceptional case determination, which requires an assessment of the objective reasonableness, should be subject to de novo review.

After entering a final judgment of noninfringement in favor of Highmark, the US District Court for the Northern District of Texas ruled on Highmark's motion for an exceptional case finding, an award of attorneys' fees and costs under Section 285 of the Patent Act, and sanctions under Federal Rule of Civil Procedure (FRCP) 11. The district court found that Allcare asserted frivolous allegations of infringement, shifted its claim construction positions throughout the proceedings, made improper arguments regarding res judicata and collateral estoppel and made misrepresentations related to a motion to transfer venue. After determining that the case was exceptional, and that the patentee's conduct violated FRCP 11, the district court awarded attorneys' fees, expert fees and costs to the accused infringer. The district court later vacated the FRCP 11 sanctions.

Allcare appealed the court's extraordinary case determination and judgment awarding attorneys' fees to the Federal Circuit.

The Federal Circuit's August 7, 2012 decision resulted in a divided panel. Judge Dyk in the majority opinion found that the Federal Circuit recently clarified in its decision on willful infringement in Bard Peripheral Vascular, Inc. v. W.L. Gore & Associates, Inc., that objective reasonableness is a question of law (Legal Update, Objective Recklessness for Willful Patent Infringement is a Matter of Law: Federal Circuit). The majority therefore held that the objective reasonableness test for exceptional cases was also entitled to de novo review. The Federal Circuit then addressed each of the claims asserted by the patentee separately and found, after de novo review, that only one of the claims merited an exceptional case finding.

Judge Mayer, dissenting in part, argued that a highly deferential standard was instead appropriate. He asserted that Bard "usurps the fact-finding role of the trial courts and is plainly inconsistent with [Federal Circuit] precedent." He remarked that Bard was of no precedential value and the deferential standard of the circuit could only be superseded by the court en banc.

Highmark, the accused infringer, sought a rehearing en banc, challenging the holding that an exceptional case determination should be reviewed de novo.

On December 6, 2012, the Federal Circuit issued an order denying rehearing en banc.

The denial was accompanied by a concurring opinion by Judge Dyk, joined by Circuit Judge Newman. Five members of the court dissented, and Judges Moore and Reyna each filed dissenting opinions joined by the other dissenting judges. Judge Linn, who joined the denial, assumed senior status after participating in the decision.

Responding to the dissenting opinions, Judge Dyk's opinion noted that both Section 284 of the Patent Act, which allows enhanced damages for willful infringement and was at issue in Bard, and Section 285 of the Patent Act require an objective reasonableness standard to be applied by the district court. In his view, the question on which the members of the panel differed was whether that determination, and in this case the district court's claim construction on which it was based, should invoke de novo review.

Judge Dyk responded to Judge Moore, who in her dissent, remarked that the deferential standard applied by courts in the context of FRCP 11 should be dispositive of the issue. First, Judge Dyk noted that the language of Section 285 does not mandate deference to the district court's discretion. Second, Judge Dyk contrasted awards under Section 285 and sanctions under FRCP 11, noting that awards under Section 285 serve a compensatory function and are generally far greater than sanctions under FRCP 11. He remarked that these larger compensatory awards are entitled to a more intense standard of review. Moreover, he felt the Federal Circuit is uniquely qualified to review determinations regarding exceptional cases because:

In her dissent, Judge Moore asserted that the Highmark panel was inconsistent with the Supreme Court's prior rulings and erroneous in its reliance on Bard, which she felt to be wrongly decided and worthy of en banc review. She noted that the Highmark decision demonstrated a trend of creating patent-specific rules and failing to accord the district court deference that is reflected in Bard, with respect to wilfulness, and Cybor Corp v. FAS Techs., Inc., with respect to claim construction. In her view, the issues in these circumstances present mixed questions of law and fact. They may still be decided by the judge, as in the case of claim construction under Markman, but need not therefore be characterized as matters of law that are not accorded deference.

In his dissent, Judge Reyna also took issue with the majority's concurring opinion's and panel's parallels to the willful infringement context and overreliance on Bard.

The split decision to deny a rehearing leaves the standard of review for exceptional case determinations unsettled, and it is likely that the court will revisit this issue. The dissents characterized the panel's decision in Highmark as a departure from Federal Circuit precedent. If this is the case, then only an en banc review may overrule the precedent. This means that the dissenting members of the court may not abide by the panel's decision, and the issue may remain unresolved until an en banc or Supreme Court review.

The dissents' focus on Bard as incorrectly decided also highlights that decision's problematic status. Practitioners should be mindful of whether that decision is revisited en banc or whether the issue of objective recklessness in a wilfulness determination is revisited by the Federal Circuit at a later date.