A recent PatLit blog post by David Berry of Brooks Kushman PC, “Data Shows Spike in Patent Attorney Fee Motions and Awards After Octane,” reports on an increase in attorney fee requests and attorney fee awards in patent litigation since the landmark decision in Octane Fitness v. Icon Health & Fitness Inc. The post reads:
Prior to last year’s Supreme Court decision in Octane Fitness LLC v. Icon Health & Fitness, Inc., 134 S. Ct. 1749 (2014) and Highmark, Inc. v. Allcare Health Mgmt. Sys., 134 S. Ct. 1744 (2014), district courts awarded attorney fees in patent cases only in extreme circumstances. In Octane, however, the Court lowered the bar for fee awards. Furthermore, in Highmark, the Court made it clear that district court judges have broad discretion in awarding fee for litigation misconduct.
The Octane Court focused on the plain meaning on 35 U.S.C. § 285, which simply states that, “The court exceptional case may award reasonable attorney fees to the prevailing party.” The Court noted that, “This text is patently clear. It imposes one and only one constraint on the district courts’ discretion to award attorney’s fees in patent litigation: The power is reserved for ‘exceptional’ cases.” 134 S. Ct. at 1755-56. In turn, the Court held that an “exceptional” case within the statute is “simply one that stands out from the others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of other discretion, considering the totality of the circumstances.” Id. At 1756.
The combination of Octane and Highmark has had a significant effect on attorney fee awards in patent cases. According to a recent report by the Federal Circuit Bar Association (FCBA) submitted to Congress earlier this year, motions for fees filed by accused infringers were granted 36 percent of the time following Octane, compared to only 13 percent of the time in the year prior to the decision. In addition, Octane apparently has resulted in a sharp increase in the number of fee motions. In the year prior to Octane, accused infringers filed an average of approximately four fee motions per month. That rate increased over seven motions per month in the months following the decision.
For more on the FCBA report, read “A Comparison of Pre Octane and Post Octane District Court Decisions on Motions for Attorneys’ Fees Under Section 285” (pdf).
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A recent Texas Lawyer story, “Fifth Circuit Kills Controversial Attorney Fee Rule,” reports that, in a decision that will come as a relief to Texas bankruptcy lawyers, the U.S. Court of Appeals for the Fifth Circuit has done away with its controversial attorney fee standard that allows trial courts to perform “hindsight” analysis on whether their work benefited an estate before they can get paid.
Yet it remains to be seen whether the Austin law firm won a recent decision can use it to restore their $134,000 attorney fee request, an amount that was cut to $19,409—an 85 percent reduction---by U.S. bankruptcy court in the Western District of Texas.
In the underlying case, Barron & Newburger v. Texas Skyline, in May 2010, while facing a major state court judgment against him in a business dispute, debtor Clifford Woerner hired Barron & Newburger (B&N) to file a voluntary Chapter 11 bankruptcy relief, which brought the state court proceedings to a halt. In the ensuing 11 months of litigation, B&N claimed its $134,800 in legal fees for its services.
The court cut B&N’s fee request in 2012 by citing In Re Pro-Snax Distributers, a 1998 Fifth Circuit ruling that finds that for a professional’s service to be compensable under 11 U.S.C. § 330 of the U.S. Bankruptcy Code, an applicant must prove that their services resulted in an “identifiable, tangible and material benefit to the estate.” The court cut B&N’s fees by 85 percent mainly because of its lack of success.
B&N appealed the fee ruling to the district court, alleging that Pro-Snax was wrongly decided—a position that the U.S. trustee agrees with. Yet the district court affirmed the bankruptcy court’s decision by finding there was no error in applying Pro-Snax to B&N’s fee application. B&N appealed to the Fifth Circuit, which affirmed the district court’s decision in 2014 in In Re Woerner. However, all three members of the Fifth Circuit panel specifically called for en banc reconsideration of Pro-Snax—which the full court agreed to do last year.
“We now recognize that the retrospective, ‘material benefit’ standard enunciated in Pro-Snax conflicts with the language and legislative history of § 330, diverges from the decisions of other circuits and has sown confusion in our circuit,” wrote Judge Ed Prado in his April 9 en banc decision. “Correspondingly, we over Pro-Snax attorney fee rule and adopt the prospective, ‘reasonably likely to benefit the estate’ standard endorsed by our sister circuits.”
Because the opinion announced a new legal rule, the Fifth Circuit has remanded the case back to the bankruptcy court to evaluate whether B&N is entitled to its fees under the new “reasonable at the time” standard.
A recent NLJ story, “’Misconduct’ Might Merit Attorney Fees, Circuit Rules,” reports that a federal judge abused her discretion in denying attorney fees to a patent litigant after finding “an egregious pattern of misconduct” by the other side, a federal appeals court has ruled. The U.S. Court of Appeals for the Federal Circuit sent Oplus Technologies v. Vizio back to the Central District of California and told Senior Judge Mariana Pfaelzer to reconsider whether to award fees.
“Given that the district court found counsel’s behavior ‘inappropriate,’ ‘unprofessional,’ ‘vexatious’ and ‘harassing,’ it is difficult to imagine how Vizio Inc. had not incurred additional expenses defending against such filings,” Judge Kimberly Moore wrote in Friday’s ruling. Moore’s ruling relied on the U.S. Supreme Court’s 2014 Octane Fitness v. ICON Health & Fitness decision, which loosened the legal standard for awarding attorney and expert witness fees.
“In light of this change in the law, we believe it appropriate to vacate and remand this case in order for the district court to reconsider the propriety of awarding fees,” Moore wrote. It’s always unusual for the Federal Circuit to find that a lower court abused its discretion, but Pfaelzer “didn’t really explain why she just sort of backtracked” after her extensive finding detailing Oplus’ litigation misconduct, Pruetz said.
An upcoming Columbia Law Review article by law professors Lynn Baker and Charles Silver of the University of Texas and Michael Perino of St. John’s University entitled “Is the Price Right: An Empirical Study of Fee-Setting in Securities Class Actions” (pdf) studies attorney fee awards in securities class actions. The article states:
Every year, fee awards enable millions of people to obtain access to justice and strengthen the deterrent effect of the law by motivating lawyers to handle class actions. But the process by which judges decide how much to pay lawyers remains a black box. Settlements go in one side; fee award come out the other. The inputs and outputs have been studied, but the actual operation of the fee-setting mechanism has not. Consequently, it is difficult to know why judges award the amounts they do or whether they size fee awards correctly.
Both numerically and in terms of dollars recovered, securities cases dominate the federal courts’ class action docket. We therefore undertook to peer into the fee-setting black box by studying in detail all the 434 securities class actions that settled in federal district courts from 2007 through 2012. We examined the actual court filings in each case to create an original, comprehensive dataset of information on all points at which federal judges are likely to consider issues relating to fees. These data enable us to paint a picture of the fee-setting process that is unusually detailed and nuanced and that falsifies many common beliefs.
Among our major findings are that (1) federal judges often deviate from the path Congress laid out in the Private Securities Litigation Reform Action (PSLRA), which requires lead plaintiffs to set the terms of class counsel’s retention and federal judges to serve as backstops against abuses: (2) fees tend to be lower in federal district that see a high volume of securities class actions than among low volume judges; (4) the well-known “decrease-increase” rule, according to which fee percentages decline as settlements become larger, operates mainly in high-volume district; and (5) judges appear to cut fees randomly, that is, on the basis of their own predilections rather than the merits of fee requests. Finally, we learn that so-called “lodestar cross-checks,” which require judges to consider the “time and labor expended by counsel” and other factors to ensure against excessive fees, accomplish nothing. Actual fee awards reflect something closer to a pure “percentage of the fund” approach.
In sum, we found little evidence that the actions currently taken by the courts in securities class actions move class counsel’s fees closer to the “right price.” We therefore propose a set of procedural reforms which courts easily adopt that would make fee-setting in securities class actions more transparent more compatible with the normative goals of the PSLRA, and more predictable. The reforms would encourage lawyers to invest optimally in class actions, with salutary effects for investors seeking compensation and the integrity of the financial markets.
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