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Article: How the Contingency Fee Provides Access to Justice

May 19, 2019

A recent article in Legal Intelligencer by Samuel H. Pond, “The ‘Great Equalizer—How the Contingent Fee Provides Access to Justice” reports on the benefits of the contingency fee model in civil litigation.  This article was posted with permission.  The article reads:

The core principle of our legal system is that all people, no matter their station in life, can bring their disputes to be heard in a court of law.  That’s in theory, in practice, however, justice is not always so available to those with limited means.  However, one innovation has somewhat evened the playing field—the contingent fee agreement.

Leveling the Playing Field

The pursuit of justice can be expensive, with litigation costs and attorney fees piling up quickly.  The average billing rate in 2018 for Pennsylvania attorneys was $262 per hour, according to Clio, a Canadian research firm tracking legal industry metrics.  Corporations and insurance companies often have unlimited resources at their disposal during litigation, putting the average person at a great disadvantage.

Under a contingent fee agreement, a client in a civil matter does not need to pay an attorney unless the case is successful.  Often, attorneys will also front all litigation costs.  Thus, the client does not have to pay anything out of their pocket.  Thus, all fees and costs are paid out of the recovery.

‘Not Going to Get Bullied’

This arrangement has greatly expanded access to the justice system and allowed those with modest means obtain the justice they deserve.  It’s the only way an injured worker can go up against a big insurance company and feel comfortable and confident. You’re not going to get bullied.  It’s a great equalizer.

The contingent fee has allowed ordinary people to sue large corporations and influential entities and receive monetary compensation.  In addition, the contingent fee has given credence to the idea all should be held accountable for their actions and no one is above the law.

Incentivizing Success

In addition, the contingent fee ensures that a lawyer’s interests are fundamentally linked to those of the client.  It incentivizes lawyers to provide the best quality service to clients because if they fail, they will not get paid.

The contingent fee agreement also discourages the filing of frivolous matters.  It is highly unlikely that an attorney on a contingent fee agreement will take on a case that lacks merit because doing so would mean investing thousands of dollars on a case with no hope of recovery.

Contingent fees restore some fairness to the system.  A powerful corporation with its economic clout and high-priced attorneys cannot simply steamroll over a litigant of modest means.  The average person can still get a fair shake by hiring a worthy champion to take up their cause.

Samuel H. Pond is the managing partner at Pond Lehocky Stern Giordano, the a workers’ compensation firm.  For more than 30 years, he has been representing workers injured on the job.  He is also the host of the Legal Eagles radio show, which aims to educate the public on the law.

Article: Court Reduces Class Action Fee Award After Reversionary Clause

April 29, 2019

A recent New York Law Journal article by Thomas E.L. Dewey of Dewey Pegno & Kramarsky, “District Court Reduces Class Counsel’s Attorney Fee Award in Light of Reversionary Clause,” reports on a case, Grice v. Pepsi Beverages Co., where a district court reduced an attorney fee award in a class action by more than one-third based primarily on the reversionary clause in the settlement agreement.  This article was posted with permission.  The article reads:

When parties to a class action reach a settlement agreement and include a clause that defendant will not oppose class counsel’s attorney fee award, they may expect that the unopposed fee will be approved by the court.  But a recent decision from the Southern District of New York reminds us that courts have an interest in ensuring the reasonableness of attorney fees and protecting the members of the class. Courts are particularly wary of reversionary clauses, which allow the defendant to recoup portions of the settlement fund not claimed during a claims process.

In Grice v. Pepsi Beverages Co., No. 17-CV-8853 (JPO), 2019 WL 340714 (S.D.N.Y. Jan. 28, 2019), after reaching a class action settlement, class counsel sought approval of their attorney fees.  The court reduced the attorney fee award by more than one-third based primarily on the reversionary clause in the settlement agreement.

Background

In Grice, plaintiffs brought a class action against defendant Pepsi Beverages Company (Pepsi) based on Pepsi’s alleged violations of the Fair Credit Reporting Act (FCRA). Id. at *1  Plaintiffs alleged that Pepsi had violated the FCRA by procuring plaintiffs’ consumer reports for employment purposes without making the required disclosure in a stand-alone document. Id.  Less than eight months after the case was filed and before any significant discovery or motion practice, the parties engaged in a private mediation and settled the case. Id.

Under the proposed settlement, Pepsi agreed to pay approximately $1.2 million to a common fund, which would cover all payments owed under the settlement, including class member payouts, attorney fees and costs, the cost of settlement administration, and a service fee to the named class plaintiff. Id.  After deducting all costs and fees, the remaining amount in the settlement fund was $710,850, which was to be distributed to the class members submitting valid claims forms. Id.  However, only about 8 percent of the class members submitted valid claims forms. Id.  This low participation rate triggered a reversionary clause under the settlement agreement that allowed Pepsi to claw back 40 percent of the settlement fund, meaning that only $426,510 remained to be distributed among the participating class members. Id.

Class counsel then moved for an attorney fee award of $397,387. Id.  The $397,387 attorney fee figure represented one-third of the initial $1.2 million common fund. Id.  In support of their application, class counsel stated that they had worked over 450 hours at hourly rates ranging from $500-875 per hour, which resulted in a lodestar figure of $331,281. Id.

Per the terms of the settlement agreement, Pepsi agreed not to oppose the attorney fee award and no class member objected to the motion. Id.

District Court Reduces Attorney Fee Award

Even without a motion opposing class counsel’s proposed attorney fee award, Judge J. Paul Oetken performed an in-depth analysis of the reasonableness of the requested fees, and ultimately ruled that a lower amount was appropriate.

In determining the reasonableness of class counsel’s attorney fees, the court followed the three-step analysis set forth in Goldberger v. Integrated Res., 209 F.3d 43, 47 (2d Cir. 2000). Id. at *2.  The first step in the Goldberger analysis is to compare the attorney fee sought to fees in other common fund settlements of similar size and complexity. Id.  The court noted that recent studies of attorney fees in common fund settlements for similarly sized cases found the median percentage to be 26.4 percent to 30 percent of the settlement fund. Id.  The court also cited empirical evidence showing that for FCRA cases, the median fee is approximately 29 percent. Id.  In distinguishing the cases offered by class counsel, the court reasoned that those cases “differ[] materially” while the empirical studies offered a more comprehensive view. Id. at *3.

The court determined that the Grice class action was “not very complex” since it involved a “single claim” and a “single statutory provision.” Id.  Therefore, the “magnitude and complexity” of the case favored a baseline fee percentage on the lower end of the median fees found by empirical studies. Id. (citing McGreevy v. Life Alert Emergency Response, 258 F. Supp. 3d 380, 386 (S.D.N.Y. 2017)).  Furthermore, the court noted that the parties settled early in the litigation, without any extensive discovery. Id.  The court rejected class counsel’s arguments that the need to prove willfulness under the FCRA statute and the inherently complex nature of Rule 23 class actions justified a higher baseline fee percentage. Id.  As such, the court concluded that a reasonable baseline fee for this case was 27 percent. Id.

The second step in the Goldberger analysis is to consider (1) the risk of the litigation; (2) the quality of class counsel’s representation; and (3) any remaining public policy considerations to determine whether there is any basis to further adjust the baseline fee. Id.  With respect to the riskiness of litigation, the court determined that though class counsel would have had to prove willfulness in order to recover any statutory damages under the FCRA, the risks were “not so unusual as to merit a change in the reasonable baseline fee for this case.” Id. at *4 (quoting McGreevy, 258 F. Supp. 3d at 387).

Next, to analyze the quality of class counsel’s representation, the court compared the total possible recovery to that obtained in the settlement. Id.  The court noted that each class member had obtained a recovery of $51.54, which was only 5 percent of their maximum potential recovery, since the FCRA statutory damages range from $100 to $1,000. Id. (citing 15 U.S.C. §1681n(a)(1)(A)).  However, this payout was “generally in line with other FCRA class action settlement recoveries” and in light of the “factual and legal hurdles” the class would have had to overcome to obtain a favorable judgment, the court determined that the settlement was a “good result” for the class members. Id.  Despite finding that the settlement was favorable, the court ruled that it was “not so exceptional as to merit an increase in the baseline percentage, especially where the court does not have the benefits of an adversarial examination of the issues.” Id.

Finally, the court considered any other policy considerations to determine whether to adjust the baseline fee.  Significantly, the court found that the public policy consideration that “distinguish[ed] this case from other common fund cases is the reversionary nature of the settlement fund.” Id. at *5.  The court explained that the reversion clause in the settlement agreement, which allowed Pepsi to claw back 40 percent of the settlement fund since the participation rate was less than 60 percent, was the “least favored” way to distribute unclaimed common settlement funds due to its potential to create perverse incentives. Id.  The court pointed out that if class counsel’s fees were calculated based on the gross settlement amount prior to reversion, class counsel risk having an incentive to acquiesce in such reversion arrangements even if they are not in the best interest of the class. Id.  Here, the fee award requested by class counsel was calculated as one-third of the gross settlement prior to the reversion. Id.  As such, the court determined that a further reduction of the baseline percentage from 27 percent to 22 percent was appropriate, resulting in an attorney fee award of $262,300. Id.

The third step involved a lodestar “cross-check” on the reasonableness of the award. Id.  A reasonable fee under lodestar is generally “the product of a reasonable hourly rate and the reasonable number of hours required by the case.” Id. (quoting Millea v. Metro-North R.R. Co., 658 F.3d 154, 166 (2d Cir. 2011)).  Notwithstanding class counsel’s hourly rates of $500 and $875 in other states, the court determined that the “prevailing market rates in the Southern District of New York” for partners in consumer cases is $300 per hour. Id. at *5-6.  The court accepted class counsel’s representation that they had worked 450.4 hours on the case, despite their failure to “substantiate their representation.” Id. at *6.  Based on the lodestar cross-check, the court concluded that the $262,300 fee award was reasonable. Id.

Practice Tips

The Grice case provides helpful insight into the factors courts consider when faced with a class action attorney fee award motion.  Furthermore, this case reminds us that even if the class action settlement agreement includes a clause that defendant will not oppose class counsel’s attorney fee award and even if no other class member objects, the award may still be modified sua sponte by the court.  In class actions, courts typically take on a proactive role in approving settlements and awarding costs.  Here, the court reduced the proposed attorney fee award by more than one-third.

This case also shows that courts disfavor reversionary clauses and practitioners should be mindful that including such clauses may result in a lower attorney fee award.  As explained by Judge Oetken, there are other options to address a situation when some portion of a common fund goes unclaimed: (1) pro rata redistribution among the class members who did make claims; (2) escheat to the state; or (3) cy pres distribution to charitable organizations. Id. at *5.  The court described reversion as the “least favored” option due to “its potential to create perverse incentives.” Id.  In drafting settlement agreements, practitioners should consider whether including a reversion clause is in the best interests of the class and how such clauses may be perceived by courts.

Thomas E.L. Dewey is a partner at Dewey Pegno & Kramarsky.  Sarah A. Sheridan, an associate at the firm, assisted in the preparation of the article.

Article: Cautionary Tales on Recovering Attorney Fees in the Third Circuit

April 17, 2019

A recent Legal Intelligencer article by Colin Wrabley and Devin Misour of Reed Smith LLP, “Cautionary Tales on Recovering Attorney Fees in the Third Circuit,” reports on a trio of appellate decisions and trial court rulings on the recovery of attorney fees in the Third Circuit.  This article was posted with permission.  The article reads:

In the past year, the U.S. Court of Appeals for the Third Circuit has issued three precedential rulings laying down clear and strict limits on the recovery of attorney fees.  While these kinds of rulings rarely draw attention, this trio of appellate decisions and the trial court rulings they affirm should because they are emphatic reminders that courts take their duty in reviewing fee petitions and awards just as seriously as they do in any other case.  Practitioners and their clients should take heed.

The Cases

The first case we’ll discuss, Young v. Smith, 905 F.3d 229 (3d Cir. 2018), is perhaps the most glaring example of how a fee petition can go wrong.  The appellant attorney in that case represented a group of students who brought a 42 U.S.C. Section 1988 civil rights suit against a school district and a teacher.  After two trials, the lone remaining defendant (the teacher) made an offer of judgment for $25,000, which the plaintiffs accepted, and the parties’ entered a settlement agreement allowing for “reasonable attorney fees and costs as to the claims against the teacher only.”  Plaintiffs counsel proceeded to submit a petition seeking over $700,000 in fees and costs against the school district, which had won a complete defense verdict.  Perhaps unsurprisingly, the district court thought the fee request excessive and issued a show cause order.  Plaintiffs counsel responded with a 44-page, single-spaced, six- or eight-point font fee petition purporting to justify the request.  That prompted, in the Third Circuit’s words, a “scathing 136-page opinion” from the district court denying all requested fees, levying a $25,000 sanction on the plaintiffs counsel, and referring counsel to the Pennsylvania Disciplinary Board.

The Third Circuit affirmed.  The court of appeals focused on the problems with the plaintiffs counsel’s billing practices, noting that the “district court’s meticulous opinion paints a picture of an attorney whose attitude toward billing and the court is cavalier in the extreme and whose conduct and demeanor bear no relationship whatsoever to an attorney’s obligations to the court.”  Concluding that Section 1988 gives a district court the discretion to reject a fee petition in its entirety, the Third Circuit found that the fee petition was “not only grossly excessive and absurd, but also fraudulent.”

The second case, Clemens v. New York Central Mutual Fire Insurance, 903 F.3d 396 (3d Cir. 2018), involved a fee award under Pennsylvania’s bad faith statute.  There, after settling an uninsured motorist claim for $25,000 and obtaining a jury verdict of $100,000 in punitive damages on the bad faith claim, plaintiffs counsel submitted a fee petition seeking in excess of $900,000 in fees and costs.  Here again, the district court scrutinized counsel’s request, which resulted in a 100-page opinion rejecting the petition in its entirety.  The district court reviewed every one of counsel’s time entries and found that 87 percent of the hours billed had to be disallowed as “vague, duplicative, unnecessary or inadequately supported by documentary evidence.”

On appeal, the Third Circuit found that the denial of this petition was not an abuse of discretion either.  Of note, the attorney kept no contemporaneous records of his time, so everything had to be recreated after the fact for purposes of the petition.  And when the attorney did recreate those records, he did so largely with one-word explanations, such as “other,” “communicate,” “analysis/strategy, or “review/analyze,” with no other explanation.  The court of appeals also highlighted the “staggering 562 hours” billed for trial preparation, which amounted to 70 straight eight-hour days of preparation for a four-day trial with only five witnesses.  On this record, the Third Circuit held that the district court was well within its discretion to reject the fee petition in its entirety because it was “outrageously excessive.”

The third case involved an award of attorney fees to defendants after the plaintiffs voluntarily dismissed a case pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure.  In Carroll v. E One, 893 F.3d 139 (3d Cir. 2018), the plaintiffs alleged that they had suffered hearing loss caused by fire sirens manufactured by the defendant.  But the defendant’s investigation and discovery revealed that the plaintiffs—some of whom did not even know that they were parties to a lawsuit until after the case was filed—had asserted time-barred claims, and at least one of the plaintiffs did not suffer from hearing loss attributable to noise exposure.  Armed with this information, the defendant’s counsel sought voluntary dismissal with prejudice.  The district court concluded that the plaintiffs could not voluntarily dismiss the action without prejudice—as they had tried to do—and instead dismissed the case with prejudice and awarded fees and costs to the defendants.

The Third Circuit affirmed, finding that dismissal with prejudice and the award of fees and costs was appropriate given the plaintiffs’ “failure to perform a meaningful pre-suit investigation,” coupled with counsel’s “repeated practice of bringing claims and dismissing them with prejudice after inflicting substantial costs on the opposing party and the judicial system.”  Addressing plaintiffs’ pre-filing investigation, the court of appeals noted that even a cursory review of the evidence or an interview with the potential plaintiffs would have revealed the problems with their case.  Having failed to do so, the court concluded that the “exceptional circumstances” warranted an award of fees and costs.

The Takeaways

If you’re a practitioner, you may be thinking, “I’ve never filed a fee petition like the ones in these cases” or “I’ve never conducted such a slipshod pre-filing investigation” of claims I’ve filed.  So, why do these cases—and understanding how they were decided and why—matter to me?  There are plenty of reasons.

First, the legal principles outlined in each of these cases hinged on a district court’s broad discretion in the context of attorney fees.  Whether it is a denial of fees sought—as in Young and Clemens—or an award of fees in the Rule 41 context—as in Carroll—it is important to remember that the courts have a wide berth in deciding how much, if any, fees should be awarded.  This is equally true before the trial court in the first instance and on appellate review.  Litigants therefore must keep this in mind when preparing and filing a fee petition to avoid any unwanted surprises once the court explores into the substance of the request.

Second, when the court (either trial or appellate) does dig into that substance, no one wants their fee petition to become the next teachable moment.  It should go without saying that parties seeking fees and costs must be scrupulous about how they keep time, record it and present it to the court.  On a practical level, this means that counsel and their clients should file user-friendly fee petitions that allow the court to quickly determine what was done (consistent with the attorney-client privilege), how long it took and at what cost.  From that, a “lodestar” fee calculation—based on a reasonable rate and a reasonable amount of time worked, which is how federal courts determine fee awards—easily follows.  As the Third Circuit reminded in Clemens, while courts “have never strictly required that fee petitions be supported by contemporaneous records … they have long been ‘the preferred practice.’” Needless to say, avoiding six- or eight-point fonts in petitions is also prudent.

Third and above all else, these cases serve as an important reminder that—perhaps contrary to conventional wisdom—courts can, and often do, spend significant time and resources on reviewing fee petitions.  The trial court opinions in Young and Clemens tipped the scales at 100-plus pages and reflected a substantial investment of judicial energy.  And the Third Circuit decisions discussed above—each published, one argued orally—were relatively extensive and reflected the same commitment of resources.  In other words, don’t hope or expect courts to gloss over questionable or deficient fee requests.

Accordingly, while these cases may be outliers, they offer important lessons about what counsel can do to make life easier for the courts tasked with reviewing even innocuous filings (like fee petitions).  By taking steps to carefully consider how courts will receive petitions, counsel can help to save judicial resources and ultimately better serve their clients.

Colin Wrabley is a Reed Smith partner and a member of the firm’s appellate group. He has experience counseling and representing clients in litigations and substantive legal issues before state and federal courts across the country.  Devin Misour is an associate at the firm and a member of the appellate group.  He focuses his practice on a wide array of substantive legal matters including False Claims Act, regulatory matters and issues involving state and federal laws.

Article: Fee Award Highlights Patent Litigation in Claims Court

April 15, 2019

A recent Law 360 article by Matthew Rizzolo and Steve Meil of Ropes & Gray LLP, “Fee Award Highlights Patent Litigation in Claims Court,” reports on patent attorney fee awards in the U.S. Court of Federal Claims.  This article was posted with permission.  This article was originally published in Law 360.  The article reads:

Subject to certain exceptions, patent litigation in the United States typically adheres to the “American rule”: Each party pays its own attorney fees, win or lose.  But many may not be aware that assertions of patent infringement against the United States government itself are not governed by this same rule, making it easier for some successful plaintiffs to recover attorney fees at the conclusion of litigation.

A recent ruling from the U.S. Court of Federal Claims awarding a plaintiff more than $4 million in attorney fees explains the different standard in detail, and may lead to increased interest in bringing patent claims against the government.

Section 1498 Actions and Attorney Fees

Under 28 U.S.C. § 1498, the Court of Federal Claims has exclusive jurisdiction over patent infringement suits brought against the federal government.  Because “infringement” by the government is generally treated as a Fifth Amendment taking of a license to use a patented invention, plaintiffs in such suits cannot receive injunctive relief, but are limited only to “reasonable and entire compensation” for the use or manufacture of the patented invention by or for the government.

Originally, the statute did not clarify whether “reasonable and entire compensation” included costs and attorney fees; the Court of Federal Claims has also found that Section 1498 claims are not directly analogous to other takings claims.  It therefore determined that the Equal Access to Justice Act (the statute that typically provides for attorney fee awards in claims against the government) did not apply to Section 1498 claims, leaving patent owners with no avenue to obtain attorney fees even in the most egregious Section 1498 cases.

Recognizing this disparity between the taking of real property and intellectual property, in 1996 Congress amended Section 1498(a) to expressly provide awards of “reasonable costs, including reasonable fees for expert witnesses and attorneys.”  The sponsors of the amendment noted that without the ability to recover fees, small businesses in particular may be unable to afford the expense of defending patents against government expropriation.

Accordingly, Congress limited the awards to certain types of plaintiffs: independent inventors, nonprofit organizations, and small businesses with less than 500 employees.  Congress further limited the awards to exclude cases where “the position of the United States was substantially justified” (mirroring the language of the Equal Access to Justice Act), or where “special circumstances make an award unjust.”

The ability to recover attorney fees as a “default” stands in sharp contrast to typical patent infringement suits, where plaintiffs — even small businesses or nonprofits — recover fees only “in exceptional cases.”   As Congress observed, however, suits against the government “authorize the government to take a license in any patent,” making such suits more analogous to takings of real property than to private infringement suits.

The Fee Award in Hitkansut v. United States

Yet in the near quarter-century since Section 1498 was amended, the Court of Federal Claims has handed down only three decisions on awards of attorney fees.  The previous cases, decided well over a decade ago, both resulted in the Court of Federal Claims denying fees.  But on March 15, 2019, the court for the first time awarded a successful plaintiff attorney fees under Section 1498.

In Hitkansut LLC et al. v. United States, the court had previously found that the government used Hitkansut’s patented invention, and awarded $200,000 in compensatory damages.  While Hitkansut had sought nearly $6 million in compensatory damages, the court found that much of these requested damages were not appropriate under the law.  The court’s prior infringement and damages findings were affirmed on appeal, and Hitkansut subsequently sought to recover its attorney fees and litigation expenses: $4.51 million.  In a thorough and detailed opinion, the court granted Hitkansut the vast majority of its fee request.

The court first addressed the fact that Hitkansut had engaged in a contingency fee arrangement with its attorneys.  The government argued that this meant that Hitkansut had not “actually incurred” any fees, disqualifying it from any award.  But the court observed that the fee arrangement was irrelevant, noting that “[a]ccepting the government’s argument would ... dissuade litigation by the very class of people the fee-shifting provision of 28 U.S.C. § 1498(a) exists to help.”  Because “[t]he patent owners most likely to use contingent arrangements are those ... specifically identified by the statute,” the court found that the fact of a contingent arrangement should not impact an award of costs.

The court then considered whether the government’s position in the suit was “substantially justified.”  Adopting the standard from the Equal Access to Justice Act, the court explained that a position is “substantially justified” when it is “justified to a degree that could satisfy a reasonable person, which is no different from the ‘reasonable basis both in law and fact’ formulation.”  In the court’s view, an award depends on whether the government can demonstrate that the positions it took “were such that a reasonable person could conclude that its position was supportable,” taking into account both pre- and post-litigation conduct.

Applying this standard, the court found that the government’s positions on both non-infringement and invalidity lacked substantial justification.  Regarding potential infringement, the court observed that the government had (1) altered its research activity in line with disclosures Hitkansut had made to the government under a confidentiality agreement; (2) represented the opposite of claims their employees had made in invention disclosures and in depositions; and (3) advanced arguments inconsistent with the court’s claim construction.

As for validity, the court found the government’s arguments to be “unsupported by the facts”: the government failed to demonstrate either part of the Alice test, and its own witnesses’ testimony undermined its obviousness and enablement arguments.  Finally, the court found that the government’s success in arguing matters secondary to the “primary issue” of infringement did not alter whether its overall position was supportable.  It concluded that, “the government’s position may not be substantially justified even though it may have taken certain reasonable stances during the dispute.”

Having decided that fees should be awarded, the court then turned to what constitutes “reasonable” fees under Section 1498(a).  The court first denied the portion of fees expended in pursuing other similar suits as “not reasonably related” to the case, and reduced fees where they exceeded prevailing local rates.  The court then considered whether to increase or decrease the total fee, where “the most critical factor is the degree of success obtained.”

The government argued that (1) because damages were reduced to 5% of those sought, fees should be reduced proportionately; and (2) the requested fees should be capped at the amount of damages.  But the court rejected both of these arguments, finding the reduction in damages was unrelated to the primary issue of infringement, and that the remaining award — even where Hitkansut proved infringement of only some of the claims — indicated a sufficient degree of success.

Notably, the court found that the purpose of the fee-shifting portion of the statute is “to accommodate suits where the cost to bring the suit could not be recovered from the damages awarded.”  As a result, there was no reason that fees could not greatly exceed actual damages — even where, as here, the fees exceeded compensatory damages by a factor of 20.

Possible Implications

While the court’s decision in Hitkansut is likely to be appealed, it may lead to increased consideration from patent owners in bringing Section 1498 patent actions against the government (currently, only a handful of such suits are filed each year).  A common refrain among patent owners in recent years has been that it is too expensive to enforce patents.  Indeed, the high cost of litigation leads many patentees, especially those with a relative lack of resources, to outsource enforcement to patent assertion entities, or rely on contingency arrangements and/or litigation funders to assist with litigation.

For those patent owners who believe that their patents may be used by the U.S. government and/or government contractors, the court may be an avenue to seek compensation for infringement, with the knowledge that they may have a substantial chance at recovering their attorney fees and other expenses — in sharp contrast to suits against private entities.

Additionally, the prospect of a substantial fee award may lead to the government entering into settlements in these cases at higher levels than it may have previously.  And the increased attention for Section 1498 actions may come from more than just independent inventors or nonprofit organizations — given that many nonpracticing entities, even publicly traded ones, likely fall below the 500-employee threshold, they may also increase their activity at the Court of Federal Claims.

Finally, the Hitkansut court’s decision to award fees in the face of the plaintiff’s contingency arrangement may also attract firms who work on alternative fee and contingency arrangements, as well as litigation funding entities, to explore becoming involved in Section 1498(a) actions.

Matthew J. Rizzolo is a partner and Steve Meil is an associate at Ropes & Gray LLP.  For the full text of this article, including footnotes, visit https://www.law360.com/articles/1149324/fee-award-highlights-patent-litigation-in-claims-court.

Opinion: Keep to the American Rule: No Attorney Fees as Actual Damages in Defamation Cases

February 26, 2019

A recent New Jersey Law Journal editorial, “Keep to the American Rule: No Attorney Fees as Actual Damages in Defamation Cases,” reports on the fee-shifting in defamation actions.  The editorial reads:

In an article which appeared in the Jan. 14, 2019, edition of this Law Journal, New Jersey attorney Andrew B. Bolson discussed the subject of damage awards in defamation actions.  It was pointed out that under New Jersey law, a jury can award either specific damages or general damages.  The former are intended to compensate the successful plaintiff for a specific pecuniary loss.  General damages, however, are those which are not susceptible to precise calculation.  Mr. Bolson points out that under the Supreme Court’s decision in Nuwave Investment Corp. v. Hyman Beck & Co., 221 N.J. 495, 499 (2015), “all compensatory damages, whether considered special or general, depend on showing of actual harm, demonstrated through competent evidence, and may not include a damage award presumed by the jury.”

It is also noted that where a plaintiff is unable to show actual damages, a jury does have the authority to award presumed damages (generally limited to $1.00) in order to offer some solace to the plaintiff whose reputation has been damaged.  Mr. Bolson says that New Jersey is in a minority of states that limit presumed damages to nominal damages.  He urges that, “To eliminate any confusion as to whether attorney fees can be awarded in defamation cases, the New Jersey legislature should pass legislation to definitively establish that attorney fees are compensable to successful plaintiffs as actual damages.”  Mr. Bolson contends that protecting one’s reputation should not be worth just a dollar.  He urges that successful plaintiffs should be able to receive legal fees and costs even where only nominal damages are awarded.

Although the internet has revolutionized publishing and made it far easier to broadcast malicious lies about anyone, the fact is that to adopt Mr. Bolson’s suggestion would be to drastically change our American system whereby, except for specified statutory or contractual exceptions, litigants bear their own legal costs.  Whether that established system is ever to be changed remains to be seen.  However, to provide in defamation actions that, even in the absence of actual harm, a prevailing plaintiff may receive attorney fees as “actual damages” would be to distort the meaning of such damages and, in effect, adopt the British system where the loser pays.  While we respect Mr. Bolson’s contention that one’s reputation should be compensable, irrespective of demonstrated harm, we are not yet prepared to endorse such change in our American system.

Article: Defense Costs Coverage 101

January 16, 2019

A recent New York Law Journal article by Howard B. Epstein and Theodore A. Keyes, “Defense Costs Coverage 101,” reports on defense fees and costs in the insurance coverage practice area.  This...

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