Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Exceptional Case

Federal Circuit Not Sure Court Botched Patent Fee Award

September 1, 2020

A recent Law 360 story by Nadia Dreid, “Fed. Circ. Not Sure Court Muddled Fee Award in Patent Fight,” reports that the Federal Circuit seemed wary of overturning a decision awarding attorney fees to HP Inc. and SAP America after they emerged victorious from a patent dust-up with software maker Big Baboon Inc. that a lower court declared was unfairly waged.  While Big Baboon worked to convince a three-judge panel that the California federal court that handled the patent dispute "basically awarded fees based on some arbitrary line in the sand," U.S. Circuit Judge Kathleen O'Malley wasn't sure about that — particularly the company's contention that it couldn't be forced to shell out attorney fees without evidence of misconduct.

"I don't understand your statement that litigation misconduct is required before fees can be awarded," she said.  "What the court found was that the pursuit of litigation was objectively unreasonable, right?"  The parties were before the court to argue two different appeals: whether the lower court flubbed when it threw out the software maker's case and whether it was within its rights to order Big Baboon to pay $188,000 in attorney fees.

On one side, patent holder Big Baboon, which has been battling with HP and SAP America for a while over claims that a product they sold in 1996 infringed one of its e-commerce patents, argues that the lower court ignored contradictory testimony from the tech companies when it threw out its case and that it unfairly ordered it to pony up attorney fees without evidence of misconduct.

On the other side, HP and SAP America say they're owed the $188,000 in attorney bills that they ran up preparing for the discovery that Big Baboon was refusing to delay — even though the suing software maker had evidence that showed that the allegedly infringing product existed before the e-commerce design at issue.

"This case is exceptional because Big Baboon doesn't know when to stop, no matter how weak its position," counsel for HP and SAP America told the court.  The tech companies accused the software company of "abusively [filing] serial suits," pointing toward a suit against HP's predecessor in 2009 over the same patent, albeit with different claims.

Sixth Circuit Sets out Guidelines for Lodestar Fee Awarded in Class Actions

August 22, 2020

Attorney fee awards are a major driver of class action litigation – both in the employment and other contexts.  How they are awarded, and what is “reasonable” has been an ongoing source of contention in many cases.  A recent opinion from the Sixth Circuit provides some guidance and also places limits on methodology used by some courts to support generous, even lavish, fee awards.

The decision in Linneman v. Vita-Mix Corp., Case Nos. 19-3993/4249 (6th Cir., Aug. 12, 2020), related to the settlement of a class action involving the high-end Vita-Mix blenders used commercially and by consumers.  The plaintiffs, who owned the mixers, claimed that a seal used in the blenders was defective and would wear away with use.  The parties settled the case under a two-part structure: Consumers could get either a $70 gift card or a replacement assembly with a revised seal; commercial users would get only the assembly.  As the parties were unable to agree to a fee amount, the settlement provided that class counsel would receive a fee to be determined by the district court.  As explained below, after two years of litigation, and using a lodestar calculation, the district court awarded $3.9 million in fees ($2.2 million plus a 75% premium), and the defendant appealed.

Much of the Court of Appeals’ decision related to the application of the Class Action Fairness Act (CAFA), as it was largely undisputed that the terms of the agreement made the deal a coupon settlement.  The importance to this blog is that the court found that it was appropriate for the trial court to use a lodestar calculation rather than a percentage of the settlement.

With respect to the lodestar calculation, the court made a number of important pronouncements, ruling for the plaintiffs in some instances and for the defendant in others. Among them:

  • In a lodestar calculation, the result (reasonable hours times a reasonable rate) is presumed to be the correct reasonable rate. The court can apply a multiplier (no surprise there), but only in “rare and exceptional” circumstances.
  • A fee award can include the time spent pursuing fees (again, no surprise), but in this case, the defendant had made a reasonable Rule 68 offer of judgment on the amount ($3.1 million), calling into serious question why the fee issue needed to be litigated for another two years.
  • The rates used must be appropriate in the local community, not nationwide.  Thus, the plaintiffs were limited to the relatively lower rates charged in southern Ohio, where the case was pending, and not higher rates charged in other or “national” markets.

The court ultimately remanded the case for numerous reasons and for further determination of the issues noted above, as well as to determine whether the settlement had actually accomplished much for the class members given the steps the defendant had taken prior to the litigation to correct the alleged defect.

The Linneman case is a good example of what can happen when a court actually looks at the amount of work done, the results obtained for the class and whether a fee enhancement is actually in order.  The bottom line: Courts that look closely at what goes into lodestar fee awards in class actions may award less than the plaintiffs expect.

Article: New Case Law on Awarding Attorney Fees in Patent Litigation

July 18, 2020

A recent Law 360 article by Lionel Lavenue, Amanda Stephenson, R. Benjamin Cassady. and Brooke Wilner of Finnegan LLP, “Evolving Case Law Elucidates Atty Fees For Patent Litigants” reports on recent case law development in awarding attorney fees in patent litigation.  This article was posted with permission.  The article reads:

Title 35 of the U.S. Code, Section 285, in its entirety, states that "[t]he court in exceptional [patent] cases may award reasonable attorney fees to the prevailing party."  This means that if a party prevails in an "exceptional" case, the court may award it upwards of millions of dollars in attorney fees.  Unsurprisingly, the high value of these fees in often complex and high-stakes patent litigation has encouraged much debate over who can recover, and how they can recover, fees under the deceptively brief Section 285.

Though some decisions from the U.S. Court of Appeals for the Federal Circuit have clarified some answers to those questions, refining the definition of a "prevailing party" and explaining some circumstances when a court has jurisdiction to award attorney fees under Section 285, ambiguity remains.  For instance, uncertainties remain over what is required for a party to be deemed prevailing and when courts have jurisdiction to award fees.  Special circumstances, such as when an intervenor, or other entity whose involvement was limited and tangential to the main action, seeks attorney fees, further cloud the issues.  Is such an entity a prevailing party in a patent case under Section 285, such that the court has authority to award attorney fees?

Recent decisions in the Federal Circuit and other courts have provided some guidance for these questions.  For example, in My Health Inc. v. ALR Technologies Inc., the U.S. District Court for the Eastern District of Texas recently found, agreeing with a long line of cases, that a nonparty can be held liable for exceptional fees under Section 285.  And for its part, the Federal Circuit clarified this year, in Mossberg & Sons Inc. v. Timney Triggers LLC, what makes a defendant a prevailing party.  These recent decisions, when combined with the growing body of law on Section 285, give crucial and valuable insight to parties seeking attorney fees under Section 285 and defending against such requests.

When does a court have jurisdiction to award attorney fees under Section 285?

Determining whether and when a court has jurisdiction to award fees under Section 285 depends on what, exactly, the nature of an award under Section 285 is — a claim, cause of action, a sanction, a defense or something else.  Courts have made clear that it is not a standalone cause of action; i.e., not a claim or controversy.  In other words, a request for an award of attorney fees under Section 285 cannot be pled independently and cannot support jurisdiction on its own.  It must be collateral to an independent controversy over which the court has (or had) subject matter jurisdiction.

But this creates a curious procedural posture, as fees under Section 285 cannot be awarded until there is a prevailing party, i.e., when no controversy remains and jurisdiction for the original proceeding has terminated.  However, the U.S. Supreme Court, in Cooter & Gell v. Hartmarx Corp., confirmed that "district courts may award costs after an action is dismissed for want of jurisdiction" and that motions for attorney fees are "independent proceedings supplemental to the original proceeding and not a request for a modification of the original decree."

Thus, Cooter clarified that the imposition of attorney fees is not a judgment on the merits, but rather a determination of a collateral issue.  And, consistently with Cooter, the Federal Circuit has held that a court retains jurisdiction to decide requests for attorney fees under Section 285 after the court otherwise loses subject matter jurisdiction.  Thus, Section 285 is an ancillary issue over which a court will retain jurisdiction so long as it had jurisdiction over the underlying controversy and can properly be thought of as a sanction or remedy.  Indeed, in some cases, the Federal Circuit has described the grant of attorney fees under Section 285 as a sanction.

At its core, though, Section 285 provides one of several remedies available to prevailing parties in patent cases.[10] Indeed, "[t]he purpose of Section 285 is to reimburse a party injured when forced to undergo an 'exceptional' case."  Consistently with this purpose, courts have found that a litigant cannot avoid a prevailing party determination, and thus exposure to an attorney fee award, simply by dismissing their claims when it becomes clear that they have lost.

Indeed, such "mid-case mootness" does not necessarily remove a court's jurisdiction to determine which party is prevailing under Section 285, because "[w]here [parties] unilaterally dismiss cases after adverse findings, or move to dismiss them after granting a covenant not to sue, the [other party] is the prevailing party."  In patent cases, the issue of the nature of the dismissal itself may be considered a live controversy conferring jurisdiction, even where a judgment has cancelled all relevant patent claims.

What is required for a party to be deemed prevailing?

Whether jurisdiction to award fees exists is not the only issue — courts may only grant attorney fees under Section 285 to prevailing parties.  Of course, a party winning on every theory it proposed would certainly be a prevailing party.  But other victories may nonetheless allow a party to be characterized as prevailing under Section 285.  The Supreme Court has held that the touchstone of the prevailing party inquiry is "the material alteration of the legal relationship of the parties."  Thus, a favorable judgment on the merits is not explicitly required.  Instead, courts consider whether the court's decision, action or order — a "judicially sanctioned change in the legal relationship of the parties" — either "effects or rebuffs a plaintiff's attempt to effect" the alteration in the parties' relationship.

Accordingly, a dismissal with prejudice is enough to confer "prevailing" status.  In Raniere v. Microsoft Corp., for example, the Federal Circuit found that the court's dismissal with prejudice of plaintiff's claims was enough to make the defendant a prevailing party.  In fact, the Raniere court did not even adjudicate any patent claim—the plaintiff's claims were dismissed for lack of standing.  Dismissals with prejudice, even if they do not resolve patent claims, may thus be sufficient to confer "prevailing" status.

Not all dismissals will do, however.  Recently, in O.F. Mossberg & Sons Inc. v. Timney Triggers LLC, the Federal Circuit found that a voluntary dismissal without prejudice following successful post-grant proceedings was not sufficient to make the defendant a prevailing party.  Although the defendant had prevailed in trial proceedings at the Patent Trial and Appeal Board, a voluntary dismissal takes effect immediately upon giving notice, and thus the court's order to dismiss did not have the necessary judicial force — i.e., there was no judicially sanctioned change to the parties' legal relationship.

These cases highlight that winning on the merits may not always equate to prevailing under Section 285.  Timney Triggers won its case, after all, achieving a dismissal without prejudice after successful post-grant proceedings.  And Microsoft achieved a victory on constitutional grounds, not on the merits of its patent defense.

Thus, prevailing on the merits is not required; prevailing in the correct way is.  A party seeking to be deemed prevailing must prove (1) that the court decision which it believes makes it prevailing is indeed a final court decision with the necessary judicial imprimatur; and (2) that the relationship between it and the opposing party was materially altered in its favor.

When is a party, such as an intervenor or other entity whose involvement was limited and tangential to the case, entitled to attorney fees?

Where the Section 285 inquiry gets particularly thorny is where a party other than plaintiff or defendant seeks a remedy of attorney fees under Section 285.  After all, Section 285 allows that remedy for any prevailing party — it does not distinguish between plaintiffs, defendants and third parties.[19]

Third parties have many times been made to pay attorney fees under Section 285.  Even if a party was not an original party to the suit, but rather joined in its sole capacity as a third party defendant, for example, the case law is unanimous: Courts have the authority to award fees against a nonparty.

One special class of third parties stands out in the limited case law on this issue — shareholders.  Recently, in My Health v. ALR Technologies, the court clarified the state of the law on this issue, finding that corporations' shareholders can be held liable for deceptive conduct that leads to an exceptional case finding and the award of Section 285 attorney fees.

Just as third parties may be ordered to pay fees under Section 285, so too are they likely able to seek them.  Although there have been relatively few cases where such parties have sought attorney fees under Section 285, there is no case indicating that such parties may not do so.

In Sony Electronics, Inc. v. Soundview Technologies, for example, a third-party defendant sought Section 285 attorney fees as part of its prayer for relief related to an inequitable conduct issue.  The court found that the third-party defendant's actions in seeking Section 285 attorney fees as a remedy was "wholly appropriate" but denied the request because the inequitable conduct issue was moot.  Other courts have assumed that third parties or nonparties can recover fees under Section 285 but then found that those cases were not exceptional.  These cases were predominantly decided before the formation of the Federal Circuit.

The enticing remedy of attorney fees under Section 285 has provided incentive for parties to litigate over the brief statute's meaning for decades.  Recent decisions have clarified when a court has jurisdiction to grant attorney fees, when a party is prevailing, such that it could receive fees under Section 285, and how the section applies to third parties.  But with so much money potentially on the line, parties can expect more litigation in the years to come.

The Nation’s Top Attorney Fee Experts of 2020

June 24, 2020

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses in court or arbitration.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2020:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Cozen O'Connor
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Federal Circuit Reminds Litigants of What is Needed to Obtain Attorney Fees

June 20, 2020

Let’s face it, any litigation is expensive and a defendant that finds itself spending money battling claims against it only to have those claims later dismissed by the plaintiff is likely going to want to try to recoup the costs of the litigation.  However, to be awarded attorneys’ fees under 35 U.S.C. § 285 and/or 15 U.S.C. § 1117(a), the case must be found to be “exceptional.”  Rare, unusual, and extraordinary are words that come to mind when one thinks of the definition of the exceptional.  These are exactly the qualities that the Court of Appeals for the Federal Circuit found lacking when it reversed the lower court’s award of attorneys’ fees in the infringement suit brought by Munchkin against Luv n’ Care in the Central District of California.  While the opinion in Muchkin Inc. v. Luv n' Care Ltd. is is far from a complete guide to drafting a successful motion for attorneys’ fees in a patent and/or trademark infringement case, the admonishment given here to the lower court (and Luv n’ Care) delivers some helpful pointers as to what level of detail is necessary to obtain and sustain a fees award. 

First, a little bit of background.  Both Munchkin and Luv n’ Care sell sippy cups.  At the time it filed suit against Luv n’ Care for trademark infringement and unfair competition, Munchkin marketed its sippy cups with its registered (original) Click Lock logo.  Despite Luv n’ Care’s opposition, Munchkin was allowed to amend its complaint to replace the original Click Lock logo used as the basis for the trademark infringement and unfair competition claims with a more current, not yet registered, version.  In addition, the amended complaint tacked on a trade dress infringement claim and alleged infringement of recently issued U.S. Patent No. 8,739,993.

In turn, Luv n’ Care filed an inter partes review (IPR) challenging the validity of the ʼ993 patent before the USPTO (ʼ993 IPR).  Before the ʼ993 IPR was instituted, Munchkin dismissed all but its patent infringement claim in the district court case.  Once the Patent Trial and Appeal Board (PTAB) found the claims of the ʼ993 patent unpatentable (and the Federal Circuit affirmed that finding), Munchkin had no choice but to dismiss the remaining patent infringement claim in the district court case.  Luv n’ Care filed and was granted a motion for attorney’s fees on the basis that Munchkin’s claims were so substantively weak that the case was exceptional.  As part of the award, the district court allowed Luv n’ Care to recoup its fees related to the ʼ993 IPR even though the proceedings took place before the PTAB rather than in district court.

Munchkin turned to the Federal Circuit for relief arguing that the district court abused its discretion in awarding Luv n’ Care attorneys’ fees.  Unfortunately for Luv n’ Care, the Federal Circuit agreed with Munchkin.  The court explained that, while a district court has wide latitude to consider issues that have not been fully litigated before it as a basis for a fee award, when the basis of the award rests on such issues, it must be accompanied by a “fuller explanation of the court’s assessment of a litigant’s position.”  In short, since the patent, trademark, and trade dress claims were not previously adjudicated by the lower court, the appellate court found that the lower court failed to adequately support its exceptional determination and fees award.

The court particularly took issue with what it deemed to be an unexplained conflict between the lower court’s previous orders and the exceptional determination.  For example, the determination was based, in part, on Munchkin’s alleged unreasonableness in defending the validity of the ʼ993 patent, especially in light of the claim construction adopted by the PTAB during the ʼ993 IPR.  The appellate court explained that the pertinent question here was not whether Munchkin’s claim construction position was correct, but rather whether Munchkin’s reliance on the claim construction was unreasonable (especially when the district court accepted Munchkin’s construction during the Markman phase of the litigation).  Similarly, the Federal Circuit pointed out that the district court itself had allowed Munchkin to amend its complaint to use the current Click Lock logo for the trademark infringement claim and to add a trade dress infringement claim, so it did not make any sense that the lower court reversed its course and used the logo substitution and additional claim as a basis for support of the fee award.  In the words of the court, “Munchkin cannot be faulted for litigating a claim it was granted permission [by the district court] to pursue.”

In addition, the Federal Circuit explained that Munchkin’s dismissal of its claims with prejudice was also not sufficient by itself to show that Munchkin’s litigating position was so substantively weak that the case should be deemed exceptional.  Indeed, the court noted a number of other reasons why a party would choose to dismiss one or more claims in a litigation (including streamlining the issues before the court and between the parties).  Finally, the district court was chastised for buying into Luv n’ Care’s argument that Munchkin was unreasonable in continuing to pursue its patent infringement claim after the ʼ993 IPR was instituted.  The Federal Circuit explained that statistics of invalidity after IPR even when combined with a finding of invalidity by the PTAB were not enough to conclude that a party’s continued defense of the patent was unreasonable.  In fact, the court opined that reliance on such a position was “wholly incompatible with Octane Fitness’s fact-dependent, ‘case-by-case’ requirement” because it would effectively subject every patent owner to paying a fees award if the patent at issue was cancelled in a co-pending IPR without regard for the strength of the patent owner’s litigating position.  The court also evaluated Munchkin’s purported failure to disclose particular prior art during prosecution of the ʼ993 patent and found that this basis (adopted by the district court from Luv n’ Care’s motion) was not well supported.

So, if you decide to file a fees motion on never-adjudicated claims that are dismissed, what should your motion look like?  The court here indicates that the motion must clearly explain, in a fact-intensive manner, why the plaintiff’s position on each claim was weak and/or fundamentally meritless and, thus, unreasonable.  While this type of detail may seem burdensome if the claims were not fully litigated, it is not an impossible task (as noted by the Federal Circuit in its opinion).  On the patent side, explain why the prior art invalidates the claims and why it would be unreasonable to take any other position.  Detail how the failure of the patent owner to bring prior art to the attention of the examiner during prosecution of the patent amounted to inequitable conduct.  On the trademark side, articulate in your motion why there was no actual confusion.  Or, if you are arguing that it was entirely unreasonable for the trademark owner to believe that there was any likelihood of confusion, provide an argument on all of the factors – not just one or a few – to show that that plaintiff’s claim was substantively unreasonable from day one.  With trade dress, incorporate a detailed showing of how the prior products or designs affect the scope of the asserted trade dress, including a clear identification of the features of the alleged trade dress that were present on prior products.  In other words, steer clear of conclusory and speculative arguments.  Dive into the detail.  And, make sure you articulate why your case stands out from others with respect to the substantive strength of your opponent’s litigating position or the manner in which the case was litigated.

As an aside, since the court reversed the fees award, it did not opine on whether the circumstances of this case would have permitted recovery of attorneys’ fees under § 285 for a parallel IPR proceeding.  But the court did cite to its very recent opinion in Amneal Pharmaceuticals LLC v. Almirall LLC, where it was decided that attorneys’ fees and an exceptional case determination were not available when a patent owner defended an IPR challenge before the PTAB.  However, the court in Amneal did not completely close the door on the question of whether a prevailing party could recover its fees related to the IPR if the resolution of the district court case depends on the outcome of the IPR.  Thus, this footnote may be an indication that a fees award (if properly supported) could include fees generated from an IPR as long as that work was intimately tied to the district court case.