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Category: Fee Doctrine / Theory

Full Federal Circuit Urged to Fix Divergent Attorney Fee Ruling

March 3, 2020

A recent Law 360 story by Dani Kass, “Full Fed. Circ. Urged to Fix Divergent Attorney Fee Ruling,” reports that the Federal Circuit deviated from nearly every other circuit court and U.S. Supreme Court precedent when it upheld a ruling that a settlement precluded BigCommerce Inc. from collecting attorney fees, the e-commerce company said in a bid for rehearing.  BigCommerce maintains that it was the prevailing party in its litigation with Diem LLC, as while Diem’s underlying patent infringement claims were settled, a contract dispute that came out of the deal was decided entirely in BigCommerce's favor.  Nearly every other circuit has allowed companies to prevail even if some claims are settled, the petition for rehearing by the panel or en banc states.

Diem, a nonpracticing entity, had accused BigCommerce of infringing its website-generation and -hosting patent with the storefront manager service offered on BigCommerce's website.  As part of a settlement, Diem and Commerce entered into a contract under which the district court would look only at whether Diem had a particular infringement theory in its original infringement allegations.  If so, BigCommerce would have to license the patent for $30,000, and if not, the case would be dismissed with prejudice, according to BigCommerce's appeal.  The district court ruled in favor of BigCommerce and dismissed Diem's suit.

BigCommerce maintains that it's the prevailing party because it escaped the litigation without having to license the patent it was accused of infringing, pay anything to Diem, or change its products or services.  Both the district court and Federal Circuit have disagreed.  The rehearing petition turns on the Supreme Court’s ruling in Buckhannon Board & Care Home Inc. v. West Virginia Department of Health & Human Resources, which struck down the so-called catalyst theory.  Under that theory, a party was considered “prevailing” if its lawsuit caused the defendant to voluntarily change conduct.

BigCommerce said that during oral arguments, the panel claimed it was being asked to stray from the justices' 2001 ruling, but the company said that’s not true.  In 2016's CRST Van Expedited Inc. v. EEOC, the justices said they hadn’t set a “precise test” on how to determine whether a party has prevailed, the petition states.

According to BigCommerce, the Federal Circuit read a test into Buckhannon that “virtually every circuit has squarely rejected.”  It provided examples from the First, Second, Third, Fourth, Fifth, Seventh, Eighth, Ninth and Eleventh circuits to back up that argument.  Buckhannon is just about the catalyst theory and “has no relevance” in a case that doesn't invoke that theory, the petition states.

“BigCommerce never cited any BigCommerce-led action that induced a voluntary change in Diem’s conduct in support of its ‘prevailing party’ arguments in the lower court or before this court,” the petition states.  “In fact, Diem refused to voluntarily do anything BigCommerce requested.  A district court had to retain enforcement jurisdiction over the parties’ settlement agreement, resolve the parties’ dispute, rule in favor of BigCommerce, rule against Diem, which finally caused the dismiss[al] of this case with prejudice.”

The 2006 Federal Circuit case cited by the district court when denying fees, Exigent Tech. Inc. v. Altrana Solutions Inc., was also decided incorrectly, BigCommerce said.  In that case, the court said merits-based relief is required to become a prevailing party, which BigCommerce said contradicts the high court’s ruling in CRST.  If the Federal Circuit doesn’t adjust its holding, then the term "prevailing party" will mean one thing under the Patent Act and something else under every other law, which can’t stand, BigCommerce said.

Article: The Need For Attorney Fee Expertise

February 20, 2020

A recent AI article by John D. O’Connor, “The Need For Attorney Fee Expertise (pdf),” reports on the need for attorney fee expertise to prove reasonable attorney fees and proper billing practices in underlying litigation.  This article was posted with permission.  The article reads:

Most corporate clients today have access to excellent litigation counsel in each particular area of concern.  However, as attorney fee disputes are increasingly becoming a by-product of the main litigation event, few clients and few otherwise excellent litigators truly understand when and how to use attorney fee experts.

Although the “American Rule” provides that each litigating party bears its own fees, there are exceptions to this rule.  Successful class actions; employment and governmental discrimination cases; eminent domain suits; RICO claims; and other cases result in legally-sanctioned attorney fees claims.  Promissory notes, guarantees, real estate purchase agreements, and corporate acquisition contracts often contain attorney fee clauses.  High-stakes insurance coverage litigation usually features a battle over fees incurred in the underlying case(s).  It is common for a case with a small monetary award to result in an extremely high request for fees.

Typically in fees proceedings, the party with a claim to fees files a motion detailing the amount it requests, accompanied at a minimum by a Declaration of the main litigating attorney attaching a statement of his billings, detailing hours and rates for which payment is sought.  The main billing attorney will normally justify the requested billing rate, which can be his actual rate or a rate claimed to be prevailing in the community for one of similar skill and experience. The motion, usually accompanied by a brief summarizing the law of fees in that type of case, includes the statutory or contractual authority for same.

When the responding party files its submission, the contours of the ultimate dispute take shape.  It is common for the respondent to challenge the billing rates as unduly high; the number of lawyers assigned as excessive; the hours spent as inefficient; the number and length of conferences and meetings as unnecessary; the billing form as improperly “blocked” and “vague” in description; many of the tasks billed as being unwisely or improvidently chosen; certain work as not related to prevailing claims; and generally excessive fees for the type of litigation involved.  Often this opposition is accompanied by a request for limited discovery regarding fees.

As objections are detailed in various cases, the challenging lawyer is usually able to write an impressive brief in support.  These objections can be made without an expert witness, except as to prevailing billing rates, which the responding lawyer is qualified to opine.  The responding party will have made a serious mistake, however, if it did not bolster its objections with a detailed opinion of an experienced fee expert.  Often, the reviewing Court has witnessed the work of the petitioning lawyers and formed a positive opinion of them. Indeed, the reviewing Court in the underlying case would often have ruled in favor of the petitioner and against the respondent.  Even if not, the respondent must labor against the human assumption that established, competent lawyers have billed in accordance with community standards.

However, surprisingly, it is common for responding parties to put forth objections without an expert.  We have seen cases where fees sought into eight figures, where no expert has been retained, with unenviable results. Most experts have the capability of presenting a computer analysis isolating hours and tasks, which can claim to isolate amounts of “block” entries, incompensable “clerical” time, and other practices.  Such a presentation, though, is often superficial, and may not impress a reviewing Court seeking a principled basis upon which to reduce fees for the prevailing party.

Whatever the case, any attack on the requested fees should call for a rebuttal by a qualified attorney fee expert on behalf of the petitioner.  However, this guideline is frequently observed in the breach.  Even if the Court had been inclined to a favorable opinion of the petitioning firm, even a superficial attack on the petitioning lawyers’ fees can be facially effective, and thus the petitioner would need to blunt effectively any such attack.

A qualified expert can help by suggesting needed discovery from the responding party of information regarding that party’s billings which supports the petitioner’s request.  More importantly, an expert employed correctly will go beyond the glittering generalities put forth in these disputes.  They would show why a particular billing rate is justified with specific reference to specific firms doing nearly identical work or why a particular task was necessarily and properly time-consuming.

Most reviewing Courts are experienced at resolving factual disputes based on a presentation of specific compelling facts.  A wise litigation party, in short, should employ an expert to do just that. 

John D. O’Connor is a NALFA member and the Principal of O’Connor & Associates in San Francisco.  For more on John D. O’Connor, visit www.joclaw.com.

Federal Circuit Unsure It Can Affirm IP Attorney Fee Award

February 10, 2020

A recent Law 360 story by Britain Eakin, “Hotel Wants Four Seasons’ $1M Atty Fee Request Slashed, reports that a Federal Circuit panel struggled to understand how far beyond the case record it should go in reviewing whether Munchkin Inc.’s infringement case over a spill-proof sippy cup was so unreasonable that it should pay $1.1 million in attorney fees.

In an order granting Luv N’ Care Ltd.’s fee bid, the district court had said the case was exceptional because Munchkin had concealed relevant prior art sippy cups during litigation, and its amended trademark infringement claims were so weak they were abandoned.  But during a 40-minute hearing in Washington, D.C., attorneys for both companies told the Federal Circuit panel that the lower court didn’t make factual determinations on either issue.

The panel appeared hung up on whether it needed to delve into the factual issues the district court left undecided to determine whether it abused its discretion in granting the fee award.  Munchkin attorney Travis W. McCallon of Lathrop GPM LLP urged the panel to reverse, saying that relitigating factual issues after the fact would put the panel “too far afield” from the case record.

U.S. Circuit Judge Timothy B. Dyk asked the attorney what prior cases say about going outside the record to determine whether to grant attorney fees.  “There’s language in Supreme Court cases saying this shouldn’t be the occasion for a new litigation,” Judge Dyk said.  “Certainly you’re going to have discovery on the merits, a trial on the merits, in connection with the attorney’s fees.  But do the cases say the district court is limited to the record that has already been made?”  McCallon said he wasn’t sure if prior cases have specifically held that, but said “a finding of exceptionality should be readily apparent from the record,” and that no mini trials on the merits should be necessary to make that determination.

Munchkin sued Luv N' Care and Admar International Inc. for trademark infringement and unfair competition in 2013. Munchkin moved to amend the trademark claim the following year, deciding to assert a different trademark in the case, and then added a patent infringement claim to the suit in 2015.  Luv N' Care later challenged the validity of Munchkin’s patent at the Patent Trial and Appeal Board, which invalidated all of the challenged claims.  After the PTAB invalidated the patent, the district court ruled in favor of Luv N' Care and deemed it the prevailing party.

The district court tacked on the cost of the PTAB proceedings to the fee award, as well as Munkchin's appeal of the PTAB decision to the Federal Circuit, which affirmed.  McCallon urged the Federal Circuit panel to reverse the district court’s fee order, saying it “sets a new low bar for exceptional case findings.”

But U.S. Circuit Judge Richard G. Taranto pointed to the Federal Circuit’s ruling last year in ThermoLife International LLC v. GNC Corp., in which the court held in what it called an “unusual” case that Stanford University and ThermoLife owed $1.3 million in attorney fees even though the reason the fee was awarded was divorced from the only issues litigated.  “It can’t be that fees can be awarded only on the basis of things that happened in the merits of litigation ... past the filing of the complaint,” Judge Taranto said.

FL Legislation Would Cut Attorney Fees, Aid Insurers

January 28, 2020

A recent Daily Business Review story by Raychel Lean, “Proposed Florida Law Would Cut Attorney Fees, Aid Insurance Companies,” reports that a bill working its way through the Florida Legislature would curb the use of attorney-fee multipliers—bad news for plaintiffs counsel who represent clients on a contingency basis, but a boon for the insurance industry, which claims attorneys often charge three times their hourly rate for routine property cases.

Senate Bill 914 has jumped its first hurdle, gaining approval from the Florida Senate Committee on Banking and Insurance.  It reflects a conflict between attorneys—who say the proposed law would prevent homeowners from suing insurers—and insurers, who say some lawyers take advantage by tripling their fees for routine cases.  Fee multipliers are meant to protect homeowners who can’t afford to bring suit unless attorneys agree to take on difficult and high-risk litigation on a contingency basis.  Lawyers bear the cost of the litigation, but if they win, their clients could apply a contingency risk multiplier.

The proposed law would prevent this.  The bill by Republican Sen. Jeff Brandes would cap attorney fees for plaintiffs.  It would award fees through the lodestar method, which multiplies a reasonable hourly rate by the number of hours attorneys worked.  Tallahassee attorney Michael Carlson agrees it should be more difficult for plaintiff counsel to seek fee multipliers.  “It is too common now, throughout Florida, for courts to award a fee multiplier on what we would call a relatively simple case,” said Carlson, who represents insurance companies and is president and CEO of the Personal Insurance Federation of Florida.

Critics suggest fee multipliers were meant to have a narrow scope.  They say the measure was introduced decades ago to encourage attorneys to take on complex or controversial federal civil rights and environmental torts cases because potential clients were struggling to find representation. The U.S. Supreme Court eventually limited its use, they argue.  And in the 1992 case City of Burlington v. Dague, former Justice Antonin Scalia wrote a majority opinion rejecting the contingency fee model.

Carlson claims multipliers are no longer necessary for property insurance cases in Florida, because there’s no shortage of competent counsel.  “If you have a tree fall on your roof, and you have a dispute with your insurance company over that tree having fallen on your roof and you need to hire a lawyer anywhere in Florida, you will not have a problem,” he said.

‘Army’ of lobbyists?

Plaintiffs attorney William F. “Chip” Merlin of the Merlin Law Group in Tampa argued against the bill at a hearing, claiming that although it was “well-intentioned,” it will hurt some policyholders who won’t be able to find competent lawyers to handle declined insurance claims.  “The insurance companies do not ever want to be held accountable for wrongfully denied claims and claims that they are slow to be paid, and certainly do not like to be sued at all, even if their competitors are committing illegal actions,” Merlin said.  “So there is always an army of insurance lobbyists claiming that a new crisis exists to reduce policyholder rights or make it easier to skirt consumer protection laws and regulations.”

Merlin notes that while insurance companies have teams of lobbyists, policyholders “have jobs and are working on their own life, and simply do not show up in Tallahassee.”  “People do not buy insurance to have their claims turn into lawsuits,” Merlin said.  “They just want to be paid fairly.”

In most instances, Merlin claims policyholder’s attorneys don’t get a multiplier but says in certain small cases where upfront costs outweight the amount in controversy there’s no other incentive for attorneys to take them.  William Large of the Florida Justice Reform Institute stressed the personal injury field has survived without fee multipliers, and claims there’s already “an extraordinary advantage” under Florida’s one-way attorney fee statute, allowing recovery for plaintiffs who prevail against their insurer.

“That is fair,” Large said. “That’s a real incentive for insurance companies to make sure they’re settling cases appropriately for insureds. But then to get a multiple on top of that isn’t fair, so we’re trying to make sure that the multiplier is not used except in the most extraordinary and exceptional circumstances.”  However, a 2019 law has already restricted the use of assignment-of-benefit agreements, which allow policyholders to sign over their insurance rights to contractors — some of whom claim would give homeowners “the monumentally short end of the stick.”

Carlson said he sees this bill as restoring the law to its original purpose, and claims its passage could reduce insurance rates for consumers.  “The lawyers are making their hourly rate, they’re getting paid for representing their client when they win,” Carlson said.  “What’s become much more commonplace in the 2017 period forward is lawyers in these same cases, when they win and they’re having their lodestar amount calculated, they ask for a separate amount as well.”  He points to a 2017 Florida Supreme Court case, Joyce v. Federated National Insurance Co., which made it easier to obtain fee multipliers.  In it, Justice Charles Canady wrote a dissent that said the court had overreached, because the fee multiplier should only be used in rare circumstances. 

But as Merlin sees it, the focus should be on the fact that policyholders are having to sue their insurers in the first place.  “The insurance lobby points to a few cases about how much the winning policyholder attorney made, rather than talk about why the claim should never have been denied in the first place, and that the insurance companies’ attorneys fought and fought the payment to the policyholder because that is the only way a case can generate large fees,” Merlin said.  “Instead, they fight with their own attorneys whom are paid on an hourly basis, win or lose, often to wear down the policyholder.”

Article: Recent Case Law on Attorney Fee Awards in Patent Litigation

January 27, 2020

A recent New York Law Journal article by Robert Maier “Recent Takes From the Supreme Court and Federal Circuit on Attorney Fees Award in Patent Cases,” reports on 3 recent appellate decision on attorney fee awards in patent litigation.  This article was posted with permission.  The article reads:

Just before the holidays, the Supreme Court and Federal Circuit issued three opinions related to the award of attorney fees in patent cases.  The decisions confirm that the “American Rule”—under which each side in a case pays its own attorney fees—remains the norm, unless a statutory or contractual exception applies.  These opinions also confirm that appellate courts will continue to carefully scrutinize these fee awards, but will also uphold them when appropriate.

Background

Litigation in the United States traditionally operates under the “American Rule,” under which each party to a case typically—win, lose, or draw—pays its own attorney fees, unless a statutory or contractual exception applies.  See, e.g., Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010).  This approach is in contrast to the “English Rule,” under which the losing party by default pays the other party’s legal fees.

Three Supreme Court and Federal Circuit opinions issued in December address certain exceptions to the American Rule appearing in the Patent Act: 35 U.S.C. §145 and 35 U.S.C. §285.  In Peter v. NantKwest, the Supreme Court addressed 35 U.S.C. §145, which provides that patent applicants who are dissatisfied with a decision of the Patent Trial and Appeal Board (PTAB) to reject a patent application may challenge that decision in a federal district court, and “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Here, the U.S. Patent and Trademark Office (USPTO) prevailed in a case brought under this section, and for the first time since the provision was enacted 170 years ago, sought to recover its attorney fees. See 589 U.S. __, 140 S. Ct. 365 (2019).

Separately, two Federal Circuit decisions in December addressed another statutory exception to the American Rule, 35 U.S.C. §285, which provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.”  See Blackbird Tech LLC v. Health In Motion LLC, 944 F.3d 910 (Fed. Cir. 2019); see also Intellectual Ventures I LLC v. Trend Micro Inc., 944 F.3d 1380 (Fed. Cir. 2019).

These decisions provide guidance on district court awards of fees in patent cases, and also on appellate court treatment of such awards.

The American Rule in ‘NantKwest’

On Dec. 11, 2019, the Supreme Court decided NantKwest, 140 S. Ct. 365, and reaffirmed the American Rule.  In NantKwest, an application for patent was rejected by the USPTO, and the rejection was subsequently affirmed by the PTAB.  In response, NantKwest filed a district court case against the USPTO under §145 to challenge the decision.  The USPTO prevailed on a motion for summary judgment, and the Federal Circuit affirmed.

The USPTO then requested its attorney fees under §145—the very first time it had made such a request in the 170-year history of this provision—seeking reimbursement for the pro rata salaries of USPTO attorneys who worked on the case.

The district court denied the request for fees, and a panel of the Federal Circuit reversed.  See id. at 370.  The en banc Federal Circuit then reheard the case sua sponte and rejected the USPTO’s request for attorney fees, holding that the American Rule presumption applied to §145, and that the provision in the statute which directed “[a]ll the expenses of the proceedings shall be paid by the applicant” was not a sufficiently “specific and explicit” directive from Congress to also warrant shifting attorney fees (as opposed to other items typically described as “expenses,” such as out-of-pocket costs like copying costs and expert witness fees). Id.

The Supreme Court unanimously affirmed the denial of fees.  The court first concluded the American Rule applies to all statutes, even those like §145 that do not explicitly award attorney fees to prevailing parties.  See id. at 371. The court then looked to the statutory language and concluded that the reference to “expenses” in the statute did not provide a sufficiently “specific and explicit” congressional directive to overcome the presumption. Id. at 372.

The court further found that the term “expenses of the proceedings” in §145, similar to the term “expenses of the litigation,” would not have been commonly understood to include attorney fees. Id.  Finally, the court concluded that when Congress intends to shift fees, for example in 35 U.S.C. §285, it has stated so explicitly in the provision. See id. at 373.  Ultimately, the court held fast to the American Rule presumption, and confirmed that exceptions apply only where Congress manifests a clear intent to deviate from that presumption.  See id. at 374.

‘Blackbird’

On Dec. 16, the Federal Circuit issued its opinion in Blackbird, 944 F.3d 910, which provides a detailed analysis of the application of §285.

Patent holder Blackbird Tech LLC filed a suit for patent infringement and, after more than 19 months of litigation, voluntarily dismissed its suit with prejudice and executed a covenant not to sue, just before the defendants’ motion for summary judgment was to be decided, and without notifying the defendants beforehand.  The defendants then sought attorney fees under §285, and the district court granted the motion. Blackbird appealed.

The Federal Circuit affirmed the award of attorney fees because it found the case to be exceptional.  Citing the Supreme Court’s recent take on the law in Octane Fitness, LLC v. ICON Health & Fitness, 572 U.S. 545, 554 (2014), the court repeated that an exceptional case “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position … or the unreasonable manner in which the case was litigated.”  Blackbird, 944 F.3d at 914.  The court also noted this is a case-specific analysis that considers the totality of the circumstances.  See id.

The Federal Circuit found the case exceptional based both on Blackbird’s weak litigation position and the unreasonable manner in which it litigated the case.  The court found that Blackbird’s litigation positions lacked substantive strength, because Blackbird raised flawed claim construction and infringement positions.  See id.  Furthermore, the Federal Circuit found Blackbird’s conduct in litigation to be unreasonable, because it made a series of nuisance value settlement offers, unreasonably delayed producing documents, and failed to notify the defendants of its intention to dismiss the case.  See id. at 916-17.  Finally, the Federal Circuit found it within the district court’s discretion to also consider “the need to deter future abusive litigation,” particularly given that Blackbird had filed over one hundred patent infringement lawsuits, and not one had been decided on the merits.  Id. at 917.

‘Intellectual Ventures’

Three days later, the Federal Circuit decided Intellectual Ventures, 944 F.3d 1380, in which the court again weighed in on the application of §285.  Intellectual Ventures (IV) filed a series of patent infringement suits, including one against Trend Micro Inc.  A first trial proceeded against another defendant, during which trial IV’s expert witness changed his testimony; the trial court found the changed expert opinion to be “a surprise inconsistent with the representations from [IV].”  Id. at 1382.  Based on this changed position, Trend Micro moved for clarification of the district court’s claim construction, and then for invalidity of the asserted patents under 35 U.S.C. §101, which motion was granted in part.

Trend Micro then sought its attorney fees under §285, arguing that the case was exceptional because IV’s expert changed his opinion in the middle of trial in the prior proceeding.  The district court concluded that the case was exceptional “solely with respect to this collection of circumstances regarding [IV’s expert’s] changed testimony.” Id. at 1382.  However, the court further determined that the “case overall” was not exceptional. See id. at 1383.

On appeal, the Federal Circuit determined that the district court did not apply the correct legal standard because, rather than assessing whether the case “overall” stood out from other cases, the court instead focused on whether this one particular part of the case—the changed testimony of IV’s expert—stood out from other cases. See id.  As a result, the Federal Circuit vacated the fee award and remanded the case to the district court to consider whether the case as a whole was exceptional. See id.  In so doing, the Federal Circuit made clear that, in some cases, a “single, isolated act” may be enough to find a case exceptional, but that a court must still consider the totality of the circumstances. Id. at 1384.

Conclusion

Ultimately, the American Rule still rules the day in patent cases—appellate courts will continue to ensure that awards of fees properly fall within a statutory exception to the presumption against fee awards, and that such awards follow the law of Octane Fitness.  But such awards continue to remain available, and will be upheld when warranted by the totality of the circumstances.

Robert Maier is an intellectual property partner at Baker Botts LLP in New York and the head of its intellectual property group.