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Category: Fee Shifting

Federal Circuit: No Right to Jury Trial on Patent Fee Awards

August 11, 2017

A recent NLJ story by Scott Graham, “No Right to Jury Trial on Patent Fee Shifting, Federal Circuit Rules,” reports that there is no Seventh Amendment right to a jury trial on the issue of attorney fee awards in patent cases.  Not even when $12 million is at stake.  So ruled the U.S. Court of Appeals for the Federal Circuit in a notorious pair of cases involving the rights to a scientific breakthrough on Alzheimer's disease research.

The Alzheimer's Institute of America, also known as AIA, argued that the jury that heard its patent validity case should also have decided whether it acted in bad faith.  Instead, U.S. District Judge Timothy Savage of Philadelphia made that finding and socked AIA with a $3.9 million fee award.  U.S. Magistrate Judge Elizabeth Laporte in the Northern District of California followed with a $7.8 million award predicated on Savage's findings.

The Federal Circuit affirmed the fee awards.  “The Seventh Amendment right to a jury trial does not apply to requests for attorney’s fees under Section 285 of the Patent Act,” Judge Todd Hughes wrote in AIA America v. Avid Radiopharmaceuticals.  Savage “did not err by making factual findings not foreclosed by the jury’s verdict.”

The two cases are among many the institute brought against university and pharmaceutical researchers over the last decade.  Some companies settled for millions of dollars, while others fought back.  Avid argued that AIA never owned the patent on a genetic defect known as the Swedish mutation that’s associated with Alzheimer’s disease.  A Philadelphia federal jury agreed that AIA did not have standing to assert the patent.

Savage then ruled that “the evidence at trial amply showed” that AIA's principal, businessman Ronald Sexton, conspired with two scientists to hide their blockbuster Alzheimer’s discovery from their university employers.  At oral arguments in June, Buckley told the Federal Circuit that Sexton had been acting on advice of counsel and that Savage's finding of bad faith could not be squared with the trial evidence.

Hughes wrote that Federal Circuit case law does forbid trial judges from making findings that are inconsistent with issues “necessarily and actually decided by the jury.”  But that wasn't the situation here.  “These decisions do not prevent a court, when deciding equitable issues, from making additional findings not precluded by the jury’s verdict,” Hughes wrote.

A New Standard for Attorneys’ Fee Awards in Copyright Cases

August 4, 2017

A recent article in Law 360 by Barry I. Slotnick and Tal E. Dickstein of Loeb & Loeb LLP, “A New Standard for Attorneys’ Fee Awards in Copyright Cases,” reports on the standard for shifting attorneys’ fees in copyright litigation.  This article was posted with permission.  The article reads:

Earlier this month, the U.S. Supreme Court issued its decision in Kirtsaeng v. John Wiley & Sons Inc. on the standard for shifting attorneys’ fees in copyright litigation.  Because copyright litigation is often expensive, and the opportunity (or risk) of an attorneys’ fees award plays a significant role in deciding whether to bring (or settle) a case, the decision was much anticipated among the media and entertainment industry as well as the copyright bar.  While the court’s decision — which directs lower courts to give significant weight to a losing party’s objectively unreasonable litigation position — is likely to deter some amount of meritless copyright litigation, the inability to collect a fee award from an impecunious litigant sometimes requires resort to other methods of deterrence.

The Need for a Uniform Standard

The Supreme Court last addressed the standard for shifting attorneys’ fees under Section 505 of the Copyright Act in 1994.  The court in Fogarty v. Fantasy Inc. held that courts must treat prevailing defendants the same as prevailing plaintiffs when deciding whether to issue an attorneys' fee award, but it offered little guidance on the standard to be applied in making that decision.  In the absence of a definitive standard, the lower courts have looked to a footnote in Fogarty that identified several nonexclusive factors used in deciding whether to issue a fee award: frivolous, motivation, objective unreasonableness (both factual and legal), and the need for compensation and deterrence.

Without clear direction from the Supreme Court as to how these factors were to be weighed, the courts of appeal differed widely in how they considered attorneys' fee motions.  Some adopted a presumption in favor of fee awards, others endorsed a case-by-case determination, focusing on the four Fogarty factors, while others permit district courts to look to as many as a dozen other factors.  The Second Circuit, for its part, focused primarily on the reasonableness of the losing party’s position.

Kirtsaeng’s Journeys to the Supreme Court

When the Supreme Court granted certiorari, it punched Supap Kirtsaeng’s ticket for a second trip to the high court.  His first visit stemmed from a textbook arbitrage business that he launched while studying at Cornell University.  Kirtsaeng bought low-cost foreign-edition textbooks in his native Thailand, shipped them to the United States, and resold them for a profit.  When the textbook publisher, John Wiley, sued for copyright infringement in the Southern District of New York, Kirtsaeng relied on the first-sale doctrine, which permits the resale of copies of copyrighted works.  The trouble for Kirtsaeng was that most courts, including the Second Circuit, had held that the first-sale doctrine did not apply to copies made outside the United States.  Kirtsaeng litigated the issue all the way to the Supreme Court, which handed him a 6-3 victory, ruling that the first sale doctrine does, in fact, apply to copies made outside the United States.

Although he prevailed in the Supreme Court, the district court denied Kirtsaeng’s attempt to recover his attorneys’ fees — including more than $2 million spent on the Supreme Court appeal — finding that none of the other Fogerty factors outweighed John Wiley’s reasonable litigation position.  The Second Circuit affirmed, and Kirtsaeng again successfully petitioned for a writ of certiorari to the Supreme Court.

Objective Unreasonableness Given Significant Weight

Justice Elena Kagan, writing for a unanimous court, first rejected Kirtsaeng’s contention that fees should be awarded where a lawsuit has clarified the boundaries of the Copyright Act.  That standard was both unworkable, because the ramifications of a case might not be fully known until far in the future, and unlikely to encourage meritorious litigation, because a fee award would be tied more to a litigant’s appetite for risk rather than the reasonableness of its litigation position.

Instead, the court held that substantial weight should be given to the objective reasonableness of the losing party’s litigation position.  That approach would best promote the purposes of the Copyright Act — encouraging creative expression, while also allowing others to build on existing works.  An emphasis on objective reasonableness would, according to the court, “encourage parties with strong legal positions to stand on their rights and deters those with weak ones from proceeding with litigation.”

While objective (un)reasonableness will play an outsized role in deciding wither to shift fees, the court explained that district courts must still consider fee motions on a case-by-case basis, considering all of the circumstances.  The court identified two scenarios in particular that could warrant fees despite the losing party’s reasonable position — where the loser engaged in litigation misconduct, or where a party engaged in repeated instances of infringement or overaggressive assertions of copyright claims.

Other Methods of Combating Frivolous Copyright Litigation

In many cases, the Supreme Court’s decision will no doubt discourage meritless litigation.  A plaintiff whose copyright ownership is questionable, or who has scant evidence of infringement, is unlikely to file suit, out of fear that it will have to pay the defendants’ attorneys’ fees.  And a defendant who has no colorable defenses is unlikely to put up much of a fight, lest it be forced to pay the plaintiffs’ attorneys’ fees, on top of a damages award and the costs of any injunctive relief.

But this is true only where a party has something to lose from an adverse fee award.  All too often, it seems, individuals with little or no resources bring frivolous infringement claims against well-known celebrity or entertainment-industry defendants, in the hopes of extracting a nuisance settlement, or of surviving to a jury trial where they rely more on sympathy than evidence.  For these impecunious plaintiffs — who are often assisted by contingency counsel — the risk of an attorneys’ fee award is not an effective deterrent, because they are essentially judgment-proof.

One method of combating this type of frivolous litigation is to seek sanctions against the plaintiffs’ counsel under Rule 11 of the Federal Rules of Civil Procedure, which prohibits filings that lack evidentiary or legal support, or under or Title 28, Section 1927 of the US Code, which targets unreasonable and vexatious litigation.  Unlike an attorneys’ fee award under Section 505 of the Copyright Act, which can be issued only against a party, a sanction under Rule 11 or Section 1927 can be imposed on counsel.  And while courts are sometimes reluctant to sanction lawyers for fear of chilling meritorious litigation, in truly egregious cases, seeking sanctions against counsel may be the only way to avoid having to litigate meritless copyright infringement claims.

Barry Slotnick and Tal Dickstein are partners in Loeb & Loeb's New York office.

Second Circuit Grants Attorney Fees for Appeal Work

July 7, 2017

A recent New York Law Journal story by B. Colby Hamilton, “Circuit, Again, Grants Attorney Fees—This Time for Appeal Workreports that plaintiffs attorneys are able to collect fees for an appeal initiated by the defendants in back-and-forth litigation between the U.S. Court of Appeals for the Second Circuit and the court of the chief judge of the Northern District, Glenn Suddaby.

This is the third time the circuit has reviewed actions in the case Hines v. City of Albany, 16-1056-cv, Judge Raymond Lohier Jr. noted in writing for the panel, which included Judge Debra Ann Livingston and Southern District Judge Jed Rakoff, sitting by designation.

The initial case stemmed from a civil rights action taken against the city of Albany, which settled allegations of illegally seizing a vehicle for return of the SUV and $10,000.  The settlement allowed for the city to appeal, which it opted to, setting off a series of appeals and counter-appeals specifically over attorney fees.

The circuit previously ordered the plaintiffs to recover attorney fees on the initial litigation.  The order dealt with attempts by the plaintiffs to recover attorney fees on the defense of the appeal by the city.  The court, interpreting a reading of the circuit's previous decision in the case that "each side is to bear its own costs with respect to these appeals," denied the fees.

At issue was the interpretation of U.S. Code Section 1988, which deals with attorney fees in civil rights litigation, and how that section of law is dealt with under Federal Rule of Appellate Procedure 39, which describes how award costs should be taxed on appeal.  The term "costs," which was open to some interpretation, needed to be separated from attorney fees, the circuit found.

While Rule 39 costs were denied, the circuit's decision "did not foreclose an award of attorneys' fees because such fees were not expressly denied."  "In doing so, we agree with a majority of our sister circuits that have considered the question and similarly distinguished an award of costs under Rule 39 from an award of attorneys' fees under Section 1988 or similar fee-shifting statutes," Lohier wrote for the panel.  The case was, again, remanded to the district for a "reasonable award" of fees on the previous appeal, as well as on the appeal that resulted in the opinion.

Cooper Erving & Savage partner Phillip Steck, who represented the plaintiffs, said the decision is a boon in the Northern District, which he believes is less receptive to these kinds of cases than other district courts in the state.  "This is a region of the country that's not particularly hospitable to civil rights actions," he said, "so it's very important for those of us who're willing to take these kinds of cases on.  The district court said very clearly that we had already gotten enough fees. It's not our fault they keep appealing."

Being able to recover in these sorts of cases, especially for a smaller firm like Cooper Erving & Savage that has just over a dozen attorneys on staff, is critical, Steck said, "otherwise it makes it impossible to practice in this field."

Federal Circuit: Court Abused Discretion in Patent Fee Award

July 6, 2017

A recent The Recorder story by Scott Graham, “Newegg Overcomes Acacia in Attorney Fee Fight,” reports that the Federal Circuit is putting its foot down on attorney fees.  The D.C.-based appellate court on ordered U.S. District Judge Rodney Gilstrap of the Eastern District of Texas to award attorney fees in a spat between online retailer Newegg Inc. and a subsidiary of NPE Acacia Research Group LLC.  Adjustacam v. Newegg marks the first substantial attorney fee win for Newegg, one of the country's most aggressive litigants against patent suits it deems abusive.  The Federal Circuit indicated that Newegg is asking for $350,000.

It's also the second time the U.S. Court of Appeals for the Federal Circuit has ordered Gilstrap to consider awarding fees in the case.  This time the court was more blunt, essentially directing that fees be awarded under the Supreme Court's 2014 Octane Fitness precedent.  “The district court abused its discretion failing to follow our mandate to evaluate the totality of the circumstances under Octane [Fitness],” Judge Jimmie Reyna wrote.  He again remanded for further proceedings, this time “including the calculation of attorneys' fees.”

Acacia subsidiary Adjustacam and Newegg have been slugging it out over fees since 2013.  Newegg's outspoken general counsel, Lee Cheng, left the company last year, but outside counsel Mark Lemley of Durie Tangri continued the fight at the Federal Circuit, with Collins, Edmonds, Schlather & Tower partner John Edmonds representing Adjustacam.

Adjustacam sued 58 defendants in the Eastern District of Texas in 2010 over a patent on a rotatable camera mount.  Newegg insisted there was no basis for infringement, especially after U.S. District Judge Leonard Davis construed the claims in 2012.  Adjustacam continued to litigate the case for several more months before dismissing it.

Davis declined to award fees in 2013.  But the following year the U.S. Supreme Court issued Octane Fitness, which liberalized fee-shifting in patent cases.  The Federal Circuit instructed Davis to reconsider in light of Octane, saying Newegg's arguments "appear to have significant merit."

By then Davis had retired.  His successor Gilstrap adopted almost all of Davis' findings and conclusions, saying Davis had been in the best position to evaluate the case.  That led to a testy second hearing before the Federal Circuit in April, where the judges seemed angry that Gilstrap hadn't taken their hint, but also reluctant to second-guess a district judge's discretion on attorney fees.

In the ruling, they didn't hold back.  “The wholesale reliance on the previous judge’s factfinding was an abuse of discretion,” Reyna wrote.  “We specifically instructed the judge on remand to 'evaluate' the merits of Newegg’s motion in the first instance based on the new Octane standard, which did not occur.”  Reyna wrote that the court recognizes the deference owed to district courts in deciding fees motions.  “Deference, however, is not absolute,” he added.

Indeed, it's the second time in the last month that the Federal Circuit has directed Gilstrap to award fees in a case.  In Rothschild Connected Devices Innovations v. Guardian Protective Services, the Federal Circuit remanded for additional proceedings, “including those pertaining to the calculation of attorney fees.”

Court Denies Fees to Notorious Whistle Blower

June 16, 2017

A recent Bloomberg BNA story by Michael Bologna, “Court Tosses Fees for ‘King of Qui Tam’, Business Model Done?” reports on the denial of attorney fees for a notorious whistle blower.  The article reads:

The profit motive driving hundreds of false claims lawsuits by a Chicago lawyer known as the “king of qui tam” may be drying up after an appeals court rejected the prolific whistle-blower’s demand for fees in a case involving unpaid sales and use taxes (Illinois ex rel. Schad, Diamond & Shedden PC v. My Pillow, Inc. , Ill. App. Ct., No. 152668, 6/15/17).

In a case of first impression, a three-judge panel of the Illinois Appellate Court reversed a portion of a circuit court ruling that granted Stephen B. Diamond attorney fees in an action under the Illinois False Claims Act (FCA) against the retailer My Pillow Inc.

Diamond had successfully demonstrated that My Pillow had failed to collect and remit tax on merchandise sold to Illinois customers from internet and telephone sales platforms.  After a bench trial in September 2014, a Cook County Circuit Court judge awarded a judgment of $1,383,627, with $782,667 in the form of damages and penalties, and $600,960 in the form of attorney fees.

The appeals panel upheld the circuit court’s judgment with regard to My Pillow’s failure to collect and remit taxes to Illinois, but it reversed on Diamond’s eligibility for attorney fees.  The court found Diamond, serving as relator on behalf of the State of Illinois, couldn’t achieve benefits in the litigation as both the whistle-blower and the attorney for the whistle-blower.

“We hold that the fee-shifting provision in the Act does not permit the award of attorney fees to relator, who served as its own attorney for much of this case,” Judge David Ellis wrote on behalf of the panel.  “To the extent that the trial court awarded relator fees for work performed by relator’s own attorneys, that fee award is reversed.”

The ruling—the first of its kind dealing with a whistle-blower also serving as his own counsel—could derail the false claims freight train that Diamond, and his law firm Stephen B. Diamond P.C., has steered through Cook County Circuit Court for more than a decade.  Diamond is regarded as the most prolific tax whistle-blower in the country, and his “cottage industry” of FCA actions has perplexed and annoyed retailers, policymakers, and legal scholars across the country.  All of the cases involve purported violations of the Illinois sales and use tax code.

“We think this could really solve the problem here in Illinois,” said Catherine A. Battin, a partner with McDermott Will & Emery in Chicago and counsel to My Pillow.  “There have been discussions about solving it legislatively.  This decision leaves the door open for legitimate insiders and relators, but not this kind of cottage industry where you have one lawyer filing a 1000 lawsuits.”

Diamond has served as relator in about 1,000 qui tam actions over the last 15 years.  A recent investigation by Bloomberg BNA revealed Diamond has collected almost $12 million through this pattern of litigation.  The Illinois General Assembly is considering various legislative fixes to address Diamond’ strategies.

Officials with Diamond’s law firm didn’t immediately respond to a request for comment.  Battin speculated that Diamond would likely appeal the ruling to the Illinois Supreme Court because it undermines the “abusive fee generation” component of his business model.