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Category: Fee Shifting

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.

Eleventh Circuit: No Added Attorney Fees for Defending Fees

April 12, 2019

A recent Law 360 story by Nathan Hale, “No Added Atty Fees in Nationstar Case, 11th Circ. Says,” reports that a Florida woman who won a judgment against Nationstar Mortgage LLC for charging improper fees is not entitled under state law to collect appellate attorney fees for her counsel's work defending an initial attorney fees award in the case, the Eleventh Circuit ruled.  The federal appeals court backed a lower court's decision to deny Sara Alhassid's request for attorney fees covering Nationstar's appeal based on a finding that the benefit would be purely for her attorneys and that she has no obligation to pay them for this work.

The appeals panel said it agreed with the district court that the controlling case on the issue is the Second District of Florida's ruling in B & L Motors Inc. v. Bignotti.  In that case, the state appeals court found that if a plaintiff has no interest in a fee award because it would not affect her payment obligation to her attorneys, then the plaintiff may not receive a fee award under the Florida Deceptive and Unfair Trade Practices Act, according to the opinion.

“B & L Motors is exceedingly clear that a prevailing plaintiff may receive fees under FDUTPA only if a 'fee award is found to be in the interests of the client and if the fee arrangement is found to have contemplated payment for that work,'” the Eleventh Circuit said.  “Because we do not lightly disregard binding, on-point decisions of intermediate state appellate courts, we hold that B & L Motors compels the denial of appellate attorneys’ fees in this case.”

Alhassid's counsel, Reuven T. Herssein of Herssein Law Group PA, said that his side intends to seek an en banc rehearing of the decision, which he said promotes meritless appeals by mortgage companies and other large institutions and has a chilling effect on plaintiffs who bring and litigate these cases.  "In light of this decision, plaintiffs attorneys will shy away from taking on these kind of cases since we won on the merits of the appeal and the appellate court’s decision means we are not paid for the successful result we obtained for our client in the appellate court," he said.

According to the opinion, Alhassid's attorneys had said that they “took this case on a contingency basis,” and the district court found that meant that any fees resulting from the appeal of the fee award would “inure solely to the benefit of plaintiff's attorneys and not to plaintiff herself.”

The dispute stems from Bank of America's decision to place Alhassid’s reverse mortgage in default for failure to pay flood insurance on her property.  After acquiring Alhassid’s mortgage and note in April 2013, Nationstar called her loan due and payable and started a foreclosure action on the property in January 2014, according to case records.  Alhassid filed the suit as a proposed class action against Bank of America NA and Nationstar in February 2014 and was joined by Sarah Drennen in August 2014.  The two women filed their third amended complaint in December 2014, bringing three breach-of-contract claims, a claim for breach of the covenant of good faith and fair dealing, the FDUTPA claim and a claim of violation of the Fair Debt Collection Practices Act.

They alleged the two companies charged improper fees, placed loans in default when borrowers did not pay those fees and then charged more unlawful fees after the defaults, according to the opinion.  The district court in Miami denied class certification in August 2015, finding that the nine class definitions didn’t show commonality and only individualized evidence could prove wrongdoing.  The claims against Bank of America were ultimately dismissed voluntarily, but Alhassid won summary judgment against Nationstar on all but the good-faith and fair-dealing claim, which the court found to be duplicative, the opinion said.

Alhassid was awarded $5,000 in actual damages and $1,000 in statutory damages under the FDCPA, according the opinion.  The district court also found that she was entitled to attorney fees as the prevailing party under the FDUTPA and awarded her $435,704 in fees.  The Eleventh Circuit affirmed the award on appeal.  The case is Alhassid v. Nationstar Mortgage LLC, case number 18-11985, in the U.S. Court of Appeals for the Eleventh Circuit.

Federal Circuit Considers How Fee Ruling Can Deny Access to Justice

March 25, 2019

A recent Law 360 story by Anne Cullen, “DC Circ. Dissects Attorney Fee Ruling That Stoked Access Fears,” reports that a D.C. Circuit panel has raised concerns with a survey of lawyers’ rates that a lower court used to pare millions from an attorney fee award in a decision that legal aid and public interest groups fear may undercut their fee awards and ultimately reduce the number of clients they can take on.  The dispute hinges on a new attorney fee matrix put forward by the government that is based on a survey of hourly rates billed by lawyers throughout Washington, D.C., Maryland, Virginia and West Virginia who practice in various legal arenas, including in litigation, wills, bankruptcy cases and real estate closings, among other practices.

A D.C. district court relied on that matrix two years ago to shave just under $3 million from the nearly $10 million in fees and costs a class requested to pay their attorneys after winning a long-running case against the nation’s capital over violations of federal and local disability laws.  D.C. had championed the new data, as it argued the government’s updated rates provide a more reliable and accurate measure of the current market, while the iteration the class prefers is three decades old.

In the class’ appeal, it told the D.C. Circuit that complex litigation attorneys in D.C. shouldn’t be paid from a dataset that includes non-litigation lawyers hailing from more rural areas that charge far less hourly.  And more than a dozen nonprofits that rely on fee-shifting to support their caseloads — including the National Women’s Law Center, AARP and the Animal Legal Defense Fund — lodged their support for the class’ challenge, as they said in an amicus brief that awarding below-market rates curbs the number of clients a public interest organization can afford to represent.

At oral arguments last week, the panel also voiced concerns with the survey’s widely cast net, as Judge Merrick Garland said he couldn’t understand why a lower court would use a broad sweep of rates to pay a set of complex litigation lawyers based out of D.C. whose hourly rates would differ significantly from others included in the survey.  “If you have a dataset that intentionally includes rates that are neither complex nor District of Columbia, I don’t understand how we can give any weight at all to that dataset,” Judge Garland remarked.

And Judge David Tatel echoed his colleague’s thoughts.  “It can’t be that by including huge numbers of lawyers that are not in district and legal work that’s not only not complex but not litigation, that that could conceivably average out to something that’s useful to us,” he said.

The suit originated in 2005 when parents of then-preschool-aged children challenged D.C.’s failure to provide special education services for their kids.  After they won, they asked for $9.8 million to pay their counsel for more than a decade of work, but the lower court ultimately trimmed the fees and costs to $6.9 million to align with averages from the survey.

Assistant Attorney General Lucy Pittman argued for the district in the hearing, and she conceded that the data spans a range of legal specialties, including wills and estates, where attorneys’ rates would clock in on the lower end of the pay scale.  And the judges highlighted the fact that the data includes lawyers’ hourly rates in rural parts of Maryland, Virginia and West Virginia, which would also pull the average down.  But Pittman argued that the bankruptcy attorneys’ fees were also factored in, and as they lie on the other end of the spectrum, she said they balance out the average.

However, Judge Garland said two wrongs don't make a right.  “You don’t get a statistically correct [result] by taking wrong numbers on one side and wrong numbers on the other, and hope that just randomly, or by accident, they average out to something useful,” he said.

The U.S. also waded into the battle to support the district, as U.S. Department of Justice attorney Charles W. Scarborough argued at the hearing that the data isn’t perfect, but emphasized it’s a “reasonable effort” and a “statistically reliable way” to update the decades-old matrix.

Judge Tatel jumped in to say he understands the government's push to set out a fresh data set — which he said is clearly “brand new” and “much more up to date” — however, he’s still not certain it’s useful here.  “The question is, is the data relevant?” he asked.

Supreme Court: ‘Full Costs’ Doesn’t Mean All Imaginable Costs

March 6, 2019

A recent NLJ story by Scott Graham, “’Full Costs’ Doesn’t Mean All Imaginable Costs, Supreme Court Rules,” reports that a copyright statute that permits an award of “full costs” does not include litigation-related expenses such as expert witness fees, jury consulting fees and e-discovery.  A unanimous Supreme Court led by Justice Brett Kavanaugh held that the phrase “full costs” in Section 505 of the Copyright Act means all of the costs specifically enumerated in the general cost shifting statutes, 28 USC Sections 1821 and 1920, such as transcripts and fees for court-appointed experts and interpreters.

“A ‘full moon’ means the moon, not Mars,” Kavanaugh wrote in Rimini Street v. Oracle.  “A ‘full breakfast’ means breakfast, not lunch.  A ‘full season ticket plan’ means tickets, not hot dogs.  So too, the term ‘full costs’ means costs, not other expenses.”  The decisions resolves a circuit split against the Ninth Circuit in favor of the Eleventh and Eighth circuits, and will cost Oracle Corp. approximately $12.8 million that had been awarded in its copyright battle with Rimini Street.

Kirkland & Ellis partner Paul Clement had argued that the U.S. government as amicus curiae was talking out of both sides of its mouth: placing limits on “full” in Oracle’s case, but arguing for an expansive version of the phrase “all the expenses” in a case involving U.S. Patent and Trademark Office attorneys fees.  The high court granted cert in the PTO case, Iancu v. NantKwest.  Clement had also argued that Congress’ use of “full” had no meaning if it was limited to the enumerated costs.  But interpreting full more broadly, Kavanaugh wrote, would then make the next sentence—which says “the court may also award a reasonable attorney’s fee to the prevailing party as part of the costs”—superfluous.  “In order to avoid some redundancy, Oracle’s interpretation would create other redundancy,” Kavanaugh wrote.

The award stems from a 2015 jury verdict that found Rimini infringed Oracle’s copyright and violated anti-hacking statutes while performing third-party maintenance for Oracle enterprise software.  Jurors awarded $35.6 million for infringement and $14.4 million for violations of California computer hacking statutes.  U.S. District Judge Larry Hicks of Nevada tacked on $28.5 million in attorney fees, and about $17 million in costs—including the $12.8 million in dispute—and $22 million in post-judgment interest.  The Ninth Circuit reversed the computer crimes verdict and threw out that portion of the award.  It also instructed Hicks to reconsider the fee award.

US Supreme Court to Decide USPTO Attorney Fee Rule

March 5, 2019

A recent The Recorder story by Scott Graham, “Supreme Court Will Decide if USPTO Can Collect Legal Fees,” reports that the U.S. Supreme Court agreed to hear a dispute over attorneys fees between the U.S. Patent and Trademark Office and a company led by billionaire Patrick Soon-Shiong.  Iancu v. NantKwest is an appeal from the PTO after the U.S. Court of Appeals for the Federal Circuit refused en banc to award the office its fees in litigation with immunotherapy company NantKwest.  After being denied a patent, NantKwest initiated what’s known as a Section 145 proceeding in district court to try to force the PTO to issue it.  Section 145 of the Patent Act provides that “all the expenses of the proceedings shall be paid by the applicant,” regardless of outcome.

NantKwest lost the suit, and the PTO moved for $78,592 in attorneys fees and $33,103 in expert fees.  The PTO did not seek attorneys fees for more than 100 years but says it changed its policy after the Supreme Court in 2012 broadened the kinds of evidence and discovery that can be introduced in 145 proceedings.  The agency argues that the expansive “all the expenses” language is broad enough to cover attorneys fees.  The Federal Circuit disagreed in a 7-4 en banc ruling.  Judge Kara Stoll wrote that the Supreme Court has generally applied the American Rule and allowed fee-shifting only when Congress explicitly provides for it.  “All the expenses” doesn’t meet that standard, she concluded.

The PTO and the Justice Department argued in their petition for cert that the Fourth Circuit has awarded fees in a Section 145 appeal.  The filing included U.S. Solicitor General Noel Francisco and Assistant Attorney General Jody Hunt, who heads the Civil Division.  NantKwest is represented by an Irell & Manella team led by partner Morgan Chu.  “’Fees’ are never mentioned” in the statute, Chu wrote in opposition, “let alone ‘attorneys’ fees’ or any other equivalent that would suggest that such fees are recoupable.”

Section 145 proceedings are fairly rare, but two academics who follow Federal Circuit law said they weren’t entirely surprised the Supreme Court took the case.  Emory University law professor Timothy Holbrook said that, whenever the solicitor general’s office signs on to a PTO cert petition, the odds of the court granting cert go up.  Villanova University law professor Michael Risch said the close vote at the Federal Circuit could have gotten the court’s attention, and the justices might be on the lookout for some noncontroversial decisions to counter the potential blockbusters in the offing with the arrival of Brett Kavanaugh.

Risch also suggested the court might use the case to examine whether “expenses” should be narrowed to exclude not only attorneys’ fees but expert witness fees as well.  “Similarly, the law is unsettled about whether in-house counsel can even collect in fee-shifting cases,” he said via email.  “As far as I can tell, the Federal Circuit doesn’t even address that question (though the dissent does).”