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Category: Fee Statute

SCOTUS Questions Seem to Doubt USPTO’s Attorney Fee Claim

October 9, 2019

A recent Law 360 story by Jimmy Hoover and Bill Donahue, “Justices Question USPTO’s Bold Pursuit of Atty Fees,” reports that the U.S. Supreme Court appeared skeptical of the U.S. Patent and Trademark Office’s recent practice of seeking attorney fees from parties that take the agency to court, given that the USPTO paid for its own lawyers for more than a century.  At oral arguments in the case Peter v. NantKwest, the justices, minus an ailing Justice Clarence Thomas, peppered an attorney from the U.S. Solicitor General’s Office with questions about the USPTO’s new and aggressive pursuit of attorney fees, which extends even to cases that the agency loses.

The Federal Circuit ruled last year that the policy violates the so-called American Rule, a deep-rooted doctrine that litigants must pay their own attorneys unless Congress expressly says otherwise.  Several members of the Supreme Court seemed sympathetic to that view.  “What sense does it make to think that Congress wanted the winning party to turn around and pay the government's legal fees, given how unusual that is?” Justice Brett Kavanaugh asked. “Why would Congress have thought to do it that way?”

The case revolves around de novo appeals, which allow dissatisfied patent or trademark applicants to effectively relitigate their application in district court rather than merely appeal to the Federal Circuit.  Both the Patent Act and the Lanham Act say that for applicants who choose the de novo route, “[a]ll the expenses of the proceedings shall be paid by the applicant.”

USPTO long interpreted that to cover things like travel expenses and copying, but started arguing in 2013 that the “expenses” provision covers attorney fees too.  In the case at hand from NantKwest Inc., that included over $78,000 for the cost of the agency attorneys who defended the company’s lawsuit over a rejected cancer treatment patent.

At arguments, Justices Neil Gorsuch and Stephen Breyer homed in on the fact that the USPTO had long declined to pursue attorney fees from applicants under the current statute or its predecessors.  “How did the government just figure this out?” Justice Gorsuch asked.  While Deputy Solicitor General Malcolm Stewart admitted — to laughter in the courtroom — that the abrupt change was “an atmospherically unhelpful point for us,” he denied that this historical record doomed his case.  “For that 170-year period we were foregoing a source of income that we were entitled to get,” he said.

Defending the policy, Stewart said that collecting attorney fees is “consistent with the overall statutory scheme” whereby the USPTO is supposed to cover aggregate costs, including personnel costs.  He also pointed out that NantKwest’s lawsuit “caused us to incur 30 times the expenses that would ordinarily be the fees for the patent application and examination.”

“It seems fair and appropriate to make the applicant pay,” he said.  Morgan Chu of Irell & Manella LLP, representing the company, disagreed.  “The government is arguing for a radical departure from the American Rule,” Chu said.  “It is arguing that when a private party sues the government for its improper action, then that private party must pay for the government's attorneys, even if the government and its attorneys are flatly wrong.”

Article: US Claims Court Grants Fee-Shifting in Patent Litigation

September 9, 2019

A recent Law 360 article by Lionel Lavenue and Benjamin Cassady, “Claims Court Clears Cowebs for Fee-Shifting in Patent Litigation,” report on fee-shifting provision in patent litigation.  This article was posted with permission.  The article reads:

The U.S. Court of Federal Claims may grant attorney fees to certain patent owners who successfully litigate infringement claims against the federal government.  The claims court obtained this authority in 1996 but did not exercise it until March 2019, when it granted Hitkansut LLC $4.4 million in fees on top of a $200,000 damages judgment.

And though more than two decades elapsed before that first fee award, the second followed just three months later.  On June 27, 2019, on the back of a $12.4 million damages judgment, the claims court granted FastShip LLC $7.1 million in fees and costs.  Do these decisions herald a new era of patent litigation at the claims court?  That may be premature.  But it should make patent owners, attorneys and litigation finance companies take notice.

28 U.S.C. Section 1498(a)

When Uncle Sam infringes a patent, 28 U.S.C. Section 1498(a) limits the patent owner’s legal recourse to suit in the claims court for “reasonable and entire compensation” — typically a reasonable royalty.  No matter how egregious its infringement, the government is immune from enjoinder and enhanced damages.

Pursuant to a 1996 amendment, however, “reasonable and entire compensation” includes attorney and expert fees for some subset of prevailing patent owners — independent inventors, nonprofit organizations and entities with no more than 500 employees. (FastShip and Hitkansut both qualified.) For this subset of patent owners, Section 1498(a) presumes the plaintiff’s entitlement to fees.

But it forecloses their recovery in two situations: where recovery would be unjust or where the government-defendant’s position was “substantially justified.”  Before Hitkansut, the government always satisfied the latter exception, defeating the plaintiff-favoring presumption.

FastShip v. United States

The FastShip decision touches on a gamut of Section1498(a) topics in its ranging 34 pages.  Two of the more consequential issues include: litigation financing’s effect on a patent owner’s standing to request fees; and the fee-shifting inquiry’s occupation with prelitigation conduct.

As to litigation financing, FastShip’s receipt of funds from an entity controlled by one of its own counselors of record did not disrupt its standing to requests fees under §1498(a).  One of FastShip’s attorneys, Donald Stout both represented FastShip at critical junctures and managed a company that invested $600,000 in FastShip’s case.

Stout is better known as the co-founder of NTP Inc., the beneficiary of a $612 million infringement settlement from Research in Motion Ltd. in 2006.  Court of Federal Claims Judge Charles Lettow found Stout’s financing arrangement with FastShip immaterial to the plaintiff’s standing to request fees.  To hold otherwise would frustrate Congress’ purpose in enacting Section 1498(a)’s fee-shifting provision: incentivizing the prosecution of meritorious infringement claims against the government.

With standing established, the claims court proceeded to evaluate the government’s position, concluding that it was not “substantially justified,” partly due to prelitigation conduct.  The claims court highlighted some unreasonable government conduct during litigation: presenting expert analysis with errors that ranged from convenient to nonsensical, mischaracterizing an extraordinarily skilled expert as ordinary and misstating the law of enablement.  But the court was particularly concerned with the government’s willful infringement and its unresponsiveness to the plaintiff’s initial administrative complaint.

Specifically, FastShip’s suit originated from its solicitation of a subcontract from a U.S. Navy contractor.  As part of its pitch, FastShip divulged its invention: a semi-planing monohull ship.  Though no subcontract materialized, FastShip soon discovered that the contractor had incorporated its designs into navy vessels.

FastShip filed an administrative claim with the navy; two years of silence followed, culminating in the navy’s two-page, perfunctory denial of wrongdoing.  These actions, supplemented by its questionable litigation conduct, rendered the government’s overall position not “substantially justified,” even though the claims court found the government’s conduct reasonable in other respects.

Patent Trends in FastShip

FastShip and Hitkansut may hint at Octane Fitness LLC v. ICON Health & Fitness Inc.'s indirect influence on the claims court.  Moreover, both decisions raise issues, likely to be addressed on appeal, relevant to patents’ status as property — an issue that continues to percolate to the U.S. Court of Appeals for the Federal Circuit’s docket.

With Hitkansut, and now FastShip, the claims court has, like federal district courts, proved amenable to fee-shifting in the patent context.  Federal district courts now shift attorney fees in one-third of patent infringement cases.  That represents a stark increase from, for example, 2011, a few years before Octane Fitness, where the U.S. Supreme Court returned broad discretion to trial judges to determine which cases justify fee-shifting.

Though Octane does not control Section 1498(a)’s fee-shifting provision, the claims court has only now exercised said provision in the post-Octane era.  A prevailing sympathy for fee-shifting in the patent context, marked by Octane, may have influenced these recent claims court opinions.

Yet, FastShip’s impact may be short-lived; the government will likely appeal FastShip, as it has the Hitkansut award.  An appeal presents another opportunity for the Federal Circuit to grapple with one of the more significant questions in the field: Are patents property?

Though recent cases have muddled the question,[16] courts have historically construed the government’s unauthorized patent use as an eminent-domain taking of a license. Section 1498(a), then, supplies “just compensation” to affected patent owners.

Twenty years ago, in B.E. Meyers & Co. Inc. v. United States, the claims court reasoned that the government cannot be punished for taking — willfully or otherwise — that which it has the authority to condemn.  Recognizing the government’s authority to take a patent license, Meyers held that the willfulness of a lawful taking can never justify punitive fee-shifting against the government.

FastShip and Hitkansut, of course, implicitly rejected that theory — willfulness supported both awards.  On appeal, the government will likely argue, as it did at trial, that the claims court’s substantially justified inquiry should have ignored any prelitigation conduct, including the nature of the government’s infringement.  The Federal Circuit, thus, has an opportunity to affirm the Meyers theory and its underlying premise that patents are property subject to eminent domain.

The court, however, has more attractive vehicles for resolving this issue, including recently docketed Oil States Energy Services LLC v. Greene's Energy Group LLC follow-on suits that present the patents-as-property question more squarely.  As cases present this question with growing frequency, the Federal Circuit is poised to definitely resolve it (and likely do so in a Section 1498(a) action).

Practical Implications

In clearing the cobwebs from Section 1498(a)’s fee-shifting provision, the claims court has increased the allure of patent suits against the government — including suits where litigation costs would dwarf potential damages.  Hitkansut’s and FastShip’s vindication of litigation financiers and attorneys operating on contingency in this space will only spur their further participation.  And the awards give leverage to licensors negotiating with government agents and contractors.

That said, fee-shifting under Section 1498(a) only benefits the three named classes of patent owners: independent inventors, nonprofit organizations and entities with no more than 500 employees.  Hitkansut and FastShip supply little obvious insight for larger, for-profit plaintiffs litigating infringement against the government, who cannot recover attorney fees under Section 1498(a) or 35 U.S.C. Section 285.

But, because of Hitkansut and FastShip, the potential value of a patent, held by a large, for-profit company and infringed by the government, surges when transferred to a member of one of the named classes.  Some larger patent owners may thus nonetheless still benefit from a strategic transfer made in the shadow of FastShip.

Lionel M. Lavenue is a partner, R. Benjamin Cassady is an associate, and Regan Rundio is a law clerk at Finnegan Henderson Farabow Garrett & Dunner LLP.

Article: Consider Attorney Fee Litigation When Drafting Business Contracts

September 2, 2019

A recent Daily Business Review article by Noah B. Tennyson, “Consider Potential Litigation Fees, Costs When Drafting Business Contracts,” reports on attorney fee dispute litigation in business contracts in Florida.  This article was posted with permission.  The article reads:

Before you sue someone, it may be prudent to consider potential litigation fees and costs.  This is because, unless your claim arises from a Florida statute or contract that entitles you to recoup attorney fees, each side will bear their own regardless of who prevails.  Thus, you may find that prevailing in court results in the type of victory lamented by Plutarch during the Pyrrhic war: “if we are victorious in one more battle with the Romans, we shall be utterly ruined.”

Ask yourself this question: If I wound up in a lawsuit, would I want there to be a basis for legal fees to be awarded to the prevailing party?  Of course, if you expect to prevail in future lawsuits, then the answer is easy.  But, few truly know what tomorrow brings and simply hoping that your side will prevail in future lawsuits is likely just wishful thinking.  So, to help mitigate the risk of an uncertain future, it may be helpful to consider various legal fee language to insert into some of your business’ most important documents—its contracts.

As a starting place, look at the agreements that you executed with your landlord, vendors, bank, and other parties in order to run your business.  What does the legal fee language say?  Does it provide that any party that prevails in any dispute arising from the contract can recoup its legal fees?  If not, to what extent did your counterpart create an attorney fees clause which favors its side?  Finally, which state laws are to be applied to the contract if there is a lawsuit?

You may have chafed at these terms but signed anyway, perhaps because you saw signing as but one more requirement to get your business up and running.  Whether you signed or not, in your future contract negotiations, consider using legal fee language which may favor your business as opposed to your counterpart’s.  Aside from your own scruples, the limit to how unfair you can be is the reasonable likelihood that a judge will enforce your contract as you intended.

To determine whether a judge will enforce your legal fee language, it can be helpful to look at what Florida courts have decided in the past.  For instance, let’s say your new business is a franchise.  As noted in prior Florida cases, Subway Restaurants (Subway) has written into in its contracts that its franchisee “agrees to pay the cost of collection and reasonable attorney fees on any part of its rental that may be collected by suit or by attorney, after the same is past due.”  In other words, Subway, and only Subway, can recoup its legal fees if they arise from the franchisee failing to pay rent.

This provision appears to be an illicit one-way fee clause which Florida courts have ruled permits either side to seek a fee award, so long as that side prevails in the lawsuit.  Thus, in a dispute between Subway and one of its franchisee Florida stores, the franchisee sought attorney fees from Subway after prevailing in its claim for wrongful eviction.  However, the Florida court ruled that the franchisee’s lawsuit never triggered an entitlement to attorney fees because the legal fee language limited awards to matters involving the collection of rental payments.  Put another way, even if this fee clause were a two-way street, the lanes would still be confined to matters involving the collection of the franchisee’s rent.  Therefore, the franchisee was not entitled to recoup its legal fees even though it won its case.

As seen above, a careful examination of contract language can uncover provisions that might go unnoticed by most, but are duly noted by those seasoned in business disputes.  As another example, contracts made in Florida can be written to have the laws of other states, such as New York or Virginia, be used to resolve disputes.  This might seem innocuous, but the impact can be severe because the treatment of one-way attorney fees clauses varies from state-to-state.

In one Florida case, stockbrokers put into their brokerage agreement that New York law would govern the agreement’s terms.  The agreement also stated that stock purchasers who signed it in order to purchase stock would reimburse the brokers for any debts owed, which included related attorney fees.

When a stock trading error cost a group of purchasers more than $70,000, the purchasers sued the brokers and won damages totaling $81,500.  Yet, the Florida court refused to award the purchasers their attorney fees even though the agreement’s legal fee clause applied to their lawsuit, and even though Florida law requires a two-way street for such fee clauses.

The Florida court’s reasoning was simple: New York law does not require that one-way fee clauses be made into two-way clauses.  Because New York—and not Florida—law applied, the Florida court had no authority to grant a fee award to the stock purchasers.

You should examine proposed contracts with care because established corporations have legal teams crafting contracts which benefit them.  Bear that in mind if you consider signing.  Conversely, when drafting your own contracts, heed your lawyer’s advice.  Otherwise, you, too, may fall victim to unintended consequences.

Noah B. Tennyson is an associate at Nason Yeager in Palm Beach Gardens.  His practice focuses on commercial and business litigation matters, including commercial foreclosures, business disputes, contract litigation, condominium and homeowners’ association issues, construction defect litigation and employment issues.

PA Court Awards Attorney Fees for Time Spent Seeking Attorney Fees

August 29, 2019

A recent Legal Intelligencer story by Zack Needles, “Pa. Courts OKs Attorney Fees for Time Spent Seeking Attorney Fees,” reports that attorneys can petition to recover fees under the Unfair Trade Practices and Consumer Protection Law (UTPCPL) for time they spent preparing and litigating fee petitions—but only within reason, the Pennsylvania Superior Court has ruled in a case that could prove instructive for litigators across the state.

In Richards v. Ameriprise Financial, a case involving claims under the UTPCPL against Ameriprise Financial over alleged misrepresentations made by one of its financial advisers, a three-judge panel of the appeals court ruled that fee awards for hours spent pursuing fee awards can be proper.  However, the panel added, the $200,363 an Allegheny County trial judge awarded to plaintiffs counsel, Kenneth Behrend of Behrend & Ernsberger in Pittsburgh, for preparing and litigating two fee petitions was excessive.

Judge Mary Jane Bowes, writing for the panel, noted there was a “dearth of Pennsylvania authority addressing the propriety of a fee award for hours spent preparing and litigating fee petitions.”  She added, however, that “federal courts generally permit such fees, but the hours assigned to that task must be reasonable.”

“We find that an award of reasonable attorney fees under the UTPCPL for preparing fee petitions is consistent with the legislature’s aim of encouraging experienced attorneys to litigate such cases, even where the damages are small,” Bowes said in the precedential Aug. 21 opinion, but added, “Nonetheless, we agree with Ameriprise that Mr. Behrend spent an inordinate number of hours preparing the second and third fee petitions.”

While the panel said there was evidence in the record to support Behrend’s requested hourly rate of $600, Bowes, joined by Judge Jacqueline Shogan and Senior Judge Eugene Strassburger III, said the panel found it to be “presumptively unreasonable” that a seasoned UTPCPL litigator like Behrend would need to spend 85 hours researching entitlement to attorney fees under the statute and conducting bill review.

“Mr. Behrend admittedly has expertise and vast experience in UTPCPL litigation and in preparing fee petitions,” Bowes said.  “Indeed, the attorney affidavits he offered in support of his increased hourly rate, as well as his own affidavit in support of his fees in the underlying litigation, were recycled from a 2013 fee petition previously submitted in Boehm [v. Riversource Life Insurance Co.].”

Ameriprise also objected to four specific entries in the fee petitions, including an entry for 11 hours of research and drafting on the subject of “restitution and treble damages,” which was not at issue in that appeal.  The trial court, however, did not specifically address Ameriprise’s arguments regarding those four line items, which rankled the appellate court.

“It is our expectation that a trial court assessing the reasonableness of attorney fees will thoroughly scrutinize the specific line items that are challenged, generally evaluate the reasonableness of the expenditure of time for the services listed in the fee petition, make adjustments when they are warranted, and explain its reasons for the award,” Bowes said.  ”The broad-brush approach taken by the trial court impedes our ability to perform proper appellate review.  Thus, we vacate the orders awarding attorney fees based on the second and third fee petitions, and remand for reconsideration of those fees in light of the foregoing.”

The panel also reversed the trial court’s decision to award $12,000 in attorney fees to the plaintiffs for time spent drafting an unopposed petition to publish the Superior Court’s memorandum opinion on the case’s first trip up to the appeals court in 2017.

“The publication of this court’s memorandum opinion in Richards I did not enhance the likelihood that plaintiffs would ultimately prevail or advance the litigation or benefit them in any way,” Bowes said.  “Moreover, the record establishes that plaintiffs’ counsel almost exclusively litigates UTPCPL insurance cases, and may have had at one time as many as 29 cases involving similar facts against Ameriprise.  Publication of our memorandum decision in Richards I rendered it precedential, a benefit to plaintiffs’ counsel and other clients involved in ongoing and future UTPCPL cases, but not plaintiffs herein.”

Ultimately, the appellate court remanded the case to the trial court “for an overall reduction in the hours/fees attendant to preparation of the fee petitions themselves, a circumspect assessment of the accuracy and reasonableness of the complained-of line items, and the entry of a new attorney fee award consistent with this opinion.”  The appellate panel did uphold the trial court’s award of treble damages to the plaintiff in the amount of $102,019, but tossed out an additional $34,006 in “‘restitution’” damages.

“Herein, the trial court found no liability for negligent and fraudulent misrepresentation,” Bowes said. “Damages were awarded solely for violation of the catchall provision of the UTPCPL. Having ascertained that plaintiffs sustained actual damages of $34,006.44 under the UTPCPL, the trial court had the discretion to award damages up to three times that amount, i.e., a maximum of $102,019.32.  By awarding $34,006.44 plus $102,019.32, the trial court erroneously awarded quadruple damages and exceeded its discretion under the UTPCPL.”

Reached for comment on the decision, Behrend said the ruling provided some much-needed guidance on how fee petitions are supposed to be prepared.  He also pointed out that the court’s ruling clarified that fee petitions for work done on appeal can be filed with the trial court, rather than the Superior Court.

The panel found that Pa.R.A.P. 2744 provides only that an appellate court “‘may award’” attorney fees and delay damages as “‘further costs damages … if it determines that an appeal is frivolous or taken solely for delay or that the conduct of the participant against whom costs are to be imposed is dilatory, obdurate or vexatious.’”  “Plaintiffs made no claim that Ameriprise’s first appeal was frivolous or taken solely for purposes of delay,” Bowes said.  “Rather, they based their entitlement to appellate attorney fees solely upon the UTPCPL.”

ABA Calls USPTO Attorney Fee Rule ‘Radical’

July 22, 2019

A recent Law 360 story by Bill Donahue, “ABA Rips USPTO Attorney Fee Rule as ‘Radical’,” reports that the American Bar Association asked the U.S. Supreme Court to strike down the U.S. Patent and Trademark Office's "radical" and "unprecedented" policy of seeking attorney fees regardless of the outcome of a case.  In an amicus brief, the ABA told the justices that the fees policy — rooted in reinterpretation of a century-old statute — was clearly not what Congress had in mind when it authorized USPTO to recoup “all expenses” after certain types of appeals.

“Congress does not hide elephants in mouseholes,” the group wrote.  “Here, it did not hide an unprecedented government-only, regardless-of-outcome, attorney-fee-shifting intent in the word ‘expenses.’”  The filing came in the closely watched case of Iancu v. NantKwest, which will determine the legality of the USPTO’s fee policy.  Federal appeals courts have split on whether the fee policy violates the American Rule, a doctrine that says litigants must pay their own expenses unless Congress expressly says otherwise.

First rolled out in 2013, USPTO's fee policy is rooted in a novel interpretation of so-called de novo appeals — a longer and more fact-intensive route that allows a dissatisfied patent or trademark applicant to appeal to a district court rather than simply asking the Federal Circuit to review a refusal.  Crucially, both the Patent Act and the Lanham Act say that applicants who choose the de novo appellate route must reimburse "all expenses of the proceeding," and that requirement applies regardless of whether applicants win or lose their appeals against the USPTO.

For decades, the agency interpreted that language to mean relatively minor expenses, like travel costs and expert fees.  But that changed in 2013, when USPTO started demanding that applicants reimburse the substantially larger cost of the salaries paid to agency attorneys.  That figure can be tens of thousands of dollars, and the agency has sought — and won — such fees even when it loses a case.

The USPTO has argued that the change was justified to pay for a more expensive type of appellate process, but critics say the rule will make the de novo appeals too expensive for all but the wealthiest patent and trademark applicants.  In the filing, the ABA echoed those access-to-justice concerns, saying the policy would have the “intolerable results."

“The PTO’s interpretation would mean that applicants’ wealth would determine their access to the pathway to justice provided by Congress,” the group wrote.  “Those benefits would remain open to large corporations and affluent individuals able to shoulder the burden of paying for the government’s lawyers.”