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Category: Fees as Sanctions / Bad Faith

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.

$12.5M Fee Award in Gilead-Merck Patent Infringement Action

July 31, 2017

A recent the American Lawyer story by Scott Flaherty, “Fish & Richardson Set to Receive $12.5M Fee Award in Gilead-Merck Infringement Battle,” reports that Fish & Richardson and client Gilead Sciences Inc. are slated to receive nearly $14 million in legal fees after exposing patent misconduct by Merck & Co. Inc. that helped Gilead shake off a $200 million infringement verdict.

U.S. District Judge Beth Labson Freeman in San Jose, California, awarded Gilead a little more than $12.5 million for Fish & Richardson's work on the patent infringement case through June 30, 2016.  The judge allotted an additional $1.37 million to Deloitte Review Services for document review and production it did.

The ultimate fee amount is short of the $15.5 million Gilead requested in the case, which involved infringement allegations against Gilead related to patents for the Hepatitis C medications Sovaldi and Harvoni.  After a jury issued Merck a $200 million infringement verdict last year, Freeman scrapped it based on an "unclean hands" defense pushed by Fish & Richardson on Gilead's behalf.  "The court thus finds the … amount to be reasonable based on the amount at stake in this case, the complexity of the issues, and the results Fish has achieved for Gilead," Freeman wrote in her decision.

The fee ruling comes after a March 2016 trial in the patent infringement case, which alleged that Merck and a collaborator, Ionis Pharmaceuticals Inc., pioneered a predecessor to sofosbuvir, a key ingredient in Gilead's hepatitis C drugs, in the early 2000s.  A jury sided with Merck at trial, finding Merck deserved $200 million in damages based on Gilead's patent infringement.

After the verdict, however, Freeman handed down a June 2016 decision that sharply criticized the conduct of a former in-house patent prosecutor at Merck and blasted that company's outside lawyers at Williams & Connolly for tainting a trial in the patent infringement case. 

The judge found that the in-house patent prosecutor, Philippe Durette, lied about breaching a nondisclosure agreement related to a compound that became sofosbuvir.  And Freeman knocked Merck's lawyers for failing to alert her until the trial started that Durette would be recanting parts of his deposition testimony in the case.

Although Freeman has come down on Gilead's side with respect to fees in the California federal lawsuit, the company still faces significant potential liability in a separate patent infringement case in Delaware federal court over the same hepatitis C drugs.

Ninth Circuit Upholds Fees for Fees Under Statute

April 24, 2017

A recent Metropolitan News story by Kenneth Ofgang, “Panel Upholds Award of ‘Fees-on-Fees’ Under Statute” reports that a statute that permits federal judges to sanction attorneys for vexatious litigation permits an award of fees to opposing counsel for litigating the right to fees, the Ninth U.S. Circuit Court of Appeals ruled.

In a published order, the panel—Judges Alex Kozinski, Richard A. Paez, and Marsha S. Berzon—denied reconsideration of the appellate commissioner’s ruling calculating sanctions against Boston attorney Michael J. Flynn and his client, Timothy Blixseth.  The two were ordered to pay nearly $192,000 in fees and costs incurred by several creditors of Blixseth, a co-founder of the bankrupt Yellowstone Mountain Club.  Blixseth was found jointly liable for all but around $34,000 of the award, for which Flynn was found separately liable by statute.

Blixseth and one of his ex-wives developed the Yellow Mountain Club as an exclusive resort for “ultra-wealthy” golfers and skiers.  He has blamed the 2008 mortgage crisis for the collapse of his finances.  His wealth was estimated by Forbes magazine at $1.3 billion when it named him one of the 400 wealthiest Americans in 2006.  Creditors have claimed Blixseth has hidden assets.

Blixseth, represented by Flynn, appealed the denial of a motion to recuse the District of Montana bankruptcy judge assigned to his case.  The Ninth Circuit affirmed, agreeing with the district judge that Blixseth’s accusations were “a transparent attempt to wriggle out of an unfavorable decision by smearing the reputation of the judge who made it.”

In August 2015, the Ninth Circuit panel said Blixseth and Flynn were subject to attorney fees incurred by creditors on that appeal, citing Rule 38 of the Federal Rules of Appellate Procedure and 28 U.S.C. §1927.  “If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.”

Section 1927 provides: “Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

In the order, the panel agreed with the appellate commissioner that fees incurred in litigating the right to fees, or “fees on fees,” cannot be awarded under Rule 38, but may be awarded under §1927.  The panel also denied, without comment, Flynn’s motion that the judges recuse themselves.

Because Rule 38 refers to “damages,” the judges said, it is not a fee-shifting statute, and the only attorney fees that may be awarded under the rule are those “incurred in defending against the frivolous issues or frivolous portions of an appeal.”

Section 1927, by contrast, “may be characterized as a fee-shifting provision, despite its sanctions trigger,” the panel said.  The legislation’s purpose, the judges said, it to shift the burden of the vexatious litigation onto the vexatious lawyer, noting that fee-shifting statutes generally are interpreted as permitting the award of “fees on fees.”

The case is Blixseth v. Yellowstone Mountain Club, LLC, 12-35986.

SCOTUS Rules Fee Awards from Bad Faith Must Be Compensatory, Not Punitive

April 18, 2017

A recent The Recorder by Ross Todd, “At Odds With 9th Circuit, SCOTUS Nixes $2.7M in Discovery Sanctions,” reports that the U.S. Supreme Court held on Tuesday that attorney fee awards resulting from acts of bad faith in litigation must be causally linked to the underlying misconduct.

In a unanimous 13-page opinion (pdf), Justice Elena Kagan reversed a $2.7 million fee award against the Goodyear Tire & Rubber Co. finding that sanctions in civil cases “must be compensatory rather than punitive in nature.”  The upper end of fee award sanctions, Kagan wrote, should be “limited to the fees the innocent party incurred solely because of the misconduct—or put another way, to the fees that party would not have incurred but for the bad faith.”

Goodyear’s case drew amicus support from the American Bar Association and the National Association of Manufacturers.  Both warned that failure to require a direct causal link between penalties and a litigant’s discovery abuses could lead to outsized and abusive sanctions awards.

Tuesday’s decision reverses a 2015 ruling from the U.S. Court of Appeals for the Ninth Circuit that put Goodyear on the hook for all $2.7 million in legal fees incurred by Leroy, Donna, Barry, and Suzanne Haeger after an alleged discovery violation in their personal injury case.  The Haegers claimed that faulty Goodyear tires caused a 2003 accident involving their motor home in which they all suffered serious injuries.

For years with the case pending at the trial court, the Haegers’ lawyer had asked the company to hand over all test results for the tire model in question.  But only after the case settled pretrial in 2010 for an undisclosed sum did the Haegers’ lawyer learn from a newspaper article that Goodyear had disclosed test results in separate litigation that he’d never seen.

In response to a motion for sanctions U.S. District Judge Roslyn Silver in Phoenix issued an order in 2012 forcing Goodyear to pay its opponents legal fees and costs from the moment when she found Goodyear made its first dishonest discovery response.  Although the judge acknowledged that sanctions are limited to fees caused by the misconduct in the “usual” case, she wrote that Goodyear’s sanctionable conduct rose “to a truly egregious level.”

A divided Ninth Circuit panel affirmed Silver’s finding that she could grant attorney’s fees incurred “during the time when” Goodyear was acting in bad faith.  But in dissent, Circuit Judge Paul Watford wrote that his colleagues had mistakenly pointed to “a temporal limitation, not a causal one” to justify the sanction.  “A sanctioning court must determine which fees were incurred because of, and solely because of, the misconduct at issue (however serious, or concurrent with a lawyer’s work, it might have been),” wrote Watford, in a section quoted by Kagan.

Justice Neil Gorsuch did not take part in Tuesday’s decision.

Attorney Fee Awards in the Lanham Act

January 19, 2017

A recent law firm blog post, “Attorney Fees Awards in Lanham Act,” by James Bikoff and Holly James of Smith Gambrell & Russell LLP in Washington, DC report on attorney on attorney fee awards...

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