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Category: Fee Issues on Appeal

USPTO to SCOTUS: We’re Entitled to Attorney Fees Win or Lose

May 22, 2019

A recent Law 360 story by Ryan Davis, “USPTO Tells Justices Law is Clear-Cut on Win-Or-Lose Fees,” reports that the U.S. Patent and Trademark Office told the U.S. Supreme Court that it is entitled to recover attorney fees whenever it is sued over rejected applications, even if it loses, saying that outcome is "unambiguously" required by the statute.  The office made the argument in its opening brief for a case the justices agreed to hear in March to resolve a circuit split over whether disappointed applicants who file suit must pay the office's legal bills.

The statute governing such suits states that the applicant must pay "all the expenses" of the proceeding.  The Federal Circuit ruled last year that the phrase is not specific enough to include the USPTO's attorney fees, but in its brief, the office said "that reasoning is unsound."  "Both in its ordinary usage and in the specific context of civil litigation, the term 'expenses' unambiguously encompasses the increments of employee salary that the USPTO seeks to recoup," the office said.

Citing dictionary definitions of the word "expenses" as the expenditure of money, time or resources to accomplish a result, the office said it is clear that the money the office spends defending lawsuits count as expenses, and "that observation resolves this case."  While the Federal Circuit said the office's reasoning runs afoul of the "American Rule" that each side pays its own attorney fees, the office said the expenses requirement is not a fee-shifting provision that triggers the rule.

Fee-shifting typically applies based on which party prevails in a case, but since the expenses requirement is imposed on all applicants who sue the agency, even if they prevail, the American Rule is not implicated, the USPTO said.  Even if it were, the meaning of the word "expenses" is clear enough to show that Congress intended to override the rule and require applicants to pay the office's attorney fees, it said.

When the USPTO rejects an application for a patent or trademark, the applicant has two options.  The first is a Federal Circuit appeal, which does not require the applicant to pay the office's expenses but is decided only on evidence that the office considered, and the second is to file suit in district court, which carries the expense requirement but permits new evidence that wasn't before the office.  For years, the office only sought relatively minor expenses like travel costs and expert fees in district court cases, but it reversed course in 2013 and began seeking attorney fees from applicants, which can be much more substantial.

The Fourth Circuit blessed that practice in a trademark case in 2015, saying the provision is not a fee-shifting statute that implicates the American Rule.  The high court took the case after the Federal Circuit, sitting en banc, reached the opposite conclusion last year in a case where NantKwest Inc. unsuccessfully appealed the office's rejection of a cancer drug patent and was ordered to pay the USPTO's attorney fees of over $78,000.

The USPTO's brief said the office began seeking attorney fees in 2013 because such cases had become increasingly complex and expensive to defend, and because Congress had recently granted the office the authority to set its own fees, which officials wanted to ensure just recouped the cost of its services.  By seeking attorney fees when it is sued, "the agency has attempted to recoup those expenses from the particular applicants who cause the agency to incur them, rather than from other fee-paying users of the USPTO's services," it said.

In its January brief urging the Supreme Court not to hear the case, NantKwest argued that the American Rule applies whenever a litigant seeks attorney fees from opponents, not just when the award is based on who prevailed, as the USPTO contends.  The word "expenses" is too ambiguous to overcome the rule, it said.  "That 'expenses' could plausibly be understood to encompass attorneys' fees is not enough," it said.

Also last week, the USPTO urged the justices not to consolidate the NantKwest case with an appeal by Booking.com raising the same issue in a trademark case.  Instead, the court should just apply the outcome in NantKwest to that case, the office said.  Earlier this month, the title of the NantKwest case was changed when USPTO Director Andrei Iancu was recused from the case and substituted as the petitioner by USPTO Deputy Director Laura Peter.

The case is Peter v. NantKwest Inc., case number 18-801, in the Supreme Court of the United States.

Federal Circuit Rejects Use of Laffey Matrix in Calculating Fee Award

May 21, 2019

A recent Law 360 story by Kevin Penton, “DC Circ. Vacates $7M Atty Fee Award in Civil Right Row,” reports that a split D.C. Circuit panel tossed a nearly $7 million fee award in a long-running civil rights class action in Washington, D.C., finding a lower court used a matrix for calculating fees that improperly included attorneys based outside of the district and specialized in irrelevant legal areas.  A majority of the three-judge appellate panel held that the federal court in the District of Columbia erred by relying on a new fee calculation matrix proposed by the district that included attorneys practicing in rural Virginia and West Virginia as well as those who worked in areas of law such as real estate and wills, rather than focusing on attorneys practicing complex federal litigation within the district.

The new matrix runs counter to statutory requirements that those who file and prevail in civil rights cases should be able to collect attorney fees based on "rates prevailing in the community" for the "kind and quality of services furnished," according to the majority opinion.  The plaintiffs in the case had sought $9.76 million in fees under a different matrix, according to court documents.  "It is obvious that the rates charged for, say, simple wills are lower than those for complex federal litigation," the panel majority wrote, which vacated the award and remanded it to the lower court for a recalculation.  "Worse still, nothing in the record reveals what percentage of respondents in the ... custom cross-section of ... data were litigators."

The plaintiffs — parents of children in Washington who fit within the class — sought the fees after prevailing in a class action they initiated in July 2005, claiming that the district violated the Individuals with Disabilities Education Act by failing to identify disabled children and to deliver adequate and timely education to a broader set of minors, according to the opinion.  The lower court in August 2017 awarded the plaintiffs $6.96 million in attorneys' fees, finding that the matrix proposed by Washington had a "statistically significant sample size" and "'more narrowly defined' experience categories," according to the opinion.

U.S. Circuit Judge David B. Sentelle dissented, holding that the appellate court could only toss the fee calculation matrix used by the lower court had it abused its discretion or clearly misapplied legal principles or demonstrated a "disregard" for the evidence entered in the case.  "The district court found another matrix to be more factually appropriate," Judge Sentelle wrote.  "The making of that factual determination, under the law in general and under the governing statute in particular, is the district court's province."

The case is DL et al. v. District of Columbia et al., case number 18-7004, in the U.S. Court of Appeals for the District of Columbia.

How Rohrmoos Ruling Could Change Attorney Fees in Texas

May 16, 2019

A recent Law 360 story by Michelle Cassady, “4 Ways Rohrmoos Could Change Fee Fights in Texas,” reports that the Texas Supreme Court's recent opinion laying out what evidence is needed to prove up attorney fees already is being called by some practitioners the seminal case on the topic and one that could have a major impact on fee fights in the state.

In its Rohrmoos Venture v. UTSW DVA Healthcare LLP ruling, issued, the court sought to dispel what it said was confusion on the part of lawyers and courts about two methods of calculating fees: the Arthur Andersen eight-factor test and the lodestar method.  It said the lodestar method — determining fees by multiplying the number of hours spent working on the case by a reasonable hourly rate — should be the starting point for calculating fees.

The state's high court intended the 56-page opinion to be a "big black-letter case," said Jadd Masso of Clark Hill Strasburger PLC, characterizing it as "the conclusion of an evolution on the part of the court" that encompasses its 2012 opinion in El Apple I Ltd. v. Olivas and its 2013 opinion in City of Laredo v. Montano.  Masso said the lengthy opinion amounts to a "treatise on attorneys fees in Texas."  "It is the way, the truth and the life, and the only way to get fees is through the lodestar method," he said.  The El Apple decision was a signal from the court it wanted to encourage the use of lodestar, Masso said.  And with Rohrmoos, there's no more question about whether there's more than one way to prove up fees, he said.

Here are four ways that the ruling could change fee fights in Texas.

Detailed Billing Records Will Become the Norm

The Rohrmoos opinion didn't mandate real-time billing records to prove up attorney fees, but the court said they are "strongly encouraged to prove the reasonableness and necessity of requested fees when those elements are contested."  While most defense attorneys already do keep such records, the ruling will likely have a bigger impact on plaintiffs attorneys and others who work on a contingent fee or flat fee basis, said Frank Carroll of Roberts Markel Weinberg Butler Hailey.

"I think they have put the final nail in the coffin that anything short of contemporaneous billing records is sufficient," he said.  "People need to avoid the idea that 'this doesn't apply to me.'"  Carrol said lawyers doing simple, flat-rate cases for small amounts of money may not need to worry about keeping those records.  "But for everyone else: Proceed at your own peril if you don't follow the mandate of El Apple, City of Laredo, and this case."

Some defense lawyers, like Michelle Hartmann of Baker McKenzie, already are being pushed by clients into alternative fee arrangements rather than the hourly rate model.  "But we still enter all of the hours that go toward the case.  Not because we're going to bill the client for them, but to double check profitability and see if that was a good fit for both the client and the firm," she said.  "I think most defense attorneys do it now, even with flat-fee arrangements.  But this is a reminder you still need to keep good billing records."

Lawyers Could Face Lengthy Cross-Examinations on Fees

The attorney who represented UTSW in the Rohrmoos case, Wade Howard of Liskow & Lewis, said he tried at oral arguments before the high court to stress that putting hundreds of pages of detailed billing records before the jury would "do nothing" to help them determine what costs are actually reasonable and necessary.  Other practitioners have said that while the jury panel might not be going through those documents page by page, it does provide the other side "better ammunition to cross examine a lawyer," said Kelli Hinson of Carrington Coleman Sloman & Blumenthal LLP.

"They can then ask the tough questions, like, 'Why did you spend 50 hours on a motion for summary judgment that never got filed?' or 'Why were three attorneys doing this when one would have been sufficient?'" she said.  "So the jury gets the advantage of that even if they themselves don't pore through the record."  The Texas Supreme Court seemed to understand that the new guidance could have unintended consequences and warned in its Rohrmoos ruling that it was not "endorsing satellite litigation as to attorney's fees."

But courtroom opponents could easily use the records "as an opportunity to try and make the burden that the claimant has to meet even harder than this decision intended it to be," Hartman said.  And finding that sweet spot could be a years-long process, Hinson said.

"They said we don't want attorneys on the stand for days going through the bills bit by bit," she said.  "I think that's going to be where we struggle over the next few years — trying to find that fine line between what's enough and what's too much."

Outside Experts Could Be Used to Back Up Fee Requests

The ruling could also mean that attorney fees — which in many cases are the largest element of damages — will stop being treated like the "stepchild" of litigation, said John W. Bridger of Strong Pipkin Bissell & Ledyard LLP.  Bridger said that for years he's been advising other attorneys on the value of having an outside expert testify to the reasonableness of requested fees rather than the attorney on the case taking the stand.

For one, it can keep defense lawyers out of the sometimes awkward position of attacking the plaintiffs' attorney fees in front of a jury, and secondly, he said, it would encourage attorneys to spend more time developing the evidence to prove fees.  "This case only pushes us more and more toward outside experts, particularly where the attorneys' fees are larger than the amount in controversy," he said.

And the increasing amount of fees being sought is another reason calling in an outside expert could be worthwhile, said Kurt Kuhn of Kuhn Hobbs PLLC.  "It's inevitable that you're going to see people develop that evidence more. It clearly can't be an afterthought," he said.  "To get an outside expert is going to give you, in front of a jury, a little more credibility."

Counsel-to-Counsel Fee Agreements Could Proliferate

Hinson also speculated that the guidance could cause an uptick in attorneys agreeing to their respective fees ahead of time, keeping that issue out of litigation entirely.  "I do think it will be interesting to see if attorneys veer more that way so at least they know they won't get overturned for not having enough evidence," she said.

In the Rohrmoos opinion, the court "hints at" and "suggests" that stipulating to fees before trial in an agreement with opposing counsel could be a way to avoid contentious fee fights, Masso said.  Because the ruling could be interpreted as requiring "more work" on the part of attorneys trying to prove up fees, Masso said it's possible you'll see more negotiation and agreement on fees.  "This opinion makes the litigation of attorneys' fees a little more complex than it was before," he said.  "And there's no way that it doesn't result in that litigation getting a little more complex, and a little more involved and lengthy."

The cases is Rohrmoos Venture et al. v. UTSW DVA Healthcare LLP, case number 16-0006, in the Supreme Court of Texas.

Federal Circuit Approves ‘Unusual’ Patent Attorney Fee Award

May 6, 2019

A recent Law 360 story by Dani Kass, “Fed. Circuit Oks ‘Unusual’ $1.3M Fees Bill On Failed IP Suit,” reports that the Federal Circuit agreed that Stanford University and ThermoLife International LLC should pay two pharmaceutical companies $1.3 million in attorney fees for accusing them of infringement without a proper investigation, even though the question of infringement was never addressed by the courts.

A California federal court had invalidated the patent-in-suit as obvious or anticipated at a bench trial, without addressing whether the drugmakers infringed it.  The three-judge panel admitted that it’s an “unusual case” where the reason the fee is being awarded has “nothing to do with the only issues litigated,” but said the award was still appropriate.

“This is an unusual basis for fees, and we have emphasized the wide latitude district courts have to refuse to add to the burdens of litigation by opening up issues that have not been litigated but are asserted as bases for a fee award,” the panel wrote. “... But we have been given no persuasive reason for holding that such a basis for fees is a legally impermissible one.”

The Federal Circuit said U.S. District Judge Janis L. Sammartino didn't abuse her discretion to grant Vital Pharmaceuticals Inc., which does business as VPX Sports, and Hi-Tech Pharmaceuticals Inc. fees by deeming the case exceptional.  Judge Sammartino had called the prefiling investigation “severely lacking,” adding that it resulted in “frivolous claims and the objective unreasonableness of certain infringement contentions,” as quoted by the Federal Circuit.

For example, Hi-Tech and Vital said that patent owner Stanford and licensee ThermoLife would have been able to tell there was no infringement just by reading the labels on their products or conducting “simple tests” to see the composition of the allegedly infringing products.  The patent covers drug ingredients resulting in improved vascular function.

The panel also agreed with the California court’s decision to strike a declaration made by Stanford and ThermoLife’s former lead counsel, Tyler J. Woods of Pacific Trial Attorneys, defending the prefiling investigation.  The lower court claimed that the declaration provided new information that the drugmakers couldn’t conduct discovery on, which should have instead been included in its initial opposition. The Federal Circuit agreed.  The appeals court then said the drugmakers weren’t required to give early notice of the defects that later led to the fees, even though the court often finds that notice important.

“Recently, we have stressed that one consideration that can and often should be important to an exceptional-case determination is whether the party seeking fees ‘provide[d] early, focused, and supported notice of its belief that it was being subjected to exceptional litigation behavior,’” the panel said, “but we have not held that such notice is rigidly required.  And here, there is reason to avoid what would amount to a retroactive imposition of a rigid notice requirement.”  The panel noted that the issue of infringement had been placed on hold while looking at validity.  Stanford and ThermoLife had filed 81 infringement suits, leading to a coordinated decision among defendants to prioritize this key question, the opinion states.

“In these circumstances, we think that the district court did not abuse its discretion in not treating lack of early notice by Hi-Tech and Vital as a bar to fees if, as the court determined, plaintiffs failed to undertake an adequate prefiling investigation to support their infringement allegations against Hi-Tech and Vital,” the court added.

“Hi-Tech believes the Federal Circuit, in affirming the award of attorneys’ fees against ThermoLife and Stanford University, reached the right decision” Robert F. Parsley​ of Miller & Martin PLLC said in an email. “... We expect the Federal Circuit’s well-reasoned opinion to deter the filing of patent-infringement actions without reasonable prefiling investigation.”

Florida High Court Asked to Clarify Attorney Fee Award Calculation

May 3, 2019

A recent Law 360 story by Nathan Hale, “Fla. High Court Asked to Clarify Atty Fee Award Calculation,” reports that a Florida appeals court suggested that a clash between case law and its own judgment means the state's high court needs to clarify whether to include certain prejudgment interest when determining if a judgment triggers a party's entitlement to attorney fees under a state statute.  In its opinion, the Fourth District reversed a trial court's awarding of attorney fees to CCM Condominium Association Inc. in its negligence and breach of contract case against Petri Positive Pest Control Inc., saying the lower court improperly included prejudgment interest accrued after the association made a settlement offer.

The panel said it based its decision on language in Florida Supreme Court opinions, including White v. Steak & Ale of Florida, which suggests post-offer prejudgment interest should be excluded, even though it would reach the opposite conclusion based on its own interpretation of the term "judgment entered" in the offer-of-judgment statute, found in Section 768.79 of the Florida Statutes.  "[W]e are troubled by how far the formula created in White strays from what we believe is the plain meaning of the statute," the judges said.

They certified a question of great public importance to the Supreme Court, asking it to clarify whether to exclude post-offer prejudgment interest and noting that the law is widely used and is an important tool for settling cases.  The Fourth District also certified that its decision conflicts with two other appeals court decisions.

"We're obviously disappointed to lose, but we are very pleased that the court recognized the conflict and recognized that it is an issue of great public importance, and we are optimistic that the Supreme Court will accept review so it can clear up an area of law that affects many litigants across the state," CCM counsel Maegen P. Luka of Brannock & Humphries told Law360.  The appeal arose from a 2013 lawsuit that CCM, which does business as Country Club Manor Condominium Association, filed against Petri for negligence and breach of contract.

According to the opinion, CCM offered to settle all of its claims for $500,000, but Petri rejected the proposal.  After a trial in 2016, a jury awarded CCM more $551,881 in damages, and the trial court entered a judgment of $636,327, including prejudgment interest.  CCM moved to recover attorney fees based on that figure, which exceeded its settlement offer by more than 25%, the statutory threshold to trigger its entitlement.

Petri objected, pointing to the 2002 White decision, which it said defined the plaintiff's total recovery as including only attorney fees, costs and prejudgment interest accrued up to the date of its settlement offer.  That would push CCM's recovery below the 25% threshold.  Looking first at the statute itself, the Fourth District said the meaning of "judgment entered" is "easily understood."

"It is easy to calculate.  Included in that judgment are all of the elements of damages recovered in a case.  This includes prejudgment interest where applicable," the panel said, citing state court decisions that hold prejudgment interest is just another element of pecuniary damages.  But looking to the case law, the panel agreed with Petri that the Supreme Court appears to have gone beyond the text of the statute to create a different threshold.

In White, the high court found that the plaintiff's preoffer taxable costs should be included in calculating the "judgment obtained" for the purpose of entitlement to attorney fees, and said that "total net judgment" "includes plaintiff's taxable costs up to the date of the offer and, where applicable, the plaintiff's attorneys' fees up to the date of the offer."

"Thus, the court did not use the judgment actually entered or recovered in accordance with the statutory language, but it directed the calculation of a different amount based upon what might have been a final judgment at the time that the offer was made," the Fourth District said.  "However, the court did not include in this calculation any direction regarding prejudgment interest."

For an answer on prejudgment interest, the appeals panel pointed to the Supreme Court's 2012 decision in Shands Teaching Hospital and Clinics v. Mercury Insurance Co. of Florida, in which the justices approved a lower court's denial of fees based on "adding to the amount of damages recovered the attorney's fees, costs and pre-judgment interest accrued up to the date of the proposal for settlement."