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ABA Urges Federal Circuit Not to Include Attorney Fees in Patent Case “Expenses”

January 24, 2018

A recent ABA Journal story by Lorelei Laird, “ABA Urges Federal Circuit Not to Include Attorney Fees in Patent Case ‘Expenses’” reports that the American Bar Association is urging the U.S. Court of Appeals for the Federal Circuit not to include the government’s attorney fees when awarding “all expenses of the proceedings” to the U.S. Patent and Trademark Office.  The ABA filed an amicus brief in NantKwest v. Joseph Matal, urging the full Federal Circuit to overturn a split decision of a three-judge panel.

The panel had ruled that language in a recent revision of patent law permits the PTO to recover not only $33,103.89 in expert fees, but also nearly $80,000 in attorney fees, according to an ABA press release. This is a departure from precedent in patent law, the ABA argues, and would make it difficult for people without deep pockets to seek court review of PTO decisions.

“The ABA submits that imposing governmental attorneys’ fees on patent applicants who choose civil actions under [patent law] will hamper equal access to justice and chill the assertion of meritorious claims,” the brief says. “It is also contrary to the express language of Section 145, which does not overcome the presumption of the American rule that each party pays its own fees.”

NantKwest, a biotechnology company, invoked its right under patent law to appeal a PTO decision to federal district court. Under federal law, this requires it to pay for “all expenses of the proceedings.” For nearly 200 years, the ABA brief says, courts have interpreted this to mean only out-of-pocket costs, such as expert fees or travel expenses. The Virginia district court awarded the PTO only expert fees.

But on appeal, a three-judge panel of the Federal Circuit added $80,000 in attorney fees. Unusually, the Federal Circuit then reopened the appeal on its own in order to review the case using the full Federal Circuit. The ABA’s brief supports NantKwest.

The panel made a “radical, novel” decision, the brief says. Traditionally, U.S. courts use the “American rule,” which says litigants must pay their own attorney fees unless a statute or contract expressly says otherwise. Those provisions are clearer then the patent statute’s call to pay “all expenses all of the proceedings,” the brief says, and they typically reward only the winner of a case. Here, by contrast, the statute applies regardless of who wins. Furthermore, the brief says, the PTO did not start asking for attorney fees until 2013, even though the statute has existed for nearly two centuries.

Furthermore, the brief says, fee-shifting is often used to provide access to the courts. Here, however, the ABA argues that it will achieve the exact opposite, by making it unduly expensive for patent applicants to challenge a PTO decision. Individuals, nonprofits and small businesses would be disproportionately affected by the Federal Circuit’s ruling if it is upheld, the brief says. Congress surely did not intend to create a way to resolve patent disputes that would be unavailable to many applicants, the ABA argues.

“The PTO’s newfound interpretation, if accepted, would have intolerable results,” the brief says. “The doors of justice should be open to all, regardless of individual prosperity.”

The ABA’s position comes from a 2016 resolution before the House of Delegates, Resolution 108A.  The resolution addressed this exact topic in reaction to a 4th U.S. Circuit Court of Appeals case, Shammas v. Focarino, which also granted attorney fees. The U.S. Supreme Court declined to review that case.

Fee Request Denied Because Neither Party Prevailed

January 9, 2018

A recent Delaware Business Court Insider by Tom McParland, “Seven-Figure Fee Request Crumble as Bouchard Calls Cookie Contract Case a Draw” reports that the Delaware Court of Chancery denied multimillion-dollar requests for attorney fees from Mrs. Fields Brand Inc. and Interbake Foods, ruling that neither party had prevailed in a dispute over a contract to sell Mrs. Fields cookies in grocery and convenience stores.

Chancellor Andre G. Bouchard said the baked-goods companies had fought to a draw on the two main issues of a 2016 trial, where Interbake argued that it could exit a five-year licensing agreement to sell Mrs. Fields’ products.

In June, Bouchard ruled in favor of Mrs. Fields, saying that Interbake could not rely on its “material adverse change” argument to escape the deal.  But he also rejected Mrs. Fields’ “astounding” claim for $28.7 million in damages in the case.

Both sides later moved for attorney fees under a provision of the contract that required the “prevailing” party to be reimbursed for costs and expenses of litigation stemming from the licensing agreement.  Interbake asked for $2.6 million, and Mrs. Fields requested $5.3 million for its efforts.

In an 11-page letter opinion, Bouchard said Interbake’s attempts to validate its exit from the agreement spawned a slew of related legal questions, which accounted for the bulk of his 108-page ruling in June.  But he also noted that Mrs. Fields made its losing push for money damages a “central focus” of its litigation strategy, despite a standstill agreement that ensured the licensing agreement would remain in place throughout the case.

“In sum, because each side both won and lost on one of the two equally core issues in this case, I hold that neither Mrs. Fields nor Interbake predominated in the litigation and thus neither is entitled to an award of attorneys’ fees or expenses as the ‘prevailing party’ under [the licensing agreement],” the chancellor wrote.

NJ Justices Hears $2M Fee Dispute in Employment Case

January 3, 2018

A recent New Jersey Law Journal story by Michael Booth, “Justices Hear Dispute Over $2 Million Fee Award in Employment Case” reports that a Princeton financial services company asked the New Jersey Supreme Court to reinstate a more than $2 million attorney fee award for defeating an ex-employee's lawsuit.

Noren was employed by Heartland from April 1998 to June 2005 as a “relationship manager,” a role in which he sold payment processing services.  The contract he signed provided that he and Heartland both “irrevocably waive any right to trial by jury in any suit, action or proceeding under, in connection with or to enforce this agreement,” according to court documents.  Another contract provision awarded fees and costs “[i]n any suit, action or proceeding arising out of or related to this agreement.”

Noren was fired in 2005.  His suit was eventually whittled down to the two claims: breach of contract and the CEPA violation.  His jury trial demand was denied based on the waiver provision and, after 22 days of bench trial, Bergen County Superior Court Judge Susan Steele dismissed both claims.  She awarded Heartland $2.06 million in fees and costs for the defense of both claims, finding them so intertwined that the fees could not be apportioned, the decision stated.

In his appeal, Noren did not dispute the jury waiver’s applicability to the contract claim, or the notion that fees may be awarded based on Heartland’s success in defeating that claim.  But he did dispute the waiver’s applicability to the CEPA claim, and the corresponding fee award based on the statute.

Fee Expert Proposes Cap on Attorney Fees in NFL Concussion Settlement

December 20, 2017

A recent Legal Intelligencer story, by Max Mitchell, “Court’s Expert Recommends Limit on Attorney Fees for NFL Settlement Lawyers,” reports that a Harvard Law professor has issued a report recommending a cap on all contingent fee contracts for attorneys representing former players individually and rejecting arguments that parties should pay an additional set-aside toward a common benefit fund for class counsel attorneys.  A Harvard professor who reviewed the attorney fee request in the $1 billion concussion litigation settlement with the NFL has recommended placing limits on potential recovery for lawyers.

Harvard Law School professor William Rubenstein issued a 47-page report recommending that a presumptive 15 percent cap be set on all contingent fee contracts for attorneys representing former players individually.  He also rejected arguments that parties should pay an additional 5 percent set-aside toward a common benefit fund for class counsel attorneys working to implement the settlement program.

Rubenstein was asked earlier this year by the U.S. District Court for the Eastern District of Pennsylvania to vet the lump-sum fee request in the case.  “It is my expert opinion that my recommendations strike a proper balance between fairly compensating the lawyers for the services that they have provided—or will provide—while ensuring that the absent class members do not pay fees that are, in total, unreasonable,” Rubenstein said.

Earlier this year, class counsel asked U.S. District Judge Anita Brody, who is handling the litigation, to approve $112.5 million for attorney fees and costs stemming from the $1 billion settlement intended to compensate about 20,000 former players suffering from concussion-related injuries.  The NFL has agreed to pay the money in addition to the money for the class members.

The fee request included a 15.6 percent fee for attorneys representing claimants directly, along with the 5 percent set-aside that would be paid either from attorney fees, if the claimant has individual representation, or from the claimants’ recovery, if they are not represented by an attorney.

When it came to the 15 percent cap, Rubenstein noted that some contingency fees date back to 2011—four years before the settlement was given final approval in 2015—and some agreements are also as high as 45 percent.  He further noted that some players have more than one attorney, aggregate attorney fees in class actions are typically less than 15 percent, the case settled following little litigation, and many of the ex-players—most of whom are suffering from cognitive impairments—will receive “relatively small” recoveries.

“A 15 percent [initially retained plaintiff's attorney] fee cap will mean that most represented players pay about 30.6 percent of their recoveries to these two sets of lawyers, plus the IRPA’s expenses,” Rubenstein said.  “Given the quantity of litigation that occurred in this case and the size of the settlement, that is a sufficiently fair amount to ensure that counsel will continue to pursue these types of cases.”

Regarding the set-aside fee, Rubenstein said the history of how the 5 percent set-aside was included in the settlement agreement was “troubling in that it implies that class counsel sought to significantly enhance their own fees without significantly enhancing their own work, or most importantly, their clients’ recoveries.”  He also said the size of the $112.5 million fee request undercuts the argument that counsel needs to be paid additional money to implement the agreement, and if the amount wasn’t sufficient, class counsel is in the best position to seek more money from the NFL to cover those costs.

Given that the settlement will continue to pay out to claimants over the next 65 years, Rubenstein suggested the court could pay a significant portion of the $112.5 million fees upfront, then stagger the remainder to ensure attorneys continue to be compensated as the claims process continues to be administered.

“Given that class counsel seek a fee award for 100 percent of the class’s recovery now, even though many class members will not get paid for decades, some portion of that fee award should be set aside and paid out over time, to correspond with the implementation work that class counsel will have to do over time,” he said.

Class Counsel Awarded $2M in Fees in Frito-Lay Settlement

November 22, 2017

A recent Law 360 story by Joyce Hanson, “Frito-Lay to Pay $2M in Fees in ‘All Natural’ Suit Deal,” reports that a New York federal judge approved the settlement of a class suit accusing Frito-Lay of deceptively labeling food products as being “made with all natural ingredients” when they are actually made with ingredients containing genetically modified organisms, awarding about $2 million in attorneys’ fees and expenses to class counsel.

U.S. District Judge Roslynn R. Mauskopf finally signed off on the proposed settlement agreed to in November 2015 by lead plaintiff Julie Gengo and Frito-Lay North America Inc., which offers no award of damages to the class but does provide the primary relief sought in the litigation — namely, an assurance that products such as Tostitos and SunChips will not be labeled or advertised as “natural” unless those claims on any products containing GMOs are expressly authorized by the U.S. Food and Drug Administration or state or federal legislation.

“The complexity, expense and likely duration of the litigation favor settlement, which provides substantial benefits on a much shorter time frame than otherwise possible on behalf of the class,” Judge Mauskopf said.  “The support of class counsel, who are highly skilled in class action litigation such as this, and the plaintiffs, who have participated in this litigation and evaluated the settlement, also favor final approval.”

Under the terms of the final order and settlement agreement, Frito-Lay does not admit the validity of the claims or any wrongdoing or liability, the judge said.  Frito-Lay also continues to deny that its labeling of the challenged products is false, deceptive or misleading to consumers or violates any legal requirement.  However, Frito-Lay has already removed the “made with all natural ingredients” claim from its products, and the company has agreed not to label the products as “natural” as long as they continue to include GMO ingredients, according to a Nov. 10, 2015, class counsel memo.  The settlement was achieved with the assistance of retired U.S. District Judge Richard J. Holwell after mediation sessions over a period of 10 months, the memo said.

The judge approved class counsel’s motion for attorneys' fees in the amount of $1.9 million and for reimbursement of expenses of up to $200,000.  She also approved $5,000 awards to class representatives Gengo, Chris Shake and Valarie Zuro, and a $2,500 award to class representative Deborah Lawson.

“Class counsel achieved a favorable result for the class and created a benefit with a substantial value to the class by obtaining Frito-Lay's agreement to modify the labeling policies and practices challenged in this lawsuit,” Judge Mauskopf said in making the award of attorneys’ fees and expenses.

The case is Julie Gengo v. Frito Lay North America Inc., case number 1:12-cv-00854, in the U.S. District Court for the Eastern District of New York.  The multidistrict case is In re: Frito-Lay North America Inc. All Natural Litigation, case number 1:12-md-02413, in the U.S. District Court for the Eastern District of New York.