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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.

Judge Cuts $3M from $32M Fee Request in $110M Fiat Settlement

September 5, 2019

A recent Law 360 story by Pete Brush, “Class Counsel Takes $3M Haircut as $110M Fiat Deal Gets OK,” reports that a Manhattan federal judge approved a $110 million settlement for Fiat Chrysler investors who sued when the automaker's alleged lies about emissions practices came to light, but he lopped about $3 million from a $32.2 million fee request made by lawyers who brought the class action.  U.S. District Judge Jesse M. Furman, who oversaw the four-year litigation that settled in April, called the recovery for investors "fair, reasonable and adequate," but administered a something of a haircut for plaintiffs' firms representing aggrieved investors in the $27.5 billion automaker.

"Fees in the range requested are less reasonable in a settlement of this magnitude," Judge Furman said, cutting Pomerantz LLP and The Rosen Law Firm PA's requested 30% fee back to 27% and arriving at an award just a hair under $29 million.  "Make no mistake about it, the attorneys in this case will receive a substantial fee.  Counsel has secured a substantial recovery for the class," the judge said.

The settlement proceeds go to investors who bought Fiat Chrysler stock between October 2014 and May 2017.  They claimed the automaker's 2014 filings with the U.S. Securities and Exchange Commission, which said it was "substantially in compliance" with emissions and other safety regulations, were fraudulent.  Beginning in July 2015, according to the investors, Fiat Chrysler's share price began to drop when the misleading statements came to light.  The alleged misconduct cost the automaker $175 million in regulatory fines and subjected it to an expensive recall, according to filings.

Three lead plaintiffs, Timothy Kidd, Gary Koopman, Victor Pirnik, will each receive a $15,000 award on top of their settlement recovery, Judge Furman said.  He also approved roughly $2.6 million in costs for the plaintiffs' firms.  "We're very pleased at the order approving this excellent settlement," plaintiffs' counsel Jeremy Lieberman said after the hearing.  "We look forward to promptly distributing these proceeds to the class."

Feds Oppose Environmental Groups Fee Request in Fracking Case

September 4, 2019

A recent Law 360 story by Michael Philliis, “Feds Slam Enviros’ Atty Fees Bid in Offshore Permit Case,” reports that the Environmental Defense Center and another group that successfully blocked fracking permits for offshore California are prematurely seeking attorney fees, inflating their billing, and seeking reimbursement for matters on which they lost, the federal government told a California federal court.  Not only did the EDC and Santa Barbara Channelkeeper ask for attorney fees before a slew of complicated issues can be hashed out on appeal, but their request also represented an inflated bid to recover money that should never be the taxpayers' obligation to pay, the government said in a brief opposing the groups' fee request.

The environmental groups' hourly rate was allegedly puffed up; they billed some duplicated hours; they wanted reimbursement on claims that had been dropped or where they had lost; and they asked for costs that weren't allowed, including more than 10,000 pages of copying that the federal government painted as outlandish, according to the brief.  And no, talking to the media isn't something the groups can charge the government for, the response said.

"It makes little sense at this time to invest more of the court's or the parties' time and effort into briefing and deciding whether an award of fees under the [Endangered Species Act] is appropriate and, if so, what the amount of any award should be," the government said, asking the court to stay the fees request.  "The myriad potential outcomes on appeal counsel against the duplication of effort inherent in addressing the issue of fees now."

In November, U.S. District Judge Philip Gutierrez blocked the federal government from approving any offshore fracking permits in the state in a consolidated case brought by environmental groups and California.  He said the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement violated the Endangered Species Act and another law in crafting an environmental assessment of a plan to allow offshore well-stimulation treatments, also known as fracking or acidizing, in the state.  The BOEM and BSEE violated the ESA by failing to consult with other parts of the government, the judge said.

The Ninth Circuit will now hear appeals and cross-appeals in the case.  Any number of decisions in that venue could impact a fee award, and the EDC and Santa Barbara Channelkeeper moved too soon in their request for money, according to the government.  The move "risks putting the court in the awkward position of having to supervise plaintiffs' repayment in the event that federal defendants prevail on appeal," the government's brief said.

The environmental groups asked for $360,263.  The government, while noting that not all the environmental groups had requested attorney fees, said if the court does decide to award fees, it should provide a maximum of $229,814.  While the environmental groups won on their ESA claims, they lost on their National Environmental Policy Act claims and should not be paid for that part of their work.  The government also said that nearly 25 of the hours requested were duplicative and represented hours when multiple attorneys conferred.

The EDC and Santa Barbara Channelkeeper submitted their request in early August.  After winning the case, they argued the ESA provides them an opportunity to collect fees and costs.  "Plaintiffs achieved the requisite degree of success on their ESA claims" to make a fee award appropriate, they argued.  They added that the request was correct and that they had reduced the amount of hours in their request to make sure it was reasonable and did a line-by-line review to ensure that the time billed wasn't inflated.

Margaret Morgan Hall, an attorney for the Environmental Defense Center, called the government's framing of the fee request "overstated and incorrect."  "We are only seeking recovery of reasonable hours spent on the litigation, after taking significant reductions of our time to avoid any potential duplication of hours.  We likewise only seek to recover reasonable costs that we are entitled to under the Endangered Species Act citizen suit provision," Hall said in an email to Law360.

Attorneys Earn $20M for Work on ABB 401K Class Action

September 3, 2019

A recent Law 360 story by Emily Brill, “Attorneys Score $20M for Work on ABB 401k Class Action,” reports that the attorneys who represented workers in a 13-year battle with ABB Inc. over excessive 401(k) plan fees will go home with roughly $20 million after securing a $55 million settlement with the technology company.  U.S. District Judge Nanette K. Laughrey signed off on the firm’s request for $18.3 million in fees and $2.3 million in expenses, saying the legal team from Schlichter Bogard & Denton LLP secured a “significant” and “substantial” deal for workers in the face of “daunting risk.”

“The outcome of the case was uncertain, sharply contested, often protracted, and required willingness by class counsel to risk unusual resources in time and money,” Judge Laughrey wrote in a memorandum and order.  The Schlichter Bogard & Denton team handling the case, which currently consists of Jerome J. Schlichter, Troy A. Doles and Heather Lea, said they put in 28,700 hours of work over more than a decade.

Filed in 2006, the class action accused ABB of using workers' 401(k) savings to offset its expenses and wrongly diverting those savings from one investment fund to another, in violation of the Employee Retirement Income Security Act.  Workers won their trial against ABB in 2012, with a Missouri federal judge awarding them $36.9 million, according to court documents. ABB appealed, and the case ping-ponged between the Eighth Circuit and the district court three times before the settlement was reached in March.

Judge Laughrey praised the Schlichter Bogard & Denton attorneys’ “high degree of competence” saying their work had an impact on how corporations handle 401(k) plans.  “This kind of litigation has made a ‘national contribution’ in the clarification and refinement of a fiduciary’s responsibilities and duties,” Judge Laughrey said.  “Indeed, this litigation not only educated plan administrators throughout the country, it educated the Department of Labor.”

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.