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Category: Exceptional Case

Federal Circuit: More Fees Even With ‘Exceptional’ Ruling is ‘Nightmare’

February 16, 2024

A recent Law 360 story by Andrew Karpan, “Dish’s Bid for More Fees Called ‘Nightmare’ By Fed. Circ. Judge”, reports that a Federal Circuit judge told counsel for Dish Network LLC that to secure more fees after the cable giant defeated a patent case in district court that was found to be "exceptional" to cover the costs of challenging the patent at the patent board would create "an effing nightmare."

Dish had argued to the three-judge panel that it should be able to bill a shell patent company for expenses incurred challenging the patent through an inter partes review at the Patent Trial and Appeal Board after Dish defeated the related patent suit against it.  The patent company, Dragon Intellectual Property LLC, was also appealing the $1.45 million in fees that Dish already won, along with the $1.86 million won by attorneys for Sirius XM Radio Inc. in a different case over the same patent.

But the hearing was dominated by arguments over efforts by Dish's lawyers to score more money out of Dragon IP and potentially its lawyers — taking up over an hour of debate among the panel of judges.

In that endeavor, Dish had cited the 1989 Sullivan v. Hudson ruling from the U.S. Supreme Court, which gives the courts discretion to award fees to lawyers in a Social Security administrative proceeding.  According to the filings, Baker Botts LLP billed Dish for $673,905 in fees from patent board proceedings and wanted that money added to the $1.45 million. Sirius XM was hoping to clock $134,272 in additional fees.

U.S. Circuit Judge Kara Farnandez Stoll told Baker Botts lawyer Lauren Dreyer that she had a "practical" question about this argument.  "The district court is in the best position to determine whether or not something is exceptional or not because they're in the day-to-day running of the case.  That's not so with an IPR," she said. "The district court knows nothing about what happened at the IPR."  U.S. Circuit Judge Kimberly Moore was more wary of the possible effect of Dish's request in a legal climate where "every single patent litigation has a companion IPR now."

This would open up an entirely new avenue for victorious patent lawyers to litigate further, Judge Moore said.  "So, what you're now asking for is every time we're thinking about attorney's fees, anytime an IPR is successful, you're going to have the district court being put in what Judge Stoll was just articulating [is] the very awkward position of trying to evaluate the exceptionality of what was argued and decided, not in his or her forum but in an administrative forum," Judge Moore said. "That sounds like I'm creating an effing nightmare."

In response, Dreyer tried to argue that these motions would not come all the time if Dish succeeded just this once.  "I think [this case] is the exception; it's not the rule, and it only occurs in the rare cases in which there is frivolousness and an unreasonable manner of litigating," she said.  That didn't go down well with Judge Moore.  "With all due respect, every time you guys win, that's what you claim," Judge Moore told her, audibly annoyed at Dreyer's repetition of legalese.

U.S. District Judge Cathy Ann Bencivengo, on the panel by designation, acted to move the lawyers along in talking about "the circumstances in this case" and said there could be some general grounds for "sweeping the IPR" into a fee bid, as it "wasn't a waste of time [since] you didn't lose there."

Judge Bencivengo appeared occasionally mystified at the larger legal effort by Dish to go after Dragon in the first place.  "Basically, you have a hollow victory here if you win because plaintiff Dragon is a shell.  An empty shell. ... You can get zero.  They're judgment proof," she told Dreyer.

In addition to asking for more money, Dreyer said Dish was also hoping to get the appeals court to hold Dragon IP's lawyers liable for paying those fees.  But Dreyer made little headway again.  "All of what you discussed [with Judge Bencivengo] is not in this record.  You attempted to supplement this record with a deposition that would have brought to light all of those points.  They are not before this court, are they?" Judge Moore asked.

Dreyer acknowledged they were not.

"So we can't rely on any of that," the judge told her.

Judge Moore also took issue with how defense-side patent lawyers use "exceptionality" findings in federal courts.  "It feels like in a lot of these exceptional case findings, what really bothers me is that you all come in, and you complain that the district court should have done some sort of redo of all the things it didn't do in order to conclude that the originally asserted positions should have been deemed exceptional," she said.  "You're asking us to adopt a rule in which district court judges are now going to have to evaluate conduct, behavior and an outcome in a proceeding they had no involvement with and determine whether fees should be awarded for that in their forum, which would have evaluated the exact same issues under an entirely different burden of proof."

Why Federal Circuit Affirmed Patent Attorney Fee Award

January 2, 2024

A recent Law 360 article by Thomas Makin, David Cooperberg, and Adi Williams, “Why Fed. Circ. Affirmed Attorney Fee Award in PeronalWeb”, reports on the recent patent attorney fee award in PersonalWeb Technologies case before the U.S. Court of Appeals for the Federal Circuit.  This article was posted with permission.  The article reads:

In the recent majority opinion In re: PersonalWeb Technologies, the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. District Court for the Northern District of California entry for a $5.2 million award of attorney fees pursuant to Title 35 of the U.S. Code, Section 285.  Federal Circuit Judges Jimmie V. Reyna, Timothy B. Dyk and Judge Alan D. Lourie reviewed the district court's exceptional case determination and fee award calculation and found no abuse of discretion.

This article explores the ramifications of the Federal Circuit's Nov. 3 decision and underscores district courts' discretion to sanction unreasonable arguments and litigation tactics.

Section 285, provides that, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."  Attorney fees, however, are not awarded merely for "failure to win a patent infringement suit," as per the U.S. Supreme Court's 2014 Octane Fitness LLC v. ICON Health & Fitness Inc. decision.

According to the Federal Circuit's 2017 Checkpoint Systems Inc. v. All-Tag Securities SA decision, "The legislative purpose behind § 285 is to prevent a party from suffering a 'gross injustice,'" such as having to defend itself against baseless claims, and not to punish a party for losing.  But according to Octane, "The Patent Act does not define 'exceptional.'  [However, the Supreme Court has construed it] in accordance with [its] ordinary meaning."

The Supreme Court has further explained in Octane that an exceptional case is

simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated [and] District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.

When reviewing an exceptional case, the Federal Circuit is "mindful that the district court has lived with the case and the lawyers for an extended period ... and [it is] not in a position to second guess the trial court's judgment," as per the Federal Circuit's 2011 Eon-Net LP v. Flagstar Bancorp decision. 

PersonalWeb is the owner of U.S. Patent Nos. 5,978,791; 6,928,442; 7,802,310; 7,945,544 and 8,099,420 — collectively, the true name patents.  These patents are generally directed to what the inventors termed the "true name" for identifying data items.  True names are unique identifiers that depend on the content of the data item.

The activities that led to the Nov. 3 exceptional case determination started in 2011, when PersonalWeb sued Amazon.com Inc. in the U.S. District Court for the Eastern District of Texas, alleging that Amazon's Simple Storage Service, or S3, cloud technology infringed PersonalWeb's true name patents.  After the district court construed the claim terms, PersonalWeb stipulated to a dismissal, resulting in the district court dismissing with prejudice the infringement claims against Amazon and entering final judgment against PersonalWeb.

Seven years later, in 2018, PersonalWeb asserted the same true name patents against 85 Amazon customers across the country for their use of Amazon's S3 technology.  Amazon intervened and filed a declaratory judgment action against PersonalWeb.  The declaratory judgment action sought an order, barring PersonalWeb's infringement actions against Amazon and its customers based on the Texas action.

The declaratory judgment action and customer cases were then consolidated into a multidistrict litigation and assigned to the Northern District of California.  Upon consolidation, PersonalWeb represented that if it lost its case against Twitch, a customer case, it would not be able to prevail in the other customer cases.  The California district court then stayed the other customer cases and proceeded with Amazon's declaratory judgment action and the Twitch customer case.

In the declaratory judgment action, PersonalWeb counterclaimed against Amazon, alleging that Amazon's S3 technology infringed its true name patents and later added claims against another Amazon product, CloudFront.  The district court granted summary judgment of noninfringement as to the S3 product in favor of Amazon, based on both the Kessler doctrine and claim preclusion.

The Kessler doctrine generally precludes a patentee from pursuing follow-on infringement suits against the customers of a manufacturer that previously prevailed against the patentee on the same allegedly infringing products.  The district court later granted summary judgment of noninfringement as to the CloudFront product based on PersonalWeb's concession that it could not meet its burden of proving infringement under the district court's claim construction.

The Federal Circuit affirmed both decisions.  The district court then granted Amazon and Twitch's motion for attorney fees and costs, pursuant to Title 35 of the U.S. Code, Section 285.

In determining that the case was exceptional, the district court found that:

  •     PersonalWeb's infringement claims related to Amazon S3 technology were objectively baseless and not reasonable when brought, because they were barred due to a final judgment entered in the Texas action;

  •     PersonalWeb frequently changed its infringement positions to overcome the hurdle of the day;

  •     PersonalWeb unnecessarily prolonged the litigation after claim construction foreclosed its infringement theories;

  •     PersonalWeb's conduct and positions regarding the customer cases were unreasonable; and

  •     PersonalWeb submitted declarations that it should have known were inaccurate.

PersonalWeb appealed to the Federal Circuit, contending that the district court erred as to each of its exceptional case findings.  The Federal Circuit addressed each argument, starting with PersonalWeb's alleged objectively baseless infringement claims.

Objective baselessness relates to "[t]he substantive strength of a party's litigating position" and can "independently support an exceptional-case determination," according to Octane — with these factors also cited in the Federal Circuit's 2017 Nova Chemicals Corp. (Canada) v. Dow Chemical Co. decision.  Thus, according to Octane, "a case presenting ...  exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award."

In this regard, the Federal Circuit said, quoting Octane, in the 2015 SFA Systems LLC v. Newegg Inc decision: "It is the 'substantive strength of the party's litigating position' that is relevant to an exceptional case determination, not the correctness or eventual success of that position."

At the Federal Circuit, PersonalWeb argued that, with respect to objective baselessnes, the reach of Kessler had not been a well-settled issue and that the Federal Circuit's affirmance of the district court's summary judgment decision extended Kessler to cover cases against manufacturers that had been dismissed with prejudice pursuant to stipulation without adjudication of noninfringement.

The majority rejected PersonalWeb's arguments, and reiterated that the Kessler doctrine precludes a patentee who is first unsuccessful against the manufacturer from then suing the manufacturer's customers for those acts of infringement that post-dated the judgment in the first action. 

The majority opined that a straightforward application of Kessler barred PersonalWeb's claims because the order in the Texas action dismissing with prejudice all claims against Amazon and its S3 product operated as an adverse adjudication on the merits of PersonalWeb's infringement claims.

The Federal Circuit likewise found that claim preclusion rendered claims of customer infringement prior to the final judgment in the Texas action objectively baseless.  The Federal Circuit's remaining exceptional case analysis relates to litigation conduct.  And under the Supreme Court 's Octane Fitness standard, "a district court may award fees in the rare case in which a party's unreasonable conduct — while not necessarily independently sanctionable — is nonetheless so 'exceptional' as to justify an award of fees."

On appeal, with respect to the district court's finding regarding PersonalWeb's "frequently changing infringement positions," PersonalWeb argued that its conduct constituted zealous advocacy.

The Federal Circuit disagreed because the record showed that PersonalWeb's alternative infringement theories were constantly changing throughout the case, ranging from emphasizing one, or the other, or both.  The Federal Circuit found that PersonalWeb's pattern of flip-flopping infringement theories made the case "stand out from others with respect to the substantive strength" and "the unreasonable manner in which the case was litigated."

PersonalWeb challenged the district court's finding that PersonalWeb unnecessarily prolonged litigation on the basis that the district court had expressly credited PersonalWeb's efforts to streamline the case post-claim construction.

The Federal Circuit disagreed, holding that the district court's finding was not an abuse of discretion because:

  •     PersonalWeb refused to immediately stipulate to noninfringement despite an adverse claim construction and an obligation to continually assess the soundness of its claims; and

  •     PersonalWeb's offering of expert opinion relying on alleged ambiguity in the district court's claim construction amounted to an impermissible attempt to relitigate claim construction.  The Federal Circuit further noted that, while PersonalWeb may have taken other actions that did not prolong the case, the above misconduct sufficiently supported the district court's finding.

PersonalWeb challenged the district court's finding that PersonalWeb's conduct and positions regarding the issue of customer case representatives were unreasonable on the basis that it was only during discovery, in July 2019, that PersonalWeb discovered that Twitch was not representative of certain categories of the customer cases.

The Federal Circuit rejected this argument.  The court said PersonalWeb could not change horses in February 2020, after PersonalWeb had represented that it could not prevail against other customers if it could not prevail against Twitch, and after the district court granted summary judgment of noninfringement in favor of Amazon and Twitch.

The Federal Circuit also concluded that PersonalWeb's seven-month delay in raising its allegedly newly discovered nonrepresentativeness issue was unreasonable.  PersonalWeb also challenged the district court's finding that two inaccurate declarations submitted on behalf of PersonalWeb in support of its opposition to summary judgment were relevant to the exceptionality analysis.

The Federal Circuit agreed with the district court that the testimony was contradicted by the record and supported a finding of unreasonable litigation conduct.  The Federal Circuit dismissed PersonalWeb's argument that the testimony was not inaccurate as frivolous.

The appellate court concluded its analysis of the district court's exceptional case determination with an admonition that counsel, as officers of the court, "are expected to assist the court in the administration of justice, particularly in difficult cases involving complex issues of law and technology." 

The Federal Circuit found no clear error in the district court's finding that PersonalWeb's counsel fell short of this expectation by litigating with "obfuscation, deflection and mischaracterization" to make the case exceptional under Section 285.

With respect to the calculation of $5.2 million in attorney fees, which PersonalWeb also challenged on appeal, the Federal Circuit found no abuse of discretion in the district court's calculation.  The Federal Circuit found that the district court thoroughly analyzed the extensive record, considered conduct that both supported and detracted from its award of attorney fees, and explained the award's relation to the misconduct.

In a dissenting opinion, Judge Dyk contended that PersonalWeb's position on Kessler could not be objectively baseless because — in an amicus brief to the Supreme Court — the solicitor general agreed with PersonalWeb that the dismissal with prejudice of the Texas action should not trigger the Kessler doctrine. 

As Judge Dyk put it, "[T]he solicitor general is not in the habit of making objectively baseless arguments to the U.S. Supreme Court."  Judge Dyk asserted that the majority effectively punished PersonalWeb for making an argument on which it did not succeed rather than one that was unsupported.

Despite the dissent, this case underscores district courts' discretion to sanction unreasonable arguments and litigation tactics under Section 285.  Attorneys should be mindful when zealously representing their clients not to present to the court cases that may be deemed "exceptional" under Section 285.

When deciding to prosecute a patent infringement lawsuit, attorneys should conduct adequate pre-suit investigation, ensuring that each and every element of the claim is likely present in the accused product or process, either literally or as an equivalent, and that a prospective plaintiff is not barred from bringing suit.

The pre-suit investigation should also include researching and staying current on the controlling authority for the suit's specific fact pattern.  It naturally follows that attorneys should not ignore or mischaracterize evidence or controlling authority that undermines their clients' claims.

After filing suit, attorneys have a responsibility to dismiss the suit if subsequent developments foreclose the possibility of victory.  Importantly, attorneys should always remember that, while advocates for their clients they are also officers of the court, and owe the court a duty of candor and must abide by court rules and assist the court in the expeditious administration of justice.  Losing sight of these obligations risks exposing clients to an award of fees and costs under Section 285.

Pursuant to Section 285, a court may look to the totality of the circumstances, using, as per Octane, a "'nonexclusive' list of 'factors,' including 'frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.'"

Parties should be aware that while an individual argument or litigation tactic might be characterized as mere zealous advocacy, an award of attorney fees may be supported when that conduct is viewed under the governing totality of circumstances standard.

Thomas R. Makin is a partner, David Cooperberg is a special attorney and Adi Williams is an associate at Shearman & Sterling LLP.

$2.5M Supplemental Fee Award in PersonalWeb Patent Case

December 28, 2023

A recent Law 360 story by Henrik Nilsson, “Amazon Lands Another $2.5M in Fees in Personal Web IP Fight”, reports that a California federal judge awarded Amazon $2.3 million in attorney fees plus another $193,000 in court costs in a patent feud with licensing outfit PersonalWeb, adding to an already more than $5 million fee award, while slamming PersonalWeb's "disgraceful" litigation tactics.

U.S. District Judge Beth L. Freeman granted and denied in part Amazon's motion for supplemental fees in the infringement litigation lodged against it and its various customers by PersonalWeb Technologies LLC, whose allegations over patented cloud-computing technology were ultimately found to be "objectively baseless" in 2020.

"The court notes with grave displeasure that the overriding theme of PersonalWeb's post-judgment conduct has been one of bad-faith evasion of the court's judgment and abuse of due process protections," Judge Freeman wrote her order.  "PersonalWeb's two-track strategy of attempting to avoid this court's jurisdiction, has been disgraceful, and as clear an example of bad faith as any that this court has had the displeasure of observing from the bench."

Judge Freeman saddled PersonalWeb with what was initially $4.6 million in fees in 2021, owed to Amazon's lawyers at Fenwick & West LLP for billing more than 9,260 hours of work on PersonalWeb-related litigation.  Amid appeal, the number has since ballooned to about $5.2 million, which a split Federal Circuit panel upheld Nov. 3.

Amazon said in May that it's entitled to $3.2 million worth of extra fees for work performed between March 2021 and March 2023, which it partly attributed to related Federal Circuit appeals over claim construction, non-infringement and the previous fee award.  In addition, Amazon argued that it incurred fees "attempting to secure or enforce the fee award."  The company later revised that number and asked for almost $3 million in fees and costs.  Judge Freeman said Amazon was entitled to approximately $2.5 million.

The sprawling litigation goes back to early 2018, when PersonalWeb filed around 50 patent suits in a handful of jurisdictions against Amazon Web Services customers, including Airbnb Inc., MyFitnessPal Inc., Reddit Inc., Venmo Inc., Kickstarter, Blue Apron LLC and FanDuel Inc.  But Amazon fired off its own suit in February 2018 arguing PersonalWeb had already lost its case against its customers when it dropped claims against Amazon itself in prior litigation.  A California federal court sided with Amazon in 2019, and the Federal Circuit upheld that decision in June 2020 in a precedential decision.

Judge Freeman approved Amazon's initial request for attorney fees in October 2020, calling the litigation "objectively baseless."  The judge declined to determine the amount at that time, but deemed the case "exceptional."  During a hearing on attorney fees in November, Judge Freeman expressed her frustration with the lengthy litigation, noting that she doesn't "really know what to say," and she's been ruling consistently in favor of Amazon for years, and so far "the Federal Circuit has agreed with me every step of the way."

Throughout the hearing, Judge Freeman criticized PersonalWeb's litigation tactics and its purported attempts to dodge judgment and fee payment by filing appeals and replacing counsel repeatedly, as well as filing a receivership action in state court and obtaining an injunction barring the company from having to meet certain deadlines to pay in the patent infringement cases.

Among the attorney fees awarded to Amazon include approximately $1.1 million for 1,931 hours of work in post-judgment enforcement matters in federal court from March 2021 to March 2023.  Judge Freeman awarded another $562,068 for about 776 hours of work in state court proceedings and $209,582 related to PersonalWeb's petition for certiorari with the U.S. Supreme Court following the Federal Circuit's decision in 2020. The high court denied the petition.

Alleged ‘Patent Troll’ Wants SCOTUS to Hear Fee Award Dispute

November 30, 2023

A recent Law 360 story by Kelly Lienhard, “Traxcell Asks High Court To Review Atty Fee Fight”, reports that Traxcell Technologies LLC has asked the U.S. Supreme Court to take up an appeal concerning attorney fees owed to Sprint and Verizon after the telecommunication companies beat its infringement suit, arguing that the alleged "exceptional" litigation conduct occurred before a final ruling.

A  petition for a writ of certiorari from Traxcell, which filed for bankruptcy earlier this year, claimed that the Federal Circuit erred when it affirmed attorney fee awards to units of Sprint Corp. and Verizon Communications Inc. based on so-called "baseless" litigation conduct from Traxcell's attorney, William Ramey III of the Houston firm Ramey LLP, as the conduct in question occurred before the court adopted a magistrate judge's ruling.

"It is black letter law that a Magistrate's ruling is not final until approved by a district court.  It was [an] error for the Panel to base its fee award entirely upon rulings that were not final and could not have been final until December 11, 2019," Traxcell said.  "None of the conduct that was found to be "exceptional" under [federal law] occurred after the Magistrate Judge's recommendation was made final on December 11, 2019."

Texas-based Traxcell, which has been accused of being a "patent troll" by groups like the Electronic Frontier Foundation, is on the hook for about $784,000 in fees owed to Sprint and $132,000 in fees owed to Verizon, after the companies won rulings that Traxcell's patent lawsuits were legally frivolous.  AT&T Inc., which had also been named in those lawsuits, did not request any fees, as it ended its litigation with Traxcell back in 2019.  A panel of Federal Circuit judges ruled in July without comment that the lower court was right to order Traxcell to pay legal fees incurred by lawyers for the major telecom firms.

Traxcell is now appealing that decision based on arguments that the Federal Circuit departed from typical proceedings and court precedent by issuing fee awards based on conduct that occurred before U.S. Magistrate Judge Roy Payne's ruling in a separate, but related, case was finalized.

Traxcell is asking the high court to either vacate or reverse the attorney fees granted to both Sprint and Verizon and find that the case was not exceptional.  Verizon and Sprint, the latter now owned by T-Mobile, moved to dismiss the bankruptcy attempt, telling the court that it was filed in bad faith.

Prevailing Party Wins $3.1M in Fees in “Exceptional” IP Case

October 16, 2023

A recent Law 360 story by Rose Krebs, “Emerson Radio Gets $3.1M Atty Fees, Enhanced TM Damages”, reports that Emerson Radio Corp. has been awarded about $3.1 million in attorney fees following its $6.5 million default win in a trademark infringement suit, with a Delaware federal judge saying fees were awarded due to "unreasonable" litigation conduct by the companies it sued.  In a memorandum opinion and accompanying order, U.S. District Judge Gregory B. Williams also awarded $700,000 in enhanced damages to Emerson Radio in litigation against Emerson Quiet Kool Co. Ltd. and Home Easy Ltd.

"The Lanham Act provides that the court may award reasonable attorneys' fees in exceptional cases," and this was an instance where awarding fees to the plaintiff was merited, given the circumstances of the case, Judge Williams ruled.  "A case is exceptional if "(a) there is an unusual discrepancy in the merits of the positions taken by the parties or (b) the losing party has litigated the case in an 'unreasonable manner,'" Judge Williams noted, citing the Third Circuit's 2014 ruling in Fair Wind Sailing Inc. v. Dempster.

As the prevailing party, Emerson Radio asserted "that it is entitled to reasonable attorneys' fees because this case is exceptional based on both (1) the merits of the case, and (2) the unreasonable manner in which defendants litigated it," the opinion said.  "The court agrees that the case is exceptional," Judge Williams wrote.

Among the litigation conduct that was flagged were actions mentioned in a prior court decision that granted a motion to withdraw by the defendants' former counsel, including that the defendants' repeatedly refused to follow counsel's advice, were unwilling to engage in trial preparations, and had a "sudden and unexplained change of tack" during proceedings.

Another prior court order also took issue with Emerson Quiet Kool and Home Easy for being unable to obtain substitute counsel for a time, calling it "part of a pattern of delay and lack of representation that has plagued this litigation."

"Given these previous findings, the court need not further expand on defendants' litigation conduct," Judge Williams wrote. "In light of the totality of the circumstances, the court finds the present case is exceptional based both on the merits and on the unreasonable manner in which defendants litigated the case."

Emerson Radio submitted declarations breaking down the $3,159,000 in attorneys' fees incurred by Stevens & Lee, Cooley LLP, and an Orrick Herrington & Sutcliffe LLP attorney who worked the case before he moved over to Cooley, according to the opinion.  "Upon review, the court finds that the number of hours spent litigating this action in representation of plaintiff is reasonable," the opinion said. "Similarly, the court finds that the hourly rates are reasonable."