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Category: Exceptional Case

More Doubt if ’Exceptional’ Patent Fees Include PTAB Work

September 2, 2021

A recent Bloomberg Law story by Matthew Bultman, “Doubts Deepen if ‘Exceptional’ Patent Fees Include PTAB Work,” reports that companies that win an “exceptional” patent lawsuit can be reimbursed for their attorneys’ fees—but they can’t count on recouping money spent fighting at the Patent Trial and Appeal Board.  Patent law allows the winning side to collect fees from the losing side when a district court judge finds that the lawsuit is “exceptional,” as outlined in Section 285 of the Patent Act.  Courts are split on how the law applies to PTAB expenses.

Some courts have found the fees can include money companies spent challenging a patent at the PTAB after being sued.  Recently, however, other judges, including a magistrate judge in Delaware, have indicated those are likely sunk costs.  The U.S. Court of Appeals for the Federal Circuit has yet to provide a definitive answer, but “it is pointing in the direction, perhaps, that awards are not going to be given for proceedings that are outside of the district court case,” Akin Gump Strauss Hauer & Feld LLP attorney Rubén Muñoz said.

While PTAB reviews are a less expensive way to challenge a patent’s validity, the proceedings can still cost hundreds of thousands of dollars. In the Delaware case, a judge said PTAB fees may account for a significant portion of the $1.1 million and $1.5 million Dish Network LLC and Sirius XM Radio Inc. spent in the litigation, respectively.  For smaller businesses, in particular, that’s not an insignificant expense.  A bar on recovering those fees could be a consideration in their litigation strategies.

‘Optional’ Proceedings

Questions about whether Section 285 allows companies to recover costs at the patent office predate the 2011 America Invents Act, the law that created the popular inter partes reviews at the PTAB.  In 1988, the Federal Circuit ruled Celanese Polymer Specialties Co. could recoup fees spent opposing PPG Industries Inc.’s reissue patent applications at the agency.  Celanese had been sued for infringement, and the court said its participation in the agency proceeding wasn’t optional.  The court also said the patent office proceeding “substituted for the district court litigation” on certain issues.

How the Federal Circuit views “the relevance of that case may drive its ultimate decision on whether or not fees can be awarded for PTAB work,” said Sandip Patel, an attorney at Marshall Gerstein & Borun LLP.  Without deciding the question, the Federal Circuit said last year in the Dish and Sirius cases it saw “no basis in the Patent Act for awarding fees under § 285 for work incurred in inter partes review proceedings that the Appellants voluntarily undertook.”

While the statement wasn’t binding, Magistrate Judge Jennifer Hall in the District of Delaware agreed. In a recent report, the judge emphasized Dish and Sirius weren’t required to challenge Dragon Intellectual Property LLC’s patent at the PTAB, but rather that they chose to do so.

Some attorneys say the realities of patent litigation mean PTAB reviews aren’t that optional.  Most of the patents challenged at the PTAB are brought by a defendant that has been sued in district court on the patent, a 2016 study found.  “Because most IPRs are filed because there’s a parallel district court action and because it’s common sense to have an inexpensive determination of validity, rather than a ridiculously expensive evaluation of it, it’s not so voluntary,” Patel said.  “It’s practical,” Patel said, “and that’s the way people proceed.  That’s the way business is conducted in patent litigation after the AIA passed.”

Substituting Work

Some district courts have been more willing to allow defendants to recover fees spent at the patent office.  A judge in the Eastern District of Texas, for example, said in 2017 that My Health Inc. owed companies almost $60,000 for work on an IPR petition because the “defendants never would have sought IPR if they had not been sued for allegedly infringing.”  In another case involving Southwest Airlines Co., a judge in the Southern District of California said the airline could recover fees for reexamination proceedings at the patent office because the proceeding “essentially substituted for work that would otherwise have been done before this court.”

Hall acknowledged the My Health and Southwest cases, but said their reasoning wasn’t persuasive.  While Dish and Sirius argued they were effectively being punished for choosing the more “efficient route,” Hall said to take it up with Congress.  “Federal courts don’t make policy,” Hall wrote, recommending the companies’ fee award be limited to what they spent in the district court.

Dish and Sirius XM have objected to Hall’s report, which will be reviewed by a district court judge.  The companies argue, among other things, that inter partes reviews aren’t optional because defendants sued for infringement have one year to file for inter partes review - “a non-extendable deadline to act.”

Revisiting PPG

Questions about PTAB fees have put a spotlight on the Federal Circuit’s decision in PPG. Some legal scholars say the court took a wrong turn in its decision, and skipped an important step by looking at whether the proceedings were optional.  Megan La Belle, a law professor at Catholic University of America who studied the subject, said the U.S. Supreme Court has established a clear framework for recovering fees for work in administrative tribunals.

The first step is to look at the language of the relevant statute.  Section 285 states that courts “in exceptional cases may award reasonable attorney fees to the prevailing party.”  Administrative proceedings, like PTAB reviews, generally aren’t viewed as “cases,” La Belle said.  “You only get to that second step if there’s an argument that administrative proceedings are captured by the language of the statute,” La Belle said.  “I think clearly they’re not under 285.”

Another avenue for companies could be to pursue fees directly at the patent office.  The PTAB has the power to sanction a party for misconduct at the board, which can include frivolous arguments.  But La Belle suggested in a 2016 article that Congress pass legislation allowing for recovery of PTAB fees in exceptional cases in district court.  “From a policy perspective, to me it seems obvious that the Congress that passed the AIA, if they thought about this and if they were asked the question, ‘Can you recover fees for AIA proceedings?,’ I don’t see why they would ever say ‘No,’” La Belle said.

SCOTUS Won’t Hear Dispute Over Patent Attorney Fee Awards

June 14, 2021

A recent Law 360 story by Tiffany Hu, “Justice Won’t Hear Dispute Over Atty Fees in Patent Cases,” reports that the U.S. Supreme Court declined to hear a question on courts' allegedly "inconsistent and contradictory" discretion over attorney fees in a patent case involving lost luggage technology.  The high court denied Roadie Inc.'s petition to take up its appeal of a Federal Circuit ruling that shot down its request for attorney fees, despite the company's arguments that the case should have been deemed exceptional because of procedural missteps by an attorney for rival Baggage Airline Guest Services Inc.  The Federal Circuit affirmed the invalidation of BAGS' patent, which BAGS alleged Roadie had infringed.

Roadie had argued that it was "forced to defend a case that should never [have] been brought" and that the lower courts should have considered the weakness of BAGS' case — and Roadie's "strong showing of noninfringement" — and awarded Roadie fees for fending off the suit.  "Since 2014, judicial 'discretion' has been inconsistent and contradictory in a way that frustrates the goal of [the Patent Act] which is to improve the efficiency of the judiciary by discouraging the filing of bogus lawsuits," Roadie said in its petition.

According to Roadie, the district court's decision not to consider the issue of noninfringement went against the high court's 2014 ruling in Octane Fitness LLC v. ICON Health & Fitness Inc. , which made it easier for prevailing parties to obtain fees, according to the petition.  Around that same time, the high court also ruled in Highmark Inc. v. Allcare Health Management System Inc. that because determining whether a case is "exceptional" is up to the district court's discretion, that decision can be reviewed on appeal for abuse of discretion, Roadie argued.

BAGS filed its opposition last month, contending that the Federal Circuit's decision to defer to the lower court's "reasoned analysis" did not meet the statutory requirements for certiorari.  Roadie's arguments before the Supreme Court did not "include anything persuasive not already considered by the district court and the Federal Circuit," it added.  Edward A. Pennington of Smith Gambrell & Russell LLP, an attorney for Roadie, told Law360 in an email that "every entity that tries to bring an important matter to the Supreme Court is disappointed when the court does not take the case," but that his client realizes few petitions are granted "no matter how important the fee reversal issue is."

"Fee reversal ... should be an important deterrent against ill-conceived patent suits, but as long as district courts have loosely defined factors to consider, we will continue to see inconsistent decisions," Pennington said.  The dispute dates to 2017, when BAGS accused Roadie, which pairs customers who need items shipped to drivers already headed in the correct direction, of developing an app that infringes the patent.

Roadie had asked a Delaware federal judge for judgment on the pleadings based on invalidity and noninfringement simultaneously.  The court granted the motion on invalidity, with the Federal Circuit later affirming the decision, finding BAGS' patent was directed to a patent-ineligible abstract idea of "coordinating and monitoring baggage delivery."

The district court declined to consider Roadie's noninfringement arguments, which were fully briefed, since it found the patent invalid. Had it factored the noninfringement issue into its exceptionality finding, Roadie argued, that would have supported the argument that the case was meritless and that Roadie deserved fees.  The district court denied Roadie's bid for fees, however, saying there was no evidence of nefarious intent despite the missteps by BAGS, which the district court chalked up to inexperience and mistakes.  The Federal Circuit affirmed the ruling in November.

Tenth Circuit Sets Patent Standard for Trademark Attorney Fee Awards

June 13, 2021

A recent Reuters story by Blake Brittain, “10th Circuit Adopts Patent Law Standard for Trademark Attorneys’ Fees,” reports that the 10th U.S. Circuit Court of Appeals ruled Tuesday that the U.S. Supreme Court’s attorneys’ fees standard for “exceptional” patent cases also applies to trademark cases, joining every other U.S. circuit court in applying the standard to Lanham Act disputes.

The Supreme Court's 2014 decision in Octane Fitness made it easier for litigants to recover attorneys' fees under the Patent Act's fee-shifting provision, and it applies to trademark law because of the Lanham Act's identical provision, U.S. Circuit Judge Carlos Lucero wrote for a three-judge panel.

Plaintiff Derma Pen LLC and its attorney Michael Zimmerman of Zimmerman Booher didn't immediately respond to a request for comment. Jefferson Gross of Gross & Rooney, who represented defendants Joel and Sasha Marshall, also didn't immediately respond to a request for comment.

Derma Pen makes microneedles for skin treatments, and won a permanent injunction in Utah federal court in 2017 against Stene Marshall, who had been misusing the "Dermapen" name to sell his own products, to stop him from infringing its trademark.

Derma Pen later moved to hold Marshall's brother and sister-in-law Joel and Sasha Marshall in contempt for acting in concert with him to violate the injunction. They fended off Derma Pen's motion and won more than $190,000 in attorney fees in 2019 after U.S. District Judge David Nuffer in St. George, Utah found the case exceptional under Octane Fitness, which said that an exceptional case is "simply one that stands out from others" in the strength of a party's litigating position or unreasonable manner of litigation.

Nuffer noted in his decision on Derma Pen's claims against Joel and Sasha Marshall that Derma Pen provided no evidence of damages, had abandoned its trademark, and failed to comply with discovery orders, among other things.

Lucero, joined by Circuit Judges Harris Hartz and Allison Eid, decided to add to the "chorus of circuits" that have applied Octane Fitness to trademark cases, citing the relevant laws' identical language, indications in the Octane Fitness ruling that the two provisions should be interpreted the same, and Congress' reference to the Patent Act in enacting the Lanham Act provision.

SCOTUS Won’t Hear IP Attorney Fee Claim

May 17, 2021

A recent Law 360 story by Dani Kass, “’Radical’ IP Atty Fee Claim Doesn’t Strike Justices’ Interest,” reports that the U.S. Supreme Court rejected a patent-holding company's attempt to limit when district court judges can make plaintiffs in frivolous patent cases cover attorney fees.  WPEM LLC's March 16 petition had called U.S. District Judge Rodney Gilstrap's decision to make it pay fees after a failed patent suit a "radical expansion" on the court's powers.  But the justices weren't persuaded, and rejected the petition without further comment.

The petition was rejected at the high court before the opposing party, SOTI Inc., had a chance to file an opposition or waive its right to do so, according to the court's online docket.  WPEM had sued Canada-based SOTI in 2018, accusing it of infringing a patent with a manual for a product called the MobiControl Speed Lockdown.  Judge Gilstrap then dismissed the case, saying a reasonable plaintiff "conducting minimally diligent" research into the case would have found an earlier version of the manual was issued before WPEM's patent.

Looking at WPEM's own evidence, Judge Gilstrap had found it was "clear that WPEM conducted no pre-filing investigation into the validity and enforceability of the asserted patent at all," and he ordered WPEM to cover SOTI's attorney fees.  The Federal Circuit upheld that ruling in December 2020, in a nonprecedential opinion.  Three months later, WPEM told the justices the ruling reflected "a radical expansion of discretion," as Judge Gilstrap was still obligated to presume that its patent was valid.

"The district court determined petitioner's case to be frivolous because the accused technology was prior art, but the district court did not make an invalidity determination, as such would require clear and convincing evidence," the company said in its petition.  WPEM had argued that Judge Gilstrap should have done more to figure out if its patent was also invalid, and said if it wasn't invalid, that would necessitate a new ruling on those fees and whether the case was exceptional.

Federal Circuit Backs $4.2M Fee Award in IP Case

May 11, 2021

A recent Law 360 story by Adam Lidgett, “Fed. Circ. Backs Apple and Cisco’s $4.2M Fee Win in IP Case,” reports that the Federal Circuit has refused to undo a lower court order allowing Apple and Cisco to collect $4.2 million in attorney fees from tech company Straight Path in a patent case, despite arguments that a California federal judge wrongly found the case was exceptional.  In a short order, a three-judge appellate panel affirmed the California federal court's decision handing Cisco $1.9 million and Apple $2.3 million in fees from Straight Path in a dispute over internet phone patents.  The panel gave no reason behind its decision.

The order came just days after oral arguments in which the panel had a hard time believing that U.S. District Judge William Alsup — who delivered the fee award almost a year ago — lacked the discretion to do so.  Judge Alsup declared the case exceptional since Straight Path's infringement claims contradicted a position it had advocated at the Federal Circuit in appealing a Patent Trial and Appeal Board decision.

The fee dispute between the parties has been a lively one, sparking fireworks in the courtroom during a May 2020 hearing when Judge Alsup scolded Apple and Cisco for initially requesting $10 million in fees after beating the suit.  The judge said the tech giants "played games," used "abusive" tactics and were motivated by "greed, G-R-E-E-D."  He required them to resubmit their fee bids and appointed a special master to determine a reasonable amount of fees and costs.  In May of last year, the court awarded Cisco $1.9 million — half of its initial request — while Apple netted $2.3 million of its initial $3.9 million ask.

Straight Path argued that as a result, Federal Circuit precedent required it to reverse Judge Alsup's finding of exceptionality, which is required for a prevailing party in a patent dispute to get fees.  Desmarais LLP attorney Justin P.D. Wilcox, an attorney for Cisco, told Law360 that his team was "pleased with the Federal Circuit's ruling and that the Federal Circuit affirmed Judge Alsup, who down at the district court had ruled that Cisco was entitled to attorneys' fees for the exceptional case that Straight Path had brought."