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Category: Practice Area: IP Litigation

Article: Absent Explicit Statutory Language? The American Rule Still Applies

September 6, 2021

A recent article by Jiaxiao Zhang, “Absent Explicit Statutory Language? The American Rule Still Applies,” reports on attorney fee entitlement in patent litigation.  This article was posted with permission.  The article reads:

The U.S. Court of Appeals for the Federal Circuit vacated a district court’s award of attorney’s fees under the prevailing party rule but affirmed the district court’s denial of the U.S. Patent & Trademark Office’s (PTO) request for expert witness fees under 35 U.S.C. § 145. Hyatt v. Hirshfeld, Case Nos. 20-2321;–2325 (Fed. Cir. Aug. 18, 2021) (Hughes, J.).  The case involved prolific inventor Gilbert Hyatt and the latest chapter in his battles with the PTO.

Mr. Hyatt is known for his prolific patent and litigation filings (including hundreds of extraordinarily lengthy and complex patent applications in 1995 alone) and for often “’adopt[ing] an approach to prosecution that all but guaranteed indefinite prosecution delay’ in an effort to submarine his patent applications and receive lengthy patent terms.”  After the PTO denied some of his patent applications, Mr. Hyatt elected to pursue a district court appeal under 35 U.S.C. § 145 to challenge the PTO’s decisions.  The district court ordered the PTO to issue some of the patents and awarded Mr. Hyatt attorney’s fees as the prevailing party.  The PTO spent millions of dollars examining Mr. Hyatt’s applications and sought, under §145, reimbursement of its expert witness fees from the case.  The district court denied the PTO’s request for expert witness fees, holding that its shifting of “[a]ll the expenses of the proceedings” to the applicant does not overcome the American Rule presumption against shifting expert fees. The PTO appealed.

The PTO challenged both the award of attorney’s fees and the denial of expert fees.  In an earlier appeal by the PTO, the Federal Circuit held that the PTO correctly asserted prosecution laches as a defense against Mr. Hyatt, which “render[s] a patent unenforceable when it has issued only after an unreasonable and unexplained delay in prosecution that constitutes an egregious misuse of the statutory patent system under a totality of the circumstances.”  Accordingly, the Court vacated the district court’s decision ordering the issuance of patents, and in this appeal, the Court vacated the district court’s holding that Mr. Hyatt is entitled to attorney’s fees—since he is no longer the prevailing party—and remanded for further proceedings.

According to the statute, in an action under § 145, “[a]ll the expenses of the proceedings shall be paid by the applicant.”  However, the Federal Circuit agreed with the district court that the statutory language was not sufficiently explicit to overcome the presumption against fee-shifting under the American Rule and that litigants pay their own fees “unless a statute or contract provides otherwise.”  In doing so, the Court looked at statutory phrasing, dictionary definitions (e.g., Black’s and Webster’s), legislative history, relevant case law and similarly phrased statutes to confirm whether expert fees were specifically and explicitly contemplated as being included by US Congress in the statute.  The Supreme Court of the United States’ 2019 NantKwest decision (that “expenses” under §145 does not invoke attorney’s fees with enough clarity to overcome the American Rule) guided the Court’s analysis as did the many statutes that explicitly list “costs and fees” separately, suggesting that the legislature could have explicitly referenced fees should they have intended.  Having found this high bar to overcome the American Rule not met, the Court affirmed the district court’s denial of expert fees.

Jiaxiao Zhang is an associate at McDermott Will & Emery in Orange County, CA.

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.

Insurer Overpaid Policyholder’s Attorney Fees, Judge Finds

August 25, 2021

A recent Law 360 story by Daphne Zhang, “Insurer Overpaid For Policyholder’s Legal Bills, Judge Finds,” reports that a New York federal judge said that an insurer's decision to stop paying a GoPro accessory maker's attorney fees was reasonable, finding the policyholder's defense counsel billed administrative work at partner rates and logged excessive working hours.  U.S. District Judge Mae D'Agostino denied 360Heros Inc.'s motion for summary judgment against Main Street America Assurance Co., saying the carrier's payment of more than $2 million in attorney fees fully satisfied its defense obligations.

The judge sided with Main Street in finding that 360Hero's defense counsel, Gauntlett & Associates, repeatedly charged "unreasonable and excessive" legal fees in an underlying patent infringement suit with GoPro.  The camera company sued 360Heros alleging the harness maker used its copyrighted pictures and infringed two of its trademarks.  The suit was settled in May 2018. 360Heros sued Main Street in 2017 after the insurer stopped paying for its defense costs.

"Based on Gauntlett's repeated practice of billing excessive, redundant or otherwise unnecessary hours the court finds that a 15% reduction in Gauntlett's fees is warranted," the judge said.  According to the order, a Main Street attorney found in 2017 that the insurer overpaid for defense costs after retroactively reviewing the payment history.  Main Street subsequently stopped paying the policyholder's legal bills, which 360Hero claimed violated its insurance policy.  "The amount of unpaid fees is significantly less than the amount that the court finds were reasonably expended," Judge D'Agostino found, saying that Main Street was fully entitled not to pay because the defense counsel overcharged on legal bills.

Some of Gauntlett's invoices were billed without any tasks designated to a paralegal, the judge pointed out, and the firm repeatedly charged administrative work at partner rates. Gauntlett also charged full rates for travel, which should have been billed at half of their hourly rates, Judge D'Agostino said.  "For travel to a one-day out-of-town settlement conference, [one Gauntlett attorney] billed for $418.48 in meals," she said.

Second Circuit Urged to Undo Attorney Fee Denial in IP Action

August 16, 2021

A recent Law 360 story by Tiffany Hu, “2nd Circ. Urged to Undo Fee Denial in Instagram Picture Fight”, reports that the Second Circuit was urged to overturn a New York federal judge's refusal to award attorney fees to a sports publication that beat a copyright infringement lawsuit over an Instagram image of former professional tennis player Caroline Wozniacki.  In a 23-page brief, United Sports Publications Ltd. said that U.S. District Judge Allyne R. Ross applied the wrong standard for determining whether photographer Michael Barrett Boesen's litigation claim was objectively reasonable and warranted attorney fees. 

Boesen had accused United of infringing his copyrighted image when it embedded an Instagram post from Wozniacki that featured the photo, but the judge in November found that the news site was protected by copyright law's fair use doctrine, though she declined to grant United's request for fees.  Under the U.S. Supreme Court's Kirtsaeng v. Wiley ruling on when courts should grant attorney fees in copyright cases, Judge Ross should have analyzed whether Boesen's claim was unreasonable "in light of an obvious instance of fair use," United Sports said.

Instead, the judge improperly focused on the reasonableness of the underlying merits of the infringement, when those claims were "never briefed and were not before the court" on United's motion to dismiss.  In doing so, the judge conflated the arguments made in Kirtsaeng, it said.  "[W]hile it is possible that the factual circumstances of the underlying case may be unique in light of the ever-changing nature of social media and proliferation of embedding, the legal arguments presented to the court by the parties were focused on the issue of fair use, and the court's inquiry of the relative reasonableness of Boesen's litigation position ought to have ended there," United wrote in its brief.

Moish Pelz of Falcon Rappaport & Berkman PLLC told Law360 in an email that he and his client "believe that the legal and factual circumstances of this case are exactly the type that the Supreme Court has commanded deserve an award of [attorney] fees."  "If the Second Circuit were to affirm a denial of fees in this instance it is difficult to imagine a case where a successful defense of a copyright troll case on the pleadings would be awarded fees," Pelz said.  "District courts simply need to award attorney's fee awards in circumstances like these so successful copyright troll defendants are able to fight fire with fire."

Judge Alsup Accepts Fee Recommendation from Former Alsup Clerk

July 27, 2021

A recent Law 360 story by Dave Simpson, “Alsup OKs $5.9M From Finjan, Slams Kramer Levin Attys,” reports that Finjan Inc. must foot a $5.9 million portion of Juniper Networks' legal bill but doesn't deserve sanctions, U.S. District Judge William Alsup ruled, while noting that "in no way" does his order vindicate three Kramer Levin Naftalis & Frankel LLP partners who represented Finjan in the patent infringement suit.  Judge Alsup adopted in its entirety the May recommendation from special master Matthew Borden of Braunhagey & Borden LLP, rejecting Finjan's bid to nix the fees and Juniper's bid to score sanctions against the patent-licensing company.  Borden had recommended that Finjan pay the networking infrastructure provider nearly $6 million in reasonable fees for work done that culminated in winning two summary judgment motions, defeating a summary judgment motion and prevailing in a five-day jury trial.

In addition to agreeing with Borden's recommendation, Judge Alsup singled out for criticism three Kramer Levin partners who'd previously represented Finjan in the case.  "In no way does this order vindicate attorneys James R. Hannah, Lisa Kobialka, and Paul J. Andre," the judge wrote.  "Their conduct was improper and frustrated the fairness of the proceedings.  Judges in the future should take this into account when dealing with them in future cases."

Juniper had argued that Finjan deserved sanctions for, among other things, flip-flopping on its patent infringement theory in an attempt to artificially boost damages, presenting its facts-only damages theory to the jury after its damages expert was excluded, and misrepresenting a previous court decision to the court.  "Finjan's misrepresentation of a district court decision was 'reckless' but, even if a finding of recklessness alone satisfies the ... standard, this order finds that act, by itself, would not warrant sanctions," Judge Alsup said.

Special fee master Borden's May report came after Judge Alsup in January ordered Finjan to pay a portion of Juniper's legal fees.  He said Finjan "flip-flopped" on the eve of trial when it sought to put forth a new infringement theory for one of its malware-detection patents after realizing its original one only covered a small part of Juniper's revenue.  "Finjan tried to sneak this theory in with its expert-damages report, but we caught it, and the Daubert order excluded that trick," Judge Alsup said in January.

Finjan, which sued Juniper in 2017 alleging it infringed nine patents covering technologies for storing and downloading security data, tried to claim $142 million in damages after Juniper provided evidence in discovery that, at most, it would owe less than $1.8 million if a jury found its products infringed the remaining patent in the case.  After the Federal Circuit affirmed Juniper's jury win on the only patent claim that had survived to trial, the company asked Judge Alsup to grant it attorney fees for fighting the nine patent claims.

At a hearing on Juniper's bid for attorney fees in January, Finjan pointed to its expert testimony, but Judge Alsup lamented the "standard patent BS by bought-and-paid-for experts." Finjan pushed back, saying it had a good-faith belief it wasn't altering its damages theory.  Judge Alsup appointed Borden, his former law clerk, to sort out the fee dispute and instructed Juniper to resubmit billing records distinguishing between time spent by its attorneys on the patents and time spent on other facets of the litigation.