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Category: Practice Area: IP Litigation

Eleventh Circuit: No Fees After Voluntary Dismissal in Copyright Case

March 8, 2024

A recent Law 360 story by Carolina Bolado, “11th Circ. Says Broker Can’t Collect Fees in Copyright Case”, reports that the Eleventh Circuit has ruled that a Florida real estate broker cannot collect attorney fees incurred for defending himself from a copyright infringement suit by an aerial photography company because the broker was not a prevailing party once the photography company voluntarily dismissed the case.

In an opinion issued Feb. 28, the appeals court affirmed a district court decision denying a request by real estate broker John Abdelsayed and his company Trends Realty USA Corp. for an award of their attorney fees and costs from Affordable Aerial Photography Inc.  That company had sued over the use of a copyrighted photograph on Trends Realty's website.

Abdelsayed and Trends Realty argued that they are entitled to fees under Federal Rule of Civil Procedure 68, which mandates a fee award if an offer to settle is not accepted and ends up being more favorable than the judgment obtained, and under the Copyright Act's cost-shifting provision.

But the Eleventh Circuit said they are not entitled to fees under Rule 68 because it only applies when a plaintiff has obtained a judgment for an amount less favorable than the defendant's settlement offer.  It does not apply in cases where the defendant wins a judgment, the appeals court said.  And because Abdelsayed and Trends Realty did not obtain a judgment, they are not prevailing parties in the suit and are therefore not eligible for a fee award under the Copyright Act, according to the Eleventh Circuit.

"The order of dismissal does not prevent AAP from refiling its claims," the appeals court said.  "And even assuming future action by AAP may be unlikely or now barred by the statute of limitations, those facts are irrelevant because the court did not rebuff or reject AAP's claims on any grounds."

Abdelsayed, who operates in the Palm Beach County market, was sued in August 2021 in the Southern District of Florida by Affordable Aerial Photography for using a copyrighted photograph on Trends Realty's site.  AAP moved to voluntarily dismiss the suit without prejudice a year later.

After briefing and a hearing, the district court granted the motion and dismissed the case without prejudice. The court ruled that if AAP were to refile its case, it would have to pay the defendants' reasonable attorney fees incurred in defending this case.  Two months later, Abdelsayed and Trends Realty asked the court to reconsider that order, claiming they were entitled to immediate recovery of their fees under Rule 68 and the Copyright Act. But the court denied the request.

On appeal, the defendants argued to the Eleventh Circuit that allowing this would create an incentive for a plaintiff to drop a case just before an expected adverse ruling, but the appeals court pointed out that the plaintiff can't do this unilaterally and that a dismissal must be approved by the court.  In this case, the district court held a hearing and found that the defendants would not suffer legal prejudice because their counsel was pro bono or on a contingency agreement, according to the appeals court.

SCOTUS Passes on Attorney Fee Awards in Copyright Cases

March 5, 2024

A recent Law 360 story by Ivan Moreno, “Justices Pass On Hasbro’s Atty Fee Fight in Copyright Win”, reports that the U.S. Supreme Court denied Hasbro Inc.'s appeal to review the First Circuit's refusal to award its lawyers nearly $2 million in attorney fees for prevailing in a copyright suit over the Game of Life. 

The toy-making company had argued in its November certiorari petition to the high court that the First Circuit uses a highly restrictive test to determine whether prevailing parties in copyright disputes are entitled to costs and attorney fees.  The First Circuit holds that fees are available "only if the plaintiff's position was 'objectively quite weak,'" Hasbro said in its petition.  That standard differs from other circuits, Hasbro said.

In refusing to award $1.9 million in attorney fees, a three-judge panel of the First Circuit concluded last year that the copyright claims brought against Hasbro and heirs of game developer Reuben Klamer were not objectively "unreasonable" and thus ineligible for the requested fees.

Lorraine Markham, widow of game developer Bill Markham, and her husband's company, Markham Concepts Inc., had sued Hasbro and Klamer's heirs for royalties for the iconic 1960s board game and control of its intellectual property.  Lorraine Markham and Markham Concepts filed their lawsuit against Hasbro and the Klamer heirs in October 2015, claiming Bill Markham invented the Game of Life and reached a deal with Link Research Corp. to market it to Milton Bradley, which later merged with Hasbro.

A federal judge in 2019 found too many people could claim inventorship of the game.  Bill Markham and his employees created the physical prototype of the game, but Klamer funded the project, according to court documents. Funding the project entitled Klamer to the game's copyright and designated him under the act's "work-for-hire" exception as the only person who could terminate the game's copyright.

Hasbro argued in its petition that Section 505 of the Copyright Act says courts "may" award fees to prevailing parties.  The Supreme Court has twice offered guidance on applying that standard, Hasbro said, but argued that "the circuits remain hopelessly divided."

"Two circuits unequivocally hold that courts should hew toward awarding fees.  Two circuits hold that courts should not lean one way or the other," Hasbro said.  "And one circuit, the circuit in which petitioners won on the merits, cautions district courts against awarding fees — applying the very rule this court has previously rejected.

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."

Yuga Labs to Receive $7M in Attorney Fees and Costs

January 29, 2024

A recent Law 360 story by Aislinn Keely, “Bored Ape NFT Copycats Owe Yuga Labs $7M in Atty Fees", reports that the artists accused of ripping off the Bored Ape Yacht Club non-fungible token collection have been ordered to pay creator Yuga Labs more than $7 million in attorney fees and costs, despite their concerns that Yuga's counsel at Fenwick & West LLP overbilled in the case.

In an order, U.S. District Judge John F. Walter awarded Yuga Labs just shy of $7 million in fees and an additional $300,000 for the costs associated with three experts deposed during the case, adopting the recommendation from Special Master Margaret M. Morrow.  The figure eclipses the $1.6 million in damages awarded to Yuga Labs when artists Ryder Ripps and Jeremy Cahen were found to have infringed Yuga Labs' flagship NFT collection.

Ripps and Cahen agreed to the fees to wrap up the case, but noted they may raise qualms about the fees on appeal.  "The parties seek to avoid further litigation concerning the amount of Yuga Labs' fee award, and defendants seek to preserve their objections to the amount of the fee award ... for purposes of appeal," the order says.

In a November joint statement to Morrow, Yuga Labs reported that its attorney fees were more than $12.6 million, and additional $500,000 in costs and expert witness fees, but said it would only seek $7.5 million in fees and roughly $300,000 in costs.  It doubled back to the $12 million figure when it couldn't find common ground with Ripps and Cahen, who said a reasonable total award would be $455,000.  In their objection, Ripps and Cahen argued that Yuga Labs' counsel at Fenwick maintains billing practices that "artificially increased hours, resulting in unreasonable fees."

They argued that the more than 14,000 hours billed over the two-year dispute is more than 20 times greater than comparable cases in the district, and that Fenwick used practices including duplicative time entries, where more than one attorney billed for efforts on the same task, and block billing, which bills multiple tasks in one billing entry.

The duo also argued that the hourly rates of $1,290 for a partner, $1,135 for a counsel, $1,030 for a fifth-year associate, $780 for a first-year associate and $515 for a paralegal are much higher compared to those charged by other attorneys in the Central District of California.

But Morrow found the Central District of California has approved rates in the general range of those billed by Fenwick, and while the firm's figures are high, they fell within the top end of the report referenced by Ripps and Cahen.  She did, however, recommend that the court adjust the paralegal rates down to $450 for 2022 and $500 for 2023.

While she didn't take issue with the block billing practices of the Fenwick attorneys, she did note that many of the descriptions in the time records related to duplicative billing were "so vague that it is difficult to discern what tasks were being performed or how they advanced the case," recommending a 45% reduction of fees from $12.6 million to the $6.9 million the court ultimately adopted.

In their December objection, Ripps and Cahen also claimed Yuga Labs racked up billable hours by litigating the case "in an unreasonable way," including unproductive settlement discussions, increasing its damages demand ahead of trial and a "frivolous" motion for sanctions.

"Yuga, a four-billion dollar company fueled by its animosity towards Mr. Ripps and Mr. Cahen, retained a huge litigation team at an expensive firm to wage a yearlong scorched earth litigation campaign against them," they said in the objection.  On the flip side, Yuga Labs argued the pair's own litigation strategy needlessly complicated and dragged out the case by repeatedly attempting to relitigate issues the court rejected.

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.