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Category: USPTO

Former Client Fights Law Firm’s $1.9M Attorney Fee Lien

May 3, 2022

A recent Law 360 story by Matthew Santoni, “Ex-Client Fights Buchanan Ingersoll’s $1.9M Fee Lien” reports that a former client of Buchanan Ingersoll & Rooney PC has said the firm isn't entitled to $1.9 million from a settlement in a patent dispute, but it offered to put a smaller amount aside while the parties litigate whether the firm overcharged for its work.  Best Medical International Inc. opposed Buchanan Ingersoll's motion for an attorney's lien on its settlement with Varian Medical Systems Inc., arguing in a brief to a Pennsylvania federal court that its former firm wasn't as instrumental as it claimed in securing the settlement and couldn't seek fees for the work while the reasonableness of those fees was at the heart of the current lawsuit.

"BIR has produced no evidence whatsoever that any settlement discussions began because of the quality of or the quantity of BIR's work," Best's reply brief said.  "Settlement discussions which resulted in an actual settlement did not result until after a substantial amount of additional work was done by other law firms once BIR withdrew from, or were substituted as to, representation of BMI in the Varian case."  Best urged the federal court to deny Buchanan Ingersoll's motion to enforce the $1.9 million lien and offered to put $700,000 in escrow with the court "as a good faith gesture, and without admitting liability in any amount."

Best had sued Buchanan Ingersoll in July 2020, alleging the Pittsburgh-based firm had overcharged for representing the medical device maker in a pair of patent disputes, including the fight with Varian.  Best broke off its relationship with Buchanan Ingersoll in March 2020.  Best and Varian announced a settlement in Delaware federal court April 18, and Buchanan Ingersoll filed a motion with the Pennsylvania court to enforce a lien on the settlement proceeds April 26, expressing concern that its former client would spend or otherwise dispose of the funds before the firm could claim its share.

Although the law firm claimed its engagement contract with Best included a clause saying it would be governed by Virginia law, Best argued that the Federal Rules of Civil Procedure regarding liens superseded the choice of law provision and that the law of the state where the lien was brought should apply.  And under Pennsylvania law, Best claimed that Buchanan Ingersoll had failed to make the necessary showing that its work contributed substantially to the settlement it sought the lien against.

Buchanan Ingersoll said it did most of the work on the Varian case in Delaware and on six "inter partes review" challenges that Varian had filed with the U.S. Patent and Trademark Office.  But Best countered that more was done by the successor law firms, including a "substantial amount of discovery, the taking and defending of depositions, significant briefing and oral argument before the USPTO … and appeals of the IPR final decisions to and currently pending in the U.S. Court of Appeals for the Federal Circuit."

"It is this substantial work by others, not BIR, that ultimately led to the Varian case settlement more than two years after BIR's representation was terminated," Best's reply said.  Even if the court agreed with Buchanan Ingersoll that Virginia law applied, the firm had not given all parties to the settlement — including Varian — that state's required notice that a lien might be applied to the settlement proceeds, Best said.

Moreover, Best said that Virginia law required Buchanan Ingersoll to show that the fees it sought to recover were reasonable, and the current lawsuit contended that they were not.  Best cited the Virginia Supreme Court's 1997 ruling in Seyfarth Shaw Fairweather & Geraldson v. Lake Fairfax Seven Limited Partnership to support its argument.

"Similar to issues in the instant case, the issues in Seyfarth involved the law firm expending an unreasonable amount of time in the performance of legal services and, therefore, the total amount of legal fees charged was unreasonable," Best's reply said.  "Any fees recoverable must be reasonable and … the party claiming legal fees has the burden of proving prima facie that the fees are reasonable and necessary.  Clearly, BIR has not met its burden of proof, nor has there been any adjudication, that the fees in dispute allegedly owed BIR were reasonable and necessary."

SCOTUS Asked to Review $5M Patent Attorney Fee Award

January 18, 2022

A recent Law 360 story by Tiffany Hu, “High Court Asked to Review $5M Atty Fees in Fracking IP Suit,” reports that the U.S. Supreme Court has been asked to look into whether the Federal Circuit created "uncertainty and confusion" when it affirmed that a patent dispute over fracking technology was exceptional and warranted granting $5 million in attorney fees.  In a Jan. 12 certiorari petition, Heat On-The-Fly LLC said that the Federal Circuit erred in affirming a North Dakota federal judge's decision that its lawsuit against Energy Heating LLC and other companies was the kind of "exceptional" case that merited attorney fees.

Heat On-The-Fly had argued that the district court failed to take into account the "manner" in which the company litigated the case — including that it did not engage in litigation misconduct — but the Federal Circuit said in October that the lower court "properly considered the totality of the circumstances."  In doing so, Heat On-The-Fly said that the appeals court "ignore[d] the distinction between 'the substantive strength of a party's litigating position' and 'the unreasonable manner in which the case was litigated," citing the high court's 2014 Octane Fitness ruling.

The "decision in this case creates uncertainty and confusion regarding the factors that district courts must address and consider in order to properly exercise their discretion and consider the 'totality of the circumstances' when determining exceptionality," the petition states.

After a bench trial in 2016, U.S. District Judge Ralph R. Erickson found that Heat On-The-Fly's patent was unenforceable because the company and inventor Ransom Mark Hefley knowingly did not tell the U.S. Patent and Trademark Office when they filed a patent application for the concept in September 2009 that the invention had been in use as early as October 2006.  The district judge later rejected Energy Heating's motion for attorney fees, but the Federal Circuit in 2018 said the judge erred in refusing the request because he did not explain his decision, though it affirmed that the patent was unenforceable due to inequitable conduct.

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.

Client Says It Doesn’t Owe Attorney Fees in Patent Action

May 9, 2021

A recent Law 360 story by Diana Novak Jones, “UCANN Says It Doesn’t Owe Atty Fees After Patent Suit,” reports that United Cannabis Corp. is fighting CBD company Pure Hemp Collective's bid for $300,000 in attorney fees after United Cannabis dropped a patent infringement suit against the company, arguing it has no liability because Pure Hemp willingly dropped its claims as well.  United Cannabis, or UCANN, was suing Pure Hemp for infringement on a patent covering a liquid formula for a tincture containing 95% CBD when it entered bankruptcy, but dropped the suit after its Chapter 11 petition was dismissed earlier this year.  Pure Hemp dismissed its counterclaims at the same time, according to court records.

But in April, Pure Hemp asked the judge in the patent suit to award it about $300,000 in attorney fees, arguing in part that UCANN got its patent by misleading the U.S. Patent and Trademark Office, according to court filings.  UCANN pushed back, arguing there's no evidence it misled anyone and Pure Hemp has already dismissed the claims it's trying to use to get the fees.  "Pure Hemp's motion raises several disputed issues of fact as to materiality, knowledge, and intent," UCANN told the court.  "By dismissing its inequitable conduct counterclaims, Pure Hemp waived its right to have these factual disputes adjudicated."

The dispute between UCANN and Pure Hemp, which began in 2018, was closely watched in the cannabis industry as it presented one of the earliest opportunities to see how a federal court handled cannabis patent claims.  UCANN accused Pure Hemp of infringing its patent on the liquid cannabinoids, while Pure Hemp brought counterclaims accusing UCANN of suing to enforce a patent it knew was invalid.  In 2019, UCANN scored a major win when U.S. District Judge William Martinez denied Pure Hemp's motion for summary judgment, holding that liquid cannabinoid formulations were UCANN's creation and did not occur in nature.

In March of last year, the parties agreed to reduce the suit to questions of the patent's validity and enforceability, with Pure Hemp agreeing to pay $4,420 in royalties if UCANN prevailed.  But the next month, UCANN filed its Chapter 11 petition, halting the patent litigation.  The U.S. Trustee and the bankruptcy judge had questions about whether UCANN belonged in bankruptcy court given its connections to cannabis, and ultimately the company's petition was dismissed.  Not long after the dismissal, which UCANN didn't appeal, it told the judge overseeing its suit against Pure Hemp that the parties were dropping their respective claims.

But two weeks later, Pure Hemp filed its motion for fees, court records show. The motion remained sealed, but Pure Hemp's counsel James Gourley of Carstens & Cahoon LLP told Law360 his client alleges that UCANN misled the patent office by copying and pasting text from another product in the paperwork for the patent UCANN was suing over.

PTAB: Inability to Pay Fees No Reason to Deny IPR

September 20, 2020

A recent Law 360 story by Britain Eakin, “PTAB Says Inability To Pay Legal Fees No Reason To Deny IPR,” reports that the Patent Trial and Appeal Board has agreed to review Dareltech LLC's "selfie stick" patent, rejecting the company's argument that since it can't afford to pay for counsel, Microsoft's inter partes review challenge should be denied.  The decision instituting IPR, the board said Dareltech's inability to pay to defend its patent doesn't qualify as a reason for the board to exercise its discretion to deny review, as the company had argued.

"Patent owner's current financial circumstances are not sufficient reason to preclude petitioner from pursuing its statutory rights to challenge the patentability of the claims," the decision said.  Dareltech had asserted that its lead counsel doesn't participate in post-grant matters, and that its backup counsel had been representing the company in other matters pro bono, but is unable to devote the time and resources to this IPR.

Additionally, Dareltech argued that it incurred expenses to prosecute the patent family, develop and commercialize the claimed invention without significant revenue and defend related IPRs, and so the board should deny review.  But the board was unmoved.  The PTAB also shot down Dareltech's argument that the board should deny the petition because it has no district court dispute with Microsoft, which it contends is acting as a proxy for Chinese technology company Xiaomi.