A lawsuit that goes to the bitter end will result in a winner and a loser. And with the win in hand, the winner then thinks it’s entitled to fees and costs as reimbursement. The typical situation in American court litigation is that everyone pays his or her own legal fees. This default standard is called the “American Rule” because in many other countries, there is a “loser-pays” system. Under the American system, though, fee-shifting is permissible under various statutes and rules. Patent litigation is no different. Because patent litigation is expensive, the reimbursement of the attorney fees can be substantial.
Attorney Fees in Patent Litigation
Fee shifting is available in patent litigation under 35 U.S.C. §285, which states: “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” And that’s all it says. The statute doesn’t describe who is a prevailing party. This may matter when a complex case has multiple issues where different parties have won specific portions of the case. The statute sets out the standard of when a court may award attorney fees – in “exceptional cases” – but it does not explain the circumstances or factors to consider when a case is “exceptional.” The Courts, therefore, have stepped in to fill that gap.
First, attorney fee requests are not an independent cause of action, but are collateral to the main patent litigation. Even if the court dismisses the underlying patent litigation on jurisdictional grounds, the court retains jurisdiction to entertain a fee petition.
Who is a Prevailing Party?
As mentioned above, the statute is silent as to who is a prevailing party. The easiest to consider is when a named plaintiff party wins on each issue. Here the plaintiff sued to correct some wrong committed and won. A stickier issue is when the defendant wins thereby showing that no wrong was committed and perhaps the lawsuit was not appropriate in the first place. The Supreme Court stated (in a non-patent law context) that the “touchstone of the prevailing party inquiry must be the material alteration of the legal relationship of the parties.” CRST Van Expedited, Inc. v. E.E.O.C., 578 U.S. 419, 422 (2016). Accordingly, a winning defendant that obtains a court order (say of non-infringement and/or patent invalidity) can be a prevailing party too. But a favorable judgment on the merits is not required for a defendant to be a prevailing party under §285. Raniere v. Microsoft, 887 F.3d 1298, 1303 (Fed. Cir. 2018).
Sometimes the prevailing party is an initial non-party, such as an intervenor or other entity. Sticky becomes stickier here. Section 285 does not limit fees to only the original named parties. Nor does it distinguish between the plaintiffs, defendants, or other third parties. A third party can be the winner of fees or a payor of fees. For example, in Iris Connex v. Dell, the payor of the fees were the owners of the various corporate shells that asserted the patent. 235 F. Supp.3d 826 (ED Tx 2017). In Iris Connex, the plaintiff was one of many shell companies that had just the patent as the sole asset and the business model apparently was designed to enforce the patent. Dell, a defendant, did not settle right away and prosecuted a defense. After winning on the merits, Dell filed the petition for attorney fees against the named plaintiff, but also the shell company owners. Dell won and the individuals had to pay fees.
What is an Exceptional Case?
Initially, the Courts took a holistic approach using a totality of the circumstances rubric. In 2005, the Federal Circuit in Brooks Furniture v. Dutailier abandoned the holistic approach by applying §285 fee awards only “when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates [Rule 11] or like infractions.” 393 F.3d 1378, 1381 (Fed. Cir. 2005). The Federal Circuit adopted essentially a two-part test that imposed fees when: (1) the litigation is brought in subjective bad faith; and (2) the litigation is objectively baseless. In 2011, the Federal Circuit clarified that the litigation is objectively baseless (part 2 of the test) only if it is so unreasonable that no reasonable litigant could believe it could succeed and that litigation is in subjective bad faith (part 1 of the test) only if the plaintiff actually knows that is objectively baseless. iLOR LLC v. Google, Inc., 631 F.3d 1372, 1378 (Fed. Cir. 2011); see also Kilopass Tech v. Sidesense, 738 F.3d 1302 (Fed. Cir. 2013)(stating that actual knowledge under the iLOR v. Google case did not mean actual knowledge of the baselessness was required).
In Octane Fitness v. ICON Health, the Supreme Court rejected the Federal Circuit’s narrowing and re-cast the test for “exceptional” cases as 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.” 572 U.S. 545, 554 (2014). The Supreme Court also stated that the moving party has to prove an exceptional case by a preponderance of the evidence standard (and not the clear and convincing standard) and must consider the totality of the circumstances. Moreover, the Court clarified that the underlying conduct need not be independently sanctionable. The Octane Court also stated that a nonexclusive list of factors, to consider 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.” Octane Fitness, 134 S.Ct. at 1756, note 6.
There is a tendency when confronted by a multi-factor test for a party to exalt one factor over the others. For example, the absence of litigation misconduct can be a factor to mitigate a fee award, but the absence of such conduct is not dispositive. Recently in Energy Heating v. Heat On The Fly, the Federal Circuit stated that while the absence of litigation misconduct is not separately of mandatory weight, a finding of such misconduct is not necessary to find a fee-shift award. Federal Circuit 20-2038 (14 Oct. 2021). Further, while inequitable conduct in procuring the patent may be relevant, and may indeed be highly relevant to consider for exceptional case standing, even proving inequitable conduct may not warrant a fee award.
In sum, there are many factors to consider in the totality of the circumstances test. The Supreme Court rebuked the Federal Circuit’s wooden application and rigid tests and as such, practical considerations exist in moving for a fee award.
Even if a movant proves that the case is an exceptional case, that does not mean that a fee award is automatic. Such a rule would yet again be a rigid or wooden application of a fee award, likely contravening Octane’s holistic approach. To be sure, the Federal Circuit stated post-Octane that the district court retains discretion to deny a fee award even though a case is an exceptional case. Icon Health & Fitness, Inc. v. Octane Fitness, LLC, 576 Fed.Appx. 1002, 1005 (Fed. Cir. 2014). It is important for a litigant to remember if it seeks an attorney fee award, it should offer as many factors as possible to warrant the award. Careful litigants will think about a future fee petition early in the litigation. There is nothing inherently wrong with a party adding to the record with evidence early in litigation that later can support the fee petition. Though a fee winning party may rejoice in the district court’s award of fees, that party should ensure that the district court’s ruling is sufficiently detailed to withstand appellate scrutiny.
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