In Nantkwest, Inc. v. Iancu, [2016-1794] (July 27, 2018), the en banc Federal Circuit affirmed the district court decision that an award of “all expenses” pursuant to 35 U.S.C. §145 did not include the USPTO’s attorneys’ fees in its unsuccessful defense of the rejection of Nantkwest’s application.

35 USC §145 permits a disappointed patent applicant to challenge
the PTAB’s decision in district court. However, applicants who invoke §145 are required by statute to pay “[a]ll the expenses of the proceedings” incurred by the U.S. Patent and Trademark Office in defending the Board’s decision, regardless of the outcome. Historically, the PTO sought recovery of travel and printing expenses, and more recently  expert witnesses fees.  Most recently, the PTO has interpreted §145 as including its attorneys’ fees.

Calling the American Rule a “bedrock principle” of this country’s jurisprudence, the majority of the Federal Circuit held that the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a “specific and explicit” directive from Congress. Contrary to the panel decision that sided with the PTO, the Federal Circuit affirmed the district court judgement denying the PTO’s request for attorneys fees.

In Stone Basket Innovations, LLC v. Cook Medical LLC, [2017-2330] (June 11, 2018), the Federal Circuit affirmed the denial of attorneys fees to defendant under 35 U.S.C. § 285 after plaintiff dismissed its complaint for infringement of U.S. Patent No. 6,551,327 on a basket-type stone extraction medical device used to remove stones from biological systems, when defendant instituted in inter partes review.

This appeal involved two main issues: whether the District Court erred in its assessment of: (1) the substantive strength of Stone’s litigating position, and (2) the alleged pattern of vexatious litigation by Stone.  On the first issue, the Federal Circuit held that the District Court did not abuse its discretion in finding that the substantive strength of Stone’s ultimately non-prevailing litigating position did not warrant an award of fees. The Federal Circuit held that the patent owner was not put on clear notice of the invalidity of its patent by defendants invalidity contentions listing 32 prior art references with general statements of invalidity, and “inconsistent and unilluminating” claim charts.  The Federal Circuit further noted that the invalidating prior art used in the inter partes review was listed on the face of the patent, creating a presumption of good faith in asserting its patent rights against Cook.  The Federal Circuit likewise found the statements of the inventor to be taken out of context, and in any even irrelevant because a post-issuance statement regarding a single element of a claimed invention does not establish invalidity.  Lastly, the Federal Circuit noted the district court’s explanation that following the service of the invalidity contentions, Cook took no action to ensure a rapid termination of the instant litigation.  Cook complained that the prevailing party’s conduct is not a proper consideration, but the Federal Circuit said it was a proper part of the totality of the circumstances.

The Federal Circuit added that Cook’s failure to provide early, focused, and supported notice of its belief that it was being subjected to exceptional litigation behavior further supports the District Court’s determination that Stone’s litigating position did not “stand out” from others.

The Federal Circuit concluded that absent any evidence that Stone’s litigating position was frivolous when filed or at any point before it filed for dismissal, it was not persuaded the District Court abused its discretion in determining Stone’s case did not meet the standard for an award of attorney fees.  The Federal Circuit said a party cannot simply hide under a rock, quietly documenting all the ways it’s been wronged, so that it can march out its “parade of horribles” after all is said and done.”

In Raniere v. Microsoft Corp., [2017-1400, 2017-1401] (April 18, 2018), the Federal Circuit held that the district court did not err in finding that Microsoft and AT&T were the prevailing parties under 35 U.S.C. § 285  (2012), and did not abuse its discretion in awarding attorneys’ fees and costs.

Raniere sued for infringement of a total of five patents (U.S. Patent Nos. 6,373,936, 6,819,752, 7,215,752, 7,391,856, and 7,844,041), and Microsoft and AT&T challenged Raniere’s standing.  Rainiere and the other inventors assigned the underlying inventions to Global Technologies, Inc.  In May 1996, GTI was administratively dissolved.  In December 2014, Raniere executed a document on behalf of GTI, claiming to be its president and “sole owner,” that purportedly transferred the asserted patents from GTI to himself.

Microsoft challenged Raniere’s standing, and the district court ordered Raniere to produce documentation proving his representations. The district court found that the documents produced by Raniere failed to indicate that Raniere had an ownership interest in GTI at any time or that Raniere had the right to assign the patents at issue from GTI to himself.  Given Raniere’s failure to produce evidence to support his standing, the district court permitted Appellees to conduct limited discovery into the standing issue and stayed the cases pending its resolution.  The parties suspended discovery when they began negotiating terms of settlement, but Raniere refused
to finalize the settlement. AT&T then filed a motion for an order to show cause why the action should not be dismissed under Federal Rule of Civil Procedure 41(b) for
lack of standing.

The district court found that Raniere’s testimony surrounding the alleged transfer contradicted Raniere’s earlier representations and was “wholly incredible and untruthful. Moreover, the district court found that Raniere’s conduct demonstrated “a clear
history of delay and contumacious conduct.”  In a subsequent fees motion the district court award fees.  AT&T submitted evidence that it incurred $395,050.30 in attorney fees and $13,917.10 in costs, and Microsoft submitted evidence that it incurred
$176,166.40 in attorney fees and $2,073.68 in costs.  The district court found Appellees were not entitled to fees spent on certain matters after the district court issued its stay order. And, the district court reduced the lodestar for both Appellees by twenty percent due to duplication of efforts between Microsoft and AT&T attorneys. In view of these determinations, the district court awarded $300,295.71 to AT&T and $143,719.26 to Microsoft in attorney fees and costs.

The Federal Circuit agreed that the Appellees were the prevailing parties, and that the district court did not abuse its discretion finding the case exceptional and awarding fees. The Federal Circuit, noting that the district court was in a better position to determine whether a case is exceptional, had no reason to disturb the district court’s well-reasoned determination.  The Federal Circuit also concluded that the district court’s discretionary determination of fees and costs is well-supported and reflects the court’s careful consideration of the relevant billing rates, invoices, and records.

In Nantkwest, Inc. v. Matal, [2016-1794](August 31, 2017) the Federal Circuit sua sponte granted rehearing en banc of the panel decision discussed here on the issue of whether 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees?

Not part of this review is its most unfair aspect — that a successful applicant still must pay the USPTO’s “expenses” (whatever that means).

In Romag Fasteners, Inc. v. Fossil, Inc., [2016-1115, 2016-1116, 2016-1842] (August 9, 2017), the Federal Circuit vacated and remanded the district court’s award of attorneys fees to Romag under 35 U.S.C. § 285 but not under the identically worded 15 U.S.C. § 1117(a).

Romag has successfully sued defendants for infringement of U.S. Patent
No. 5,722,126 and U.S. Trademark Reg. No. 2,095,367.  Under the Patent Act and the Lanham Act, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285; 15 U.S.C. § 1117(a).

Applying the Octane standard, the district court found that Romag was entitled to attorney’s fees under § 285 of the Patent Act because Fossil did not “withdraw [anticipation and obviousness] defenses with prejudice until
after trial,” and because Fossil’s “patent invalidity defense of indefiniteness bordered on frivolous.”  With respect to the Lanham Act, the district court applied the prevailing Second Circuit precedent with respect to 15 U.S.C. § 1117(a) that “allows recovery of a reasonable attorney’s fee only on evidence of fraud or bad faith.”

Before Octane, the Second Circuit allowed recovery of attorney’s fees under 15 U.S.C. § 1117(a) only if there was bad faith or willful infringement on the part of the defendants.  However the Federal Circuit found that there is intervening relevant Supreme Court authority which, we think, would lead the Second Circuit to follow other circuits which have held that the Octane standard applies to the Lanham Act.

The Federal Circuit noted that since Octane was decided, the Third, Fourth, Fifth, Sixth, and Ninth Circuits have all held that Octane applies to Lanham Act Cases as well, and that no circuit has specifically considered Octane and then declined to apply it to the Lanham Act. Thus the Federal Circuit concluded that the Second Circuit would hold that, in light of Octane, the Lanham Act should have the same standard for recovering attorney’s fees as the Patent Act.  Thus, the Federal Circuit vacated the denial of attorneys fees, and remanded the case.

On the issue of attorneys fees on the patent infringement claim, the Federal Circuit likewise vacated the award.  The Federal Circuit noted that a district court must consider the totality of circumstances, including the conduct of the prevailing party that is seeking attorney’s fees.  The Federal Circuit found that the district court erred in declining to consider, in connection with its totality of circumstances analysis, Romag’s earlier litigation misconduct. Romag’s misconduct cannot be disregarded on the theory that failure to award fees is equivalent to double-sanctioning Romag.  In fact the Federal Circuit said that the fact that Romag’s misconduct has already been sanctioned should be weighed more heavily, rather than be excluded, in the 35 U.S.C. § 285 analysis.

This Federal Circuit remanded the case to the district court to consider the Lanham Act and the Patent Act attorney’s fees and the claimed expert fees under the correct standard, free of the errors it identified.

In AIA America, Inc. v. Avid Radiopharamaceuticals, [2016-2647] (August 10, 2017), the Federal Circuit affirmed the award of attorneys fees because (1) the Seventh Amendment right to a jury trial does not apply to
requests for attorney’s fees under § 285 of the Patent Act, (2) the district court did not err by making factual findings not foreclosed by the jury’s verdict on standing, and (3) AIA’s due process rights were not violated.

The Federal Circuit recounted an elaborate scheme perpetrated by plaintiff AIA and the purported sole inventor Mullan to appropriate for themselves inventions from Imperial College (Imperial) in London and the University of South Florida (USF).  The jury determined that USF did not knowingly and intentionally waive its ownership rights to the invention and that Hardy was a co-inventor. Based on the jury’s verdict, the district court found AIA lacked standing to assert the U.S. Patent Nos. 5,455,169 and 7,538,258, and entered judgment in favor of Avid.  Avid then sought attorneys fees for the case (in which in which twelve witnesses testified and over 200 exhibits were introduced) of $6,508,687.00, and was awarded of $3,943,317.70.

The most interesting aspect of the case is the Special Master’s Report which trimmed the attorneys fees ask from $6.5 to $3.9 million.  Highlights of which include:

• Reducing by more than half non-attorney time of more than 900 hours at an average rate of $227/hour for docketing and updating case files.
• Eliminating 300 hours of attorney time ($67,000) for collecting documents, which the Special Master found to be a clerical task.
• Cutting in half the $35,000 charged by the firms Case Manager/Training Coordinator for communications with the litigation team
• Cutting by 66% the $470,000 in attorney time for assisting with the preparation of documents.
• Cutting by 2/3 the $730,000 for preparing three witnesses for their trial testimony, in view of what the Special Master thought was “piling on”
• Cutting by 2/3 the $633,000 spent on a motion for summary judgement on which more than 12 attorneys billed time
• Cutting in half the $308,000 spent on motions in limine
• Cutting in half the $240,000 spent on preparing the pretrial memorandum and preparation for the pretrial hearing
• Cutting the 654 hours spent preparing the Exhibit List and Witness list by $100,000
• Cutting by 2/3 the $414,400.50 (846 hours) for preparing an expert witness who was not called at trial
• Cutting by half the $1,098,654.50 billed for attendance at trial, finding that it difficult to understand the contribution of eight lawyers to the trial.
• Cutting local counsels fees for merely attending the trial.

All in all, the Special Master reduced the fees requested by $2.9 million. This still resulted in the $3.9 million award affirmed by the Federal Circuit, proving once again that patent litigation is the sport of kings, and that if you have to ask “how much,” you probably can’t afford it.

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In Adjustacam LLC v. Newegg, Inc., [2016-1882] (July 5, 2017) the Federal Circuit reversed the district courts decision not to award attorneys’ fees to defendant after plaintiff voluntarily dismissing its complaint after a Markman hearing.

AdjustaCam sued a large number of defendants for patent infringement, voluntarily dismissing most defendants early in the litigation.  The case against Newegg went through a Markman order and extended expert discovery.  However just before summary judgment briefing, AdjustaCam
voluntarily dismissed its infringement claims against
Newegg with prejudice. Newegg then filed a motion for
attorneys’ fees. The district court initially denied Newegg’s motion,
and Newegg appealed to Federal Circuit, which remanded in view of Octane Fitness.  On remand the district court again denied attorneys fees.

A district court abuses its discretion when its ruling rests on an erroneous legal conclusion or on a clearly erroneous assessment of the evidence.  The Federal Circuit held that the district court abused its discretion
by not awarding fees to Newegg for two independent reasons: (1) it failed to follow the Federal Circuit’s mandate on remand; and (2) its decision was based on “a clearly erroneous assessment of the evidence.”

As to the first reason, the Federal Circuit said that the district court erred by ignoring our mandate “to evaluate whether this case is ‘exceptional’ under the totality of the circumstances and a lower burden of proof”
in the first instance.  Instead of engaging in an independent analysis, the
district court adopted the previous judge’s factual findings wholesale, the Federal Circuit noting that the entirety of the court’s analysis based on those adopted fact-findings consists of three sentences. This wholesale reliance on the previous judge’s fact finding was
an abuse of discretion.

As to the second reason, the Federal Circuit found that the record developed over the past five years points to this case as standing out from others with respect to the substantive strength of AdjustaCam’s litigating position.  While the infringement claim may have been weak at the time of filing, after the district court’s Markman order, the lawsuit was baseless.  The Federal Circuit found that no reasonable factfinder could conclude that Newegg’s products infringe; therefore, AdjustaCam’s litigation position was baseless, and the district court’s conclusion otherwise was clearly erroneous.  The Federal Circuit further found that AdjustaCam litigated the case in an “unreasonable manner.”  The Federal Circuit also noted that AdjustaCam relied upon a supplemental declaration making new infringement arguments executed two years after the initial fees determination, although the Federal Circuit did not appear to consider that the standard for award of fees changed in the intervening two years.

The Federal Circuit concluded that the totality of the circumstances demonstrates other dubious behavior that, when considered collectively, warrants fees under § 285.

The Federal Circuit specifically commented on AdjustaCam’s damages model.  While asserting seemingly low damages against multiple defendants—or settling with defendants for less than the cost of litigation—does not necessarily make a case “exceptional” under § 285, asserting nuisance-value damages against many defendants, settled with them for widely varied royalty rates, and continuing to press baseless infringement
contentions well past an adverse Markman order and expert discovery as enough to tip the balance in favor of exceptionality.