Fee Shifting

Federal Circuit denies expert witness fees to USPTO (posted 08/19/21)

In Hyatt v. Hirshfeld, the Federal Circuit extended the decision in Peter v. NantKwest 1), which held that 35 U.S.C. § 145 is not sufficiently explicit in terms of Congress' intent to overcome the American Rule – i.e., the presumption against fee shifting. In Peter the issue was salaries of attorneys and paralegals employed by the PTO; here the issue is expert witness fees, for which the PTO sought $500,000 from Hyatt. The court held that the same reasoning used by the Supreme Court in Peter applies here.

S.Ct. says American Rule applies; PTO must pay its own fees (posted 08/19/21)

December 11, 2019: In Peter v. Nantwest, the Supreme Court held in a unanimous opinion that 35 U.S.C. § 145, stating that “[a]ll the expenses of the proceedings shall be paid by the applicant” does not include the salaries of attorney and paralegal employees of the USPTO.

Fed. Cir. vacated denial of fees where patent held ineligible (posted 12/23/21

In Electronic Communication Technologies, LLC v. ShoppersChoice.com, the Federal Circuit held that the District Court's finding the case to be unexceptional was in error for failing to consider objective unreasonableness of ECT's infringement claim. Specifically, the court held:

  • The District Court clearly erred by failing to address ECT's manner of litigation and the broader context of ECT's lawsuit against ShoppersChoice.
    • ShoppersChoice provided the District Court with evidence that . . . ECT . . . filed lawsuits against at least 150 defendants. . . . This number does not reflect the additional pre-litigation demands made by ECT.
    • ECT's demand for low-value settlement–ranging from $15,000 to $30,000–and subsequent steps–such as failure to proceed in litigation past claim construction hearings–indicates the use of litigation to achieve a quick settlement with no intention of testing the strength of the patent. . . .

Gilstrap mandates attorney's fees (posted 12/26/15)

In eDekka v. 3Balls.com et al. and E Revolution Ventures, Inc., (consolidated) plaintiff eDekka sued 130 retail and other defendants over infringement of U.S. Patent 6,266,674, directed to a method and device for storing information using user-defined labels. eDekka asserted that these claims were infringed by defendants’ e-shopping cart features on their websites. The stored information can be retrieved by searching for the associated label. The case was dismissed on an Alice grounds.

On filing of a motion for fees, Judge Gilstrap in the Eastern District of Texas, noted “[c]laim 1 essentially describes the common process of receiving, labeling, and storing information. . . . [. . .] The Court did not need the benefit of claim construction to find that the claims were directed to an abstract idea. [. . .] The Court finds that it is reasonable to conclude that eDekka acted with the goal of ‘exploiting the high cost to defend complex litigation’ to extract ‘nuisance value settlement[s]’ from defendants” (citations removed). Gilstrap concluded, “Considering the totality of circumstances, particularly eDekka’s unreasonable § 101 positions and vexations litigation strategy, the Court holds that the above-captioned cases are ‘exceptional’ . . . and GRANTS Defendant’s Consolidated Motion for Attorneys’ Fees.

Fed. Cir. construes Octane (posted 02/25/15)

In Biax v. Invidia et al., the Federal Circuit, in a nonprecedential opinion, reversed a lower court's award of attorney's fees under the pre-Octane Fitness, Brooks “objectively baseless” standard. The Fed. Cir. cited Octane stating:

The Supreme Court rejected the Brooks Furniture standard, explaining that “there is no precise rule or formula for making” a determination as to whether a case is exceptional. It is a case-by-case determination based on considering the totality of teh circumstances. Such an exceptional case is “rare.” But, if the case “stands out from others with respect to the substantive strength of a party's litigating position . . . or the unreasonable manner in which the case was litigated,” it is “exceptional” under the meaning of the statute. Thus, objective reasonableness remains a relevant factor. [Emphasis added.]

In applying this construction of the Supreme Court opinion, the Federal Circuit found that the lower court misread expert testimony that was relied upon to conclude that Biax had no reasonable basis to assert infringement.

Supreme Court rejects "objectively baseless" standard in awarding attorney fees (04/29/14)

In Octane Fitness v. Icon Health & Fitness, stating that the Federal Circuit's framework for implementing of 35 U.S.C. § 285 is “unduly rigid, and it impermissibly encumbers the statutory grant of discretion to courts,” The Supreme Court unanimously holds that:

an “exceptional” case in § 285 “is simply one that stands out from others with respect to the substantive strength of a party's litigating positoin (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated. District courts may determine whether a case is “exceptional” in the case-by-case exercise of their discretion, considering the totality of the circumstances. As in the comparable context of the Copyright Act, ”'[t]here is no precise rule or formula for making these determinations,' but instead equitable discretion should be exercised 'in light of the considerations we have identified.'“ Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 (1994).

In Highmark v. Allcare Health Management System, the Supreme Court restates its view in Octane that the determination whether a case is “exceptional” under §285 is a matter of discretion, and therefore the Federal Circuit must defer to the district court's ruling on fee-shifting except where the district court abused its discretion. Stated the court: “We therefore hold that an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court's §285 determination. Although questions of law may in some cases be relevant to the §285 inquiry, that inquiry generally is, at heart, 'rooted in factual determinations,' Cooter, 496 U.S. at 401.”

Exceptional "exceptional case" case (12/30/13)

In Kilopass Technology v. Sidense Corporation (cached), the Federal Circuit vacated and remanded a lower court ruling that the case was not exceptional.

Some key findings:

  1. Actual knowledge of objective baselessness of the plaintiff's claims are not required for the case to be exceptional.
  2. The court should not conclude that a case is not exceptional simply upon a finding that there is a lack of proof of subjective bad faith. Quoting Highmark Inc. v. Allcare Health Management, the Court states, “subjective bad faith only requires proof that the “lack of objective foundation for the claim 'was either known or so obvious that it should have been known' by the party asserting the claim.”
  3. Both subjective bad faith and objective baselessness is needed, but a finding of subjective bad faith can be arrived at by “a wide variety of proofs.” The court did not provide specific examples, but concludes with, “the retention of the subjective bad faith requirement may prove to have little effect on this case, as well as many that follow” (emphasis added).
  4. Bad faith and objective baselessness must be proved by clear and convincing evidence; the court notes that circuits are split on this matter.
  5. The court addressed criticism regarding fee shifting directly, noting that fee shifting is appropriate in circumstances other than bad faith/objective baselessness, noting prior decisions where exceptionality was found “where there has been willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Federal Rule of Civil Procedure 11, or like infractions” and reiterated that “[l]itigation misconduct and unprofessional behavior may suffice, by themselves, to make a case exceptional under § 285.”

In a concurring opinion, Judge Rader argued that the law should be changed to provide that objective baselessness be sufficient to support fee shifting, and that proof by a preponderance of the evidence should suffice. Judge Rader also supported a return to the “original standard” for exceptional cases, wherein “interests of the patentee and alleged infringer are adequately taken into account in the required evaluation of the totality of the circumstances.” Under standard, prior to 2005 when it was changed by Brooks Furniture, exceptional cases were found by “willful or intentional infringement, . . . vexatious or unjustified litigation, or other misfeasant behavior” was sufficient, and “unprofessional behavior was also found to be relevant to the award of attorneys' fees, and . . . suffice[d], by itself, to make a case exceptional.”

  • Hal Wegner's take: “The majority provided a detailed analysis of the history of Section 285 and may have, but for constraint against a panel deviating from binding precedent, gone further to reduce the bar to establish liability for Section 285 attorneys’ fees.”
  • I think this case marks a step along a path of liberalizing the standard for exceptional cases by the Federal Circuit. Although not explicitly stated, I think the effect of this decision is that the Federal Circuit is instructing districts to infer subjective bad faith on the basis of objective baselessness. That is, if the plaintiff should have known the case was objectively baseless, then plaintiff exercised bad faith by bringing the case in the first place, and fee shifting is justified.
140 S.Ct. 365 369

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