Context: The United States is not a “loser pays” jurisdiction, but under 35 U.S.C. § 285 a prevailing party can bring a motion for attorneys’ fees, which will succeed in exceptional patent cases where the substance of the adversary’s position was extremely weak.
What’s new: Today the United States Court of Appeals for the Federal Circuit entered a precedential decision according to which a prevailing defendant cannot recover costs incurred in connection with an inter partes review by the Patent Trial and Appeal Board (PTAB) of the United States Patent & Trademark Office (USPTO), not even in a case where the infringement allegations were weak enough to warrant a cost awared with respect to the proceedings in district court, where the IPR petition was filed only in response to that infringement complaint and where the district court stayed its proceedings pending resolution of the IPR. Another key holding is that counsel for a party is not liable only because its client’s position was weak, short of cases in which counsel’s own conduct might give rise to a fee award.
Direct impact & wider ramifications: On the key question of whether PTAB IPR costs can be imposed on a patentee who brought an exceptionally weak infringement complaint, United States District Judge Cathy Ann Bencivengo (United States District Court for the Southern District of California, but sitting on this Federal Circuit panel by designation) (Wikipedia) filed a dissent. It will be interesting to see if the appellants pursue this matter further, such as by seeking a rehearing en banc and possibly Supreme Court review. The dissent is more compelling than the majority opinion by Chief Judge Moore and Circuit Judge Stoll.
The decision (PDF) relates to two consolidated appeals. The patentee, Dragon Intellectual Property, apparently sued a large number of defendants. Judge Richard G. Andrews of the United States District Court for the District of Delaware (a key patent forum) granted their motions for attorneys’ fees with respect to the district court proceedings themselves, but not with respect to the PTAB IPR proceedings. He also denied the motion to the extent that the defendants wanted to hold the patentee’s counsel (Robert E. Freitas and the Freitas & Weinberg firm) jointly liable with the patentee. Two defendants, Dish Networks and Sirius XM Radio, appealed the parts unfavorable to them, as did the plaintiff in a cross-appeal.
The two-judge majority affirmed the district court’s decision all the way. The panel first resolved the cross-appeal and held, with unanimity, that the district court had not abused its discretion. The circumstances were such that the infringement allegations were irreconcilable with a prosecution history disclaimer. The district court had already performed claim construction before the stay, which gave rise to a noninfringement stipulation, and after the stay it then vacated the noninfringement ruling as all of the asserted claims had been invalidated by the PTAB. But the Federal Circuit was not persuaded by the patentee that vacatur of the noninfringement ruling also did away with claim construction. At any rate, a magistrate judge looked at the prosecution history argument again with a view to the exceptionality analysis under Section 285 and reached the same conclusion.
The three members of the appellate panel also agreed that counsel should, at most, be liable for its own conduct, but not for a weak case brought by its client. In this case, with an infringement allegation going completely against prosecution history, the question of attorney misconduct (as opposed to merely a weak case) was a legitimate one to be raised by the defendants, and maybe this will also be pursued on further appeal.
Now, the most important part:
The majority of the appellate panel did not want to reverse the district court’s holding that PTAB IPR-related fees could not be subject to Section 285 fee-shifting. The majority would have different problems with that:
- Primarily, the argument is that even in a case like this, where the IPR petition was brought in response to the infringement complaint, it was simply the defendants’ tactical choice to go to the PTAB instead of litigating (in)validity in district court. That’s why the majority views the PTAB part of the dispute as “optional.”
- Also, even though the PTAB IPR petition succeeded to the maximum extent, the district court didn’t adjudicate that part, so it couldn’t know whether the patentee had an exceptionally weak case on the validity (and not only the infringement) side.
Judge Bencivengo disagrees:
“To categorically preclude recovery of IPR fees in this circumstance is inconsistent with § 285 or the intent of IPR itself.”
One could easily picture a petition for rehearing and, even more so, a petition for writ of certiorari raising that question.
She also doesn’t consider it necessary to have a district court determine that the IPR proceedings themselves met the criteria for a fee award “where exceptionality is based on a determination that the case was objectively baseless from its inception.” So even if the patent had been upheld by the PTAB, she would apparently consider a fee award warranted if the infringement theory was objectively meritless.
This is an important question, and the split-panel decision should not be the end of the process.