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Intellectual Property Litigation Committee

Strategies for Preventing an Award of Attorney Fees

By Kristopher L. Reed and Samantha Picans – January 11, 2016

 

Since the Supreme Court’s decisions in Octane Fitness and Highmark in the spring of 2014, there has been a significant increase in the number of requests for attorney fees in patent cases. As a result, nonprevailing parties today are highly likely to face such a request. This article discusses best practices for mitigating and opposing a fee request under section 285, including preventative strategies, strategies for drafting responses, and weaknesses to look for in billing records.

 

The Legal Standard for Sanctions under Section 285

In Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014), the Supreme Court rejected the Federal Circuit’s “overly rigid” standard for determining whether a case is “exceptional” under 35 U.S.C. § 285. Instead, the Court ruled “that an ‘exceptional’ case is simply 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.” Octane Fitness, 134 S. Ct. at 1756. Nonexclusive factors that a district court may consider include “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.” Id. at 1756 n.6. Whether a case is exceptional is a discretionary determination, analyzed by review of the totality of the circumstances on a case-by-case basis. Id. at 1756. The moving party’s burden of proof is a preponderance of the evidence, and the district court’s ruling is reviewed on appeal for an abuse of discretion. Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 134 S. Ct. 1744, 1748 (2014).

 

The Post-Octane Fitness Landscape

The Federal Circuit has interpreted the Supreme Court’s decisions in Octane Fitness and Highmark as “lower[ing] considerably the standard for awarding fees” in patent cases. Oplus Techs., Ltd. v. Vizio, Inc., No. 2014-1297, 2015 WL 1600056, at *3 (Fed. Cir. Apr. 10, 2015). Indeed, the Federal Circuit in Oplus ruled that a district court must articulate a reason for denying fees where it finds litigation misconduct and that a case is exceptional. Id. at *4. Specifically, the panel in Oplus vacated and remanded a denial of attorney fees where the district court described the losing party’s constantly changing positions as “a frustrating game of Whac-a-Mole throughout the litigation,” called out the party’s “abusive discovery strategy,” and described counsel’s behavior as “inappropriate,” “unprofessional,” “vexatious,” and “harassing.” Id. at *3.

 

In the wake of Octane Fitness and Highmark, district courts also have become more inclined to grant requests to hold attorneys personally liable under 28 U.S.C. § 1927. In one highly publicized example, a district court went so far as to find the plaintiff law firm jointly liable for a section 285 fee award under section 1927. Intellect Wireless, Inc. v. HTC Corp., No. 09 C 2945, 2015 WL 136142 (N.D. Ill. Jan. 8, 2015); see also Worldwide Home Prods., Inc. v. Bed, Bath & Beyond, Inc., No. 11CV3633-LTS-MHD, 2015 WL 1573325, at *6 (S.D.N.Y. Apr. 9, 2015) (holding jointly liable the attorney whose inequitable conduct during prosecution supported invalidation of the patent on which the same attorney subsequently filed suit). In that case, a post-trial discovery request exposed an email from the inventor to the prosecution attorney in which the inventor shared concerns regarding a false reduction-to-practice declaration submitted to the U.S. Patent and Trademark Office (USPTO). Specifically, the inventor worried “that the incorrect declaration will create a weak flank for attack by even marginally-competent litigation counsel” and that “[t]he improper declaration and allegations of fraud on the patent office will now be the easiest way to invalidate the entire patent portfolio.” Intellect Wireless, 2015 WL 136142, at *2. The inventor further directed the prosecution attorney to seek advice regarding the false declaration from litigation counsel. Id. at *3. Litigation counsel later filed declarations with the trial court claiming that they were not consulted as directed in the email and had no knowledge that the inventor’s declaration was false. Id. at *4. Nonetheless, as a discovery sanction for failing to produce documents relating to the issue of inequitable conduct as ordered, the court made an adverse inference that the litigation counsel did have knowledge of the false statements to the USPTO prior to filing suit. Relying on this adverse inference, the court held the plaintiff’s counsel jointly liable for the defendant’s attorney fees and expenses. Id. at *5.

 

Preventative Strategies

 

Presuit analysis. Parties should conduct a sufficient presuit analysis, at a minimum satisfying Rule 11. See, e.g., Yufa v. TSI Inc., No. 09-CV-01315-KAW, 2014 WL 4071902, at *3 (N.D. Cal. Aug. 14, 2014) (finding the party’s failure to test the accused products before filing weighed in favor of holding the case to be exceptional). The investigation should be tailored to the facts of the case, and should include an evaluation of all potentially dispositive issues. For example, a party seeking damages for an expired patent should investigate compliance with marking requirements, as noncompliance could limit or eliminate the party’s potential damages recovery. See Universal Elecs., Inc. v. Universal Remote Control, Inc., No. SACV 12-00329 AG (JPRx), slip op. at 6–7 (C.D. Cal. Mar. 10, 2015), ECF No. 475 (determining that a party’s insufficient presuit analysis regarding marking contributed to finding the case exceptional where insufficient compliance with marking requirements destroyed any case for damages). In addition, a plaintiff should review any license agreements with the proposed defendants, as well as related suppliers and customers, that may cover some or all of the accused products as to the asserted patents. See Brilliant Optical Solutions, LLC v. Comcast Corp., No. 13-CV-00886-REB, 2015 WL 1476691, at *3 (D. Colo. Mar. 27, 2015) (ruling the case to be exceptional in light of two licenses that covered the accused products, where one agreement was in effect at the time the case was filed and the other went into effect six months later). Documenting this investigation in detail also is critical, as judges have taken issue where the documentation of a presuit analysis reflects a lack of depth. See Chalumeau Power Sys. LLC v. Alcatel-Lucent, No. CV 11-1175-RGA, 2014 WL 4675002, at *2 (D. Del. Sept. 12, 2014).

 

Restrategize early and often. Parties should revisit the reasonableness of their positions at key milestones, from the opposing party’s first responsive communication through summary judgment and post-trial decisions. This is especially important when a defendant raises specific defenses or takes determinative positions. For example, a plaintiff should investigate agreements between the parties if the defendant raises a license defense. See Bayer Cropscience AG v. Dow Agrosciences LLC, No. CV 12-256 (RMB/JS), 2015 WL 1197436, at *8 (D. Del. Mar. 13, 2015) (“Had Bayer done any due diligence, it would have learned that no witness supported Bayer’s construction of the Agreement and this case would should [sic] never have been filed.”). Likewise, a patentee should evaluate the legitimacy of all invalidity allegations posed by the opposing party, such as a failure to file a terminal disclaimer. See Logic Devices, Inc. v. Apple Inc., No. C 13-02943 WHA (N.D. Cal. Dec. 4, 2014), ECF No. 86 (“Logic Devices’ validity position was unsupported by the record, especially given that no terminal disclaimer was ever filed (a fact it should have known before the lawsuit was filed) and its expert witness only opined that the asserted claim was ‘different and broader’ than the claims in the earlier ’511 patent.”).

 

Moreover, parties should refrain from employing a kitchen-sink approach to lodging allegations and defenses, and instead limit accusations to those for which the party has a reasonable basis. For example, patentees should only list products in their infringement contentions if they have a reasonable basis to believe they infringe, reserving the right to amend if the party learns of other products that may also infringe. E.g., UltimatePointer, LLC v. Nintendo Co., No. C14-00865RSL, slip op. at 3–4 (W.D. Wash. Mar. 11, 2015), ECF No. 638 (awarding fees attributable to the identification of over 1,700 accused products when the plaintiff only acquired 203 of these products, expressing “concern[] with the adequacy of counsel’s pre-litigation analysis of most of the accused products and plaintiff’s subsequent inability to articulate infringement contentions regarding those products”); see also TNS Media Research, LLC v. TiVo Research & Analytics, Inc., No. 11 Civ. 4039 SAS, 2014 WL 5639930, at *10 (S.D.N.Y. Nov. 4, 2014) (“Parties cannot litigate a case by presenting multiple alternative arguments, some of which lack merit, then later take shelter under the meritorious ones when facing a motion for attorneys’ fees.”).

 

Reevaluation of the case following significant rulings by the court also is important, particularly when such rulings are not in a party’s favor. For example, parties should revisit their infringement positions after a claim construction order and consider revising their strategy where appropriate, such as by stipulating to infringement or invalidity under that construction and appealing the construction order, modifying infringement contentions to incorporate a new infringement theory, etc. See, e.g., Cambrian Sci. Corp. v. Cox Commc’ns, Inc., No. SACV 11-01011 AG, 2015 WL 178417, at *3 (C.D. Cal. Jan. 6, 2015) (citing the party’s continued assertion of infringement regarding two products that did not meet a claim limitation under the court’s construction). Simply believing the court’s construction is wrong does not excuse a party’s refusal to litigate the case under that construction. Indeed, decisions awarding attorney fees often cite the unreasonableness of a litigant’s position maintained in the face of an unfavorable claim construction determination. See, e.g., MyMedicalRecords, Inc. v. Jardogs, LLC, No. 2:13-cv-03560-ODW, 2015 WL 1781332, at *4 (C.D. Cal. Apr. 20, 2015) (holding that although the case as a whole was not exceptional, the party may be sanctioned under the court’s inherent power because the party’s refusal to dismiss its claims or stipulate to invalidity based on the court’s claim construction ruling finding the asserted claims indefinite was in bad faith); Intex Recreation Corp. v. Team Worldwide Corp., No. 04-1785 (PLF), 2015 WL 135532, at *3 (D.D.C. Jan. 9, 2015) (awarding fees where, after claim construction, the party “advanced flawed, nonsensical, and baseless arguments, which lacked factual support, seeking only to re-litigate this Court’s construction of” a claim term); Chi. Bd. Options Exch., Inc. v. Int’l Sec. Exch., LLC, No. 07 C 623, 2014 WL 6978644, at *5 (N.D. Ill. Dec. 10, 2014) (holding the case to be “exceptional” after remand from the Federal Circuit, where the party’s subsequent infringement positions “had clearly been foreclosed” by the rulings affirmed by the Federal Circuit).

 

Further, when revising litigation strategies or theories, parties should provide an explanation for any such evolution, and follow applicable local procedures for making any changes (e.g., seek leave from the court to amend infringement contentions). Otherwise, a court may interpret a new theory as a mere litigation tactic that either is not supported by the facts or undercuts the adequacy of the party’s prior analysis. See Kilopass Tech. Inc. v. Sidense Corp., No. C 10-02066 SI, 2014 WL 3956703, at *13 (N.D. Cal. Aug. 12, 2014) (reasoning that the party’s introduction of an infringement theory, first introduced by the party’s expert, implied the party wanted to “try out” a different theory where this change in strategy was not necessitated by the court’s determinations or facts revealed during discovery, and citing the failure to introduce the new theory properly through infringement contentions as evidence of bad faith).

 

Motion Response Strategy

Most courts approach fee requests in two stages—first determining whether to award fees, and then addressing the amount. Thus, even if a litigant is unsuccessful in preventing an award entirely, it will likely have a second opportunity to reduce the amount of the request. At both stages, the nonprevailing party should focus on the reasonableness of its substantive legal positions as well as its litigation strategy.

 

Amounts must be proportional. The amount of attorney fees awarded under section 285 must be proportional to the exceptionalness of the case. Thus, if a party’s fee request focuses on one motion or issue that increased the cost of litigation, the fees awarded should be reduced to reflect only amounts directly associated with that event. See, e.g., UltimatePointer, No. C14-00865RSL (awarding 10 percent of the requested fees to account for only those fees attributable to the plaintiffs’ unreasonable identification of over 1,700 products, despite only having acquired 203 of these products); Universal Elecs., No. SACV 12-00329 AG (JPRx), slip op. at 15 (“Here, compensation will be adequately served by requiring Plaintiff to pay for the portions of the case attributable to the ’426 and ’067 Patents, and the motion for reconsideration regarding the ’367 Patent. This will also serve as adequate deterrence. Requiring Plaintiff to pay Defendant’s fees for portions of the case that were not exceptional has the potential to over-deter meritorious claims, with implications for access to justice. Defendant must therefore apportion its fee request accordingly.”).

 

Contesting the billing records. Where fees cannot be prevented entirely, there may be an opportunity to reduce the award by contesting individual billing items. A request for attorney fees is particularly vulnerable where there is little to no adjustment of the fees charged to the client. For example, courts frequently reduce awards for partner billable time that is considered duplicative and thus unnecessary. See, e.g., Intellect Wireless, 2015 WL 136142, at *8 (reducing an award for a partner’s billable time preparing for and attending a hearing for which he was not among the four attorneys who presented the case); Zest IP Holdings, LLC v. Implant Direct Mfg., LLC, No. 10-CV-0541-GPC (WVG), slip op. at 12 (S.D. Cal. Dec. 3, 2014), ECF No. 568. Courts have also reduced awards for overly frequent status updates to the client and generally excessive manpower. See, e.g., Tech. Innovations, LLC v. Amazon.com, Inc., No. 11-CV-00690-SLR, slip op. at 2 (D. Del. Apr. 20, 2015), ECF No. 187; Brilliant Optical, 2015 WL 1476691, at *4 (“[C]ertainly it is reasonable for counsel to bill for updates of the client, but the necessity of the frequent bi-weekly status updates in this case has not been demonstrated.”).

 

In some cases, billing in quarter-hour increments and block billing have provided grounds to reduce fee requests. See, e.g., Home Gambling Network, Inc. v. Piche, No. 2:05-CV-610-DAE, 2015 WL 1734928, at *8 (D. Nev. Apr. 16, 2015) (reducing the amount of block-billed entries for 21.1 hours and 15.1 hours by 50 percent where the entries were “not sufficiently detailed to allow the Court to meaningfully review the time expended and its reasonableness”); Zest IP Holdings, No. 10-CV-0541-GPC (WVG), slip op. at 12–13 (reducing an award by 20 percent to account for billing entries that likely took only a few minutes).

 

Litigants may also be able to reduce a fee request to the extent that billing entries include time for clerical tasks. For example, in Intellect Wireless, the court reduced 773.25 hours identified by the nonmovant where “less than 20% of the hours are properly included in a fee petition” because they are “largely clerical in nature and therefore should have been included in overhead.” Intellect Wireless, 2015 WL 136142, at *8. Although billable time for nonattorneys may be recoverable, a fee request may be open to criticism to the extent that it fails to name staff members or provide their responsibilities and qualifications. See Kilopass Tech., Inc. v. Sidense Corp., No. 10-CV-02066-SI, 2015 WL 1065883, at *12 (N.D. Cal. Mar. 11, 2015) (declining to award fees for services rendered by various unnamed “library staff” and “litigation support persons”).

 

Conclusion

As demonstrated by recent multimillion dollar sanctions against both parties and law firms, unintentional litigation blunders can prove very costly. With courts becoming increasingly willing to award attorney fees under section 285, and even to hold attorneys and law firms jointly liable via section 1927, patent attorneys need to be diligent to avoid sanctions. Taking the time to do a sufficient case analysis, and reevaluating litigation strategy at key milestones, can help minimize the risk of sanctions under section 285. Moreover, when faced with a request for attorney fees under section 285, nonprevailing attorneys should focus on the reasonableness of their positions and actions. And if all else fails, litigants may be able to reduce a fee request significantly by identifying weaknesses in the prevailing party’s billing records.

 

Keywords: litigation, intellectual property, patents, sanctions, attorney fees, reasonableness, billing records, Octane Fitness, strategy, fee-shifting

 

Kristopher L. Reed is a partner and Samantha Picans is a department attorney at Kilpatrick Townsend & Stockton LLP in Denver, Colorado.

 


 
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