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A N 8 D 8 B 18 AR CE www. NYLJ.com SIN Volume 263—NO. 14 Wednesday, January 22, 2020

Patent and Trademark Expert Analysis Rule on Attorney Fee Awards In Patent Cases

ust before the holidays, the district , and “[a]ll the expens- Supreme Court and Federal es of the proceedings shall be paid Circuit issued three opin- By by the applicant.” Here, the Unit- Robert L. ions related to the award Maier ed States Patent and Trademark of attorney fees in patent Office (USPTO) prevailed in a case Jcases. The decisions confirm that brought under this section, and for the “American Rule”—under which the first time since the provision each side in a case pays its own was enacted 170 years ago, sought attorney fees—remains the norm, or contractual exception applies. to recover its attorney fees. See 589 unless a statutory or contractual See, e.g., Hardt v. Reliance Standard U.S. __, 140 S. Ct. 365 (2019). exception applies. These opinions Life Ins. Co., 560 U.S. 242 (2010). also confirm that appellate courts This approach is in contrast to the The courts have recognized that will continue to carefully scruti- “English Rule,” under which the los- “participation in arbitration” oc- nize these fee awards, but will also ing party by default pays the other curs when a party engages in uphold them when appropriate. party’s legal fees. discovery demands and pro- Three Supreme Court and Federal Background ceedings … or otherwise takes Circuit opinions issued in Decem- affirmative steps to further the Litigation in the United States ber address certain exceptions to arbitration process. traditionally operates under the the American Rule appearing in the “American Rule,” under which Patent Act: 35 U.S.C. §145 and 35 Separately, two Federal Circuit each party to a case typically— U.S.C. §285. In Peter v. NantKwest, decisions in December addressed win, lose, or draw—pays its own the Supreme Court addressed 35 another statutory exception to the attorney fees, unless a statutory U.S.C. §145, which provides that American Rule, 35 U.S.C. §285, patent applicants who are dissat- which provides that a “court in isfied with a decision of the Patent exceptional cases may award rea- Rob Maier is an partner in the New York office of Baker Botts, and the head and Appeal Board (PTAB) to sonable attorney fees to the pre- of its intellectual property group in New York. Kyle reject a patent application may vailing party.” See Blackbird Tech Xu, an intellectual clerk at Baker Botts, assisted with the preparation of this article. challenge that decision in a federal LLC v. Health In Motion LLC, 944 Wednesday, January 22, 2020

F.3d 910 (Fed. Cir. 2019); see also applied to §145, and that the pro- to deviate from that presumption. Intellectual Ventures I LLC v. Trend vision in the which directed See id. at 374. Micro Inc., 944 F.3d 1380 (Fed. Cir. “[a]ll the expenses of the proceed- ‘Blackbird’ 2019). ings shall be paid by the applicant” These decisions provide guid- was not a sufficiently “specific and On Dec. 16, the Federal Circuit ance on district court awards of explicit” directive from Congress issued its opinion in Blackbird, 944 fees in patent cases, and also on to also warrant shifting attorney F.3d 910, which provides a detailed appellate court treatment of such fees (as opposed to other items analysis of the application of §285. awards. typically described as “expenses,” Patent holder Blackbird Tech such as out-of-pocket costs like LLC filed a suit for patent infringe- The American Rule copying costs and expert witness ment and, after more than nineteen In 'NantKwest' fees). Id. months of litigation, voluntarily On Dec. 11, 2019, the Supreme The Supreme Court unanimous- dismissed its suit with prejudice Court decided NantKwest, 140 S. ly affirmed the denial of fees. The and executed a covenant not to Ct. 365, and reaffirmed the Ameri- court first concluded the Ameri- sue, just before the defendants’ can Rule. In NantKwest, an applica- can Rule applies to all , motion for summary was tion for patent was rejected by the even those like §145 that do not to be decided, and without notify- USPTO, and the rejection was sub- explicitly award attorney fees to ing the defendants beforehand. The sequently affirmed by the PTAB. In prevailing parties. See id. at 371. defendants then sought attorney response, NantKwest filed a district The court then looked to the statu- fees under §285, and the district court case against the USPTO under tory language and concluded that court granted the motion. Blackbird §145 to challenge the decision. The the reference to “expenses” in the appealed. USPTO prevailed on a motion for statute did not provide a sufficient- The Federal Circuit affirmed the summary judgment, and the Fed- ly “specific and explicit” congres- award of attorney fees because it eral Circuit affirmed. sional directive to overcome the found the case to be exceptional. The USPTO then requested its presumption. Id. at 372. Citing the Supreme Court’s recent attorney fees under §145—the The court further found that the take on the law in Octane Fitness, very first time it had made such a term “expenses of the proceed- LLC v. ICON Health & Fitness, 572 request in the 170-year history of ings” in §145, similar to the term U.S. 545, 554 (2014), the court this provision—seeking reimburse- “expenses of the litigation,” would repeated that an exceptional case ment for the pro rata salaries of not have been commonly under- “is simply one that stands out from USPTO attorneys who worked on stood to include attorney fees. Id. others with respect to the substan- the case. Finally, the court concluded that tive strength of a party’s litigating The district court denied the when Congress intends to shift fees, position … or the unreasonable request for fees, and a panel of the for example in 35 U.S.C. §285, it has manner in which the case was liti- Federal Circuit reversed. See id. at stated so explicitly in the provi- gated.” Blackbird, 944 F.3d at 914. 370. The en banc Federal Circuit sion. See id. at 373. Ultimately, the The court also noted this is a case- then reheard the case sua sponte court held fast to the American specific analysis that considers the and rejected the USPTO’s request Rule presumption, and confirmed totality of the circumstances. See id. for attorney fees, holding that that exceptions apply only where The Federal Circuit found the the American Rule presumption Congress manifests a clear intent case exceptional based both on Wednesday, January 22, 2020

Blackbird’s weak litigation posi- from [IV].” Id. at 1382. Based on case—the changed testimony of tion and the unreasonable man- this changed position, Trend Micro IV’s expert—stood out from other ner in which it litigated the case. moved for clarification of the dis- cases. See id. As a result, the Fed- The court found that Blackbird’s trict court’s claim construction, and eral Circuit vacated the fee award litigation positions lacked substan- then for invalidity of the asserted and remanded the case to the dis- tive strength, because Blackbird patents under 35 U.S.C. §101, which trict court to consider whether the raised flawed claim construction motion was granted in part. case as a whole was exceptional. and infringement positions. See id. Trend Micro then sought its See id. In so doing, the Federal Cir- Furthermore, the Federal Circuit attorney fees under §285, argu- cuit made clear that, in some cas- found Blackbird’s conduct in liti- ing that the case was exceptional es, a “single, isolated act” may be gation to be unreasonable, because because IV’s expert changed his enough to find a case exceptional, it made a series of nuisance value opinion in the middle of trial in but that a court must still consider settlement offers, unreasonably the prior proceeding. The district the totality of the circumstances. delayed producing documents, and court concluded that the case was Id. at 1384. failed to notify the defendants of Conclusion its intention to dismiss the case. Ultimately, the American Rule See id. at 916-17. Finally, the Federal Ultimately, the American Rule Circuit found it within the district still rules the day in patent still rules the day in patent cases— court’s discretion to also consider cases—appellate courts will appellate courts will continue to “the need to deter future abusive continue to ensure that awards ensure that awards of fees properly litigation,” particularly given that of fees properly fall within a fall within a statutory exception to Blackbird had filed over one hun- statutory exception to the pre- the presumption against fee awards, dred patent infringement , sumption against fee awards, and that such awards follow the law and not one had been decided on and that such awards follow the of Octane Fitness. But such awards the merits. Id. at 917. law of Octane Fitness. continue to remain available, and will be upheld when warranted by 'Intellectual Ventures' exceptional “solely with respect to the totality of the circumstances. Three days later, the Federal Cir- this collection of circumstances cuit decided Intellectual Ventures, regarding [IV’s expert’s] changed 944 F.3d 1380, in which the court testimony.” Id. at 1382. However, again weighed in on the application the court further determined that of §285. Intellectual Ventures (IV) the “case overall” was not excep- filed a series of patent infringement tional. See id. at 1383. suits, including one against Trend On appeal, the Federal Circuit Micro Inc. A first trial proceeded determined that the district court against another defendant, dur- did not apply the correct legal stan- ing which trial IV’s expert witness dard because, rather than assess- changed his testimony; the trial ing whether the case “overall” court found the changed expert stood out from other cases, the Reprinted with permission from the January 22, 2020 edition of the NEW YORK opinion to be “a surprise incon- court instead focused on wheth- LAW JOURNAL © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 sistent with the representations er this one particular part of the or [email protected]. # NYLJ-01212020-432865