Understanding 2015 Patent Reform: Part 4 - Attorneys' Fees

In a series about 2015 Patent Reform

Attorneys' Fees

Attorneys' fees are another section which evade redlining. On the other hand, every litigator has their finger on the pulse of Fee Shifting practice, because it can completely make or break a meritorious defense of an innocent client. I know I don't just speak for myself when I say that the eternal struggle between needing to be paid for your work and wanting to help someone who did nothing unlawful is a constant source of stress and heartbreak. Fee Shifting practice after Octane Fitness has matured, but the pending reforms also take a stab:

General Rules

PATENT ActInnovation Act
(a) Award. In connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, upon motion by a prevailing party, the court shall determine whether the position of the non-prevailing party was objectively reasonable in law and fact, and whether the conduct of the non-prevailing party was objectively reasonable. If the court finds that the position of the non-prevailing party was not objectively reasonable in law or fact or that the conduct of the non-prevailing party was not objectively reasonable, the court shall award reasonable attorney fees to the prevailing party unless special circumstances would make an award unjust.(a) Award. The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust.

Editorial Commentary

  • First, the PATENT Act requires a party to move for attorneys' fees. The Innovation Act requires the court to award fees regardless of motion practice.

  • The Innovation Act also places the burden on the Non-Prevailing Party to prove that their position was objectively reasonable.

  • Currently, the Octane Fitness standards require a party to prove "exceptionality", "subjective bad faith", and "material inappropriate conduct" in order to be awarded attorneys' fees.

  • Under these standards, the Innovation Act is far more like the English Rule, which automatically awards fees to the prevailing party, than the PATENT Act. Both laws are more like English Rule than the status quo.

Covenant Not To Sue

Both acts extend their fee shifting analysis to parties dismissed under a subsequent covenant not to sue as if they were a non-prevailing party.

Certification

Both acts provide for certification that a party has sufficient funds to pay an attorney's fee award. The PATENT Act has a great deal more detail than the Innovation Act, however.


PATENT ActInnovation Act
(1) Certification; disclosure of interested parties (A) Initial statement. A party defending against a claim of infringement may file, not later than 14 days before a scheduling conference is to be held or a scheduling order is due under rule 16(b) of the Federal Rules of Civil Procedure, a statement that such party holds a good faith belief, based on publicly-available information and any other information known to such party, that the primary business of the party alleging infringement is the assertion and enforcement of patents or the licensing resulting therefrom. (B) Certification. Not later than 45 days after being served with an initial statement under subparagraph (A), a party alleging infringement shall file a certification that— (i) establishes and certifies to the court, under oath, that it will have sufficient funds available to satisfy any award of reasonable attorney fees under this section if an award is assessed;
(ii) demonstrates that its primary business is not the assertion and enforcement of patents or the licensing resulting therefrom; (iii) identifies interested parties, if any, as defined in paragraph (2) of this subsection; or (iv) states that it has no such interested parties. A party alleging infringement shall have an ongoing obligation to supplement its certification under this subparagraph within 30 days after a material change to the information provided in its certification. (C) Notice to interested party. A party that files a certification under subparagraph (B)(iii) shall, prior to filing the certification, provide each identified interested party actual notice in writing by service of notice in any district where the interested party may be found, such that jurisdiction shall be established over each interested party to the action for purposes of enforcing an award of attorney fees under this section, consistent with the Constitution of the United States. The notice shall identify the action, the parties, the patents at issue, and the interest qualifying the party to be an interested party. The notice shall inform the recipient that the recipient may be held accountable under this subsection for any award of attorney fees, or a portion thereof, resulting from the action in the event the party alleging infringement cannot satisfy the full amount of such an award, unless the recipient renounces its interest pursuant to subparagraph (E) or is otherwise exempt from the applicability of this subsection. (D) Accountability for interested parties. Any interested parties who are timely served with actual notice pursuant to subparagraph (C) and do not renounce their interests pursuant to subparagraph (E) or are not otherwise exempt from the applicability of this subsection may be held accountable for any fees, or a portion thereof, awarded under this section in the event that the party alleging infringement cannot satisfy the full amount of the award. If a true and correct certification under clause (i) or (ii) of subparagraph (B) is timely filed with the court, interested parties shall not be subject to this subparagraph. (E) Renunciation of interest. Any recipient of a notice under subparagraph (C) may submit a statement of renunciation of interest in a binding document with notice to the court and parties in the action not later than 120 days after receipt of the notice under subparagraph (C). The statement shall be required to renounce only such interest as would qualify the recipient as an interested party. (F) Institutions of higher education exception. Any institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)) or under equivalent laws in foreign jurisdictions), or a non-profit technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by 1 or more institutions of higher education, may exempt itself from the applicability of this subsection by filing a certification that it qualifies for the exception provided for in this subparagraph with the court and providing notice to the parties. (G) Interest of justice exception. Any recipient of a notice under subparagraph (C) may intervene in the action for purposes of contesting its identification as an interested party or its liability under this subsection, and a court may exempt any party identified as an interested party from the applicability of this subsection as the interest of justice requires.
(2) Interested party. In this section, the term interested party—(A) means a person who has a substantial financial interest related to the proceeds from any settlement, license, or damages award resulting from the enforcement of the patent in the action by the party alleging infringement; (B) does not include an attorney or law firm providing legal representation in the action if the sole basis for the financial interest of the attorney or law firm in the outcome of the action arises from the attorney or law firm’s receipt of compensation reasonably related to the provision of the legal representation; (C) does not include a person who has assigned all right, title, and interest in a patent, except for passive receipt of income, to an entity described in paragraph (1)(F), or who has a right to receive any portion of such passive income; and (D) does not include a person who would be an interested party under subparagraph (A) but whose financial interest is based solely on an equity or security interest established when the party alleging infringement’s primary business was not the assertion and enforcement of patents or the licensing resulting therefrom.
Upon motion of any party to the action, the court shall require another party to the action to certify whether or not the other party will be able to pay an award of fees and other expenses if such an award is made under subsection (a). If a nonprevailing party is unable to pay an award that is made against it under subsection (a), the court may make a party that has been joined under section 299(d) with respect to such party liable for the unsatisfied portion of the award.

Editorial Notes

  • The Innovation Act seems to extend liability for attorneys' fees only to joined parties to the litigation.

  • The PATENT Act essentially establishes a notice process for the main plaintiff to send out letters to anyone with a financial interest in the litigation such that they be jointly and severally liable for attorneys' fees. It requires the main plaintiff to do this if they cannot demonstrate (a) they have sufficient liquidity to pay the award, (b) they are not a patent assertion entity, or (c) they have no "interested parties" who could be joined in the action.

  • The PATENT Act extends liability for attorneys' fees to persons not joined in the action, in a potentially explosive way. Here are the types of people who might be held liable under the PATENT Act's fee shifting provisions:

    • Shareholders of the assertion entity who purchased their shares after the assertion entity got into the assertion business;
    • Legal finance companies;
    • Equity employees or possible bonus recipients of the assertion entity;
  • And remember that these folks are jointly and severally liable for the attorney's fees. Imagine a patent troll with an equity-receiving receptionist who didn't understand how to "renounce" his or her interest in the litigation, having a quarter-million dollar judgment for attorneys' fees against them when the rest of the company flees to Cyprus.

Hatch-Waxman

The PATENT act falls back on Octane Fitness "exceptionality" caselaw for Hatch-Waxman litigation:

(d) Claims under section 271(e). (1) Applicability. Subsections (a), (b), and (c) shall not apply to a civil action that includes a claim for relief arising under section 271(e). (2) Award in certain claims under section 271(e). In a civil action that includes a claim for relief arising under section 271(e), the court may in exceptional cases award reasonable attorney fees to the prevailing party.


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