Cost of Litigation Settlements Do Not Require Fee Shifting for Losing Patent Owners

Legal Scale

by: Patrick Anderson | July 10, 2017

Despite the predictions that Octane Fitness (the case that recalibrated rules for determining whether to award attorney’s fees to a prevailing party in a patent case under 35 USC § 285) amounted to a warning shot against patent licensing specialists, the Federal Circuit again declined to box district court judges in to a framework that elevates the patent owner’s status for this inquiry, or any particular behavior that is frequently, even if incorrectly, attributed to such owners.

In a lawsuit involving a subsidiary of Acacia, the CAFC’s decision notably lacks any mention of the parent company, or any words or epithets like NPE or “troll.” Moreover, the CAFC reiterates that plaintiff AdjustaCam’s “low damages against multiple defendants—or settling with defendants for less than the cost of litigation—does not necessarily make a case ‘exceptional’ under § 285.” In fact, the panel went so far as to confirm that fee shifting would be inappropriate if the patent owner’s damages approach were the sole issue.

Again, rather than impose a bright line rule that points to any one individual factor, the CAFC reiterated what Octane Fitness taught: that the court should consider the “totality of the circumstances.” AdjustaCam litigated aggressively in spite of an adverse claim construction order that seemingly eviscerated any chance of success on its infringement theory—the sole defensible argument was one raised by the district judge himself, not the plaintiff. In addition, the CAFC identified several instances of conduct that, taken together, evidenced an “unreasonable manner” of litigation.

These included: serving a new expert report on the day of that expert’s deposition, asserting new infringement theories in defense of the reasonableness of their conduct, and not disclosing those theories as new during the appeal process. While I may be skeptical of some of these claims (e.g. the new theories were asserted in a declaration that was presumably dated when cited to the panel), even taking them at face value demonstrates that the decision under § 285 should examine the entire body of evidence in context, and neither overemphasis nor discard conduct separately.

Supplementing the AdjustaCam case is a non-precedential opinion issued the same day in a case involving Parallel Networks—a patent owner who filed infringement claims against 100 defendants over four separate lawsuits back in 2010. Here, the CAFC agreed that § 285 fee shifting was in appropriate despite the patent owner’s loss in a case where defendants accused them of “set[ting] a settlement floor that was based on potential litigation costs and set just low enough to make settlement the more attractive option.” To support this assertion, the defendants cited statements made by the patent owner at a preliminary hearing where the court had encouraged candid disclosure of litigation strategy in order to deal with the large volume of assertions.

Rather than view the conduct as unreasonable, the CAFC noted how the patent owner’s candor benefited defendants by causing the district court to “set early claim construction and summary judgment proceedings that resulted in many defendants being found not to infringe.”

It is encouraging to see a reasoned approach prevail. While some observers might call for routine fee shifting for all losing parties, that concept should be taken up across the board, rather than be made specifically for patent cases (or, even as some have suggested, for patent owners).

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