IP lawyer: Potential limits to fee recovery may make petitioners rethink post-grant procedures

An order from the Middle District of Florida may mean that petitioners have to foot the bill for America Invents Act proceedings, even if the prevailing party has a colourable argument for finding the case exceptional

When the America Invents Act became law, it promised patent challengers a cheaper, faster alternative to district court litigation. Accordingly, the act created a trio of quasi-judicial proceedings – including the popular inter partes review – which enable district court defendants to quickly challenge the validity of patents asserted against them in parallel district court complaints.

After the act’s passage, the Supreme Court made it easier for successful patent litigants to recover their attorneys’ fees by lowering the burden of proving an “exceptional case” pursuant to 35 USC §285 in Octane Fitness, LLC v ICON Health & Fitness, Inc (134 S Ct 1749 (2014)). Since that decision, some district courts have allowed for the prevailing party to recover the fees it spent on a related inter partes review. The court in Deep Sky Software, Inc v Southwest Airlines Co (No 10-cv-1234-CAB, 2015 WL 1084423 (SD Cal, August 19 2015)) did just that, noting that efforts in the related inter partes review “essentially substituted for work that otherwise would have been done before this court”.

The court in Chaffin v Braden (No 14-cv-0027, 2016 WL 5372540 (SD Tex, September 26 2016)) reiterated this “essentially substituted” standard. While the court did not award inter partes review-related fees, this was only because the review did not result in findings that were significant to the trial court’s final decision. Yet the court recognised that there might be circumstances where fees incurred even in unsuccessful inter partes reviews could be recoverable. (For a more detailed description of the attorneys’ fees landscape in the wake of Octane, see Lionel M Lavenue, R Benjamin Cassady and Shaton C Menzie, Recovering Attorneys’ Fees for AIA Proceedings, 92 Pat Trademark & Copyright J (BNA) 597 (June 24 2016), www.finnegan.com/en/insights/r....)

However, the clarity of this standard blurred after MD Security Solutions LLC v Protection 1, Inc (No 6:15-cv-01968-Orl-40GJK (MD Fla, September 26 2017)). There, MD Security Solutions LLC alleged patent infringement against Protection 1, Inc (P1). P1 counterclaimed for invalidity and non-infringement, then moved to stay the case pending the outcome of an inter partes review filed by a third party, RPX. As part of its motion to stay, P1 agreed to be bound by the outcome of, and later joined in an understudy role, RPX’s inter partes review. About a year later, the Patent Trial and Appeal Board issued a final written decision invalidating all the asserted claims of MD’s patent, prompting MD to move to dismiss the district court case as moot. In response, P1 asked to conduct discovery to prove that MD was a patent assertion entity, which – P1 argued – would make the case exceptional under Section 285 and warrant an attorneys’ fees award.

The district court granted MD’s motion to dismiss and denied P1’s request for additional discovery, noting that the court lacked the power to permit or compel discovery once the case became moot. Thus, P1 could not gather the evidence that it needed to prove an exceptional case.

Most worrying for parallel petitioners hoping to recover their inter partes review-related fees, the court opined that P1 should not have joined in RPX’s inter partes review if P1 knew it would need additional discovery to support an exceptional case: “Having chosen to invalidate the [asserted] patent… [P1] cannot now complain that they are denied the ability to avail themselves of this federal forum.”

However, MD Security does not suggest that fees spent during an America Invents Act proceeding cannot be recovered in district court. Indeed, nothing from MD Security affects the standard applied in Deep Sky or Chaffin; namely, that fees spent in a related proceeding that essentially substitutes for work that would otherwise have been carried out by the trial court can be recovered. Thus, while MD Security does not upset the “essentially substitutes” standard, it does touch on an important aspect of a successful claim for attorneys’ fees: timing.

MD Security shows that the amount of preparation a prevailing party undertakes before making a claim for attorneys’ fees under Section 285 may determine the outcome of that claim. For example, in Deep Sky, the prevailing party was ready to move for its attorneys’ fees as soon as the inter partes review was resolved. This stands in stark contrast with the state of P1’s case in MD Security, where P1 needed additional discovery to prove its arguments under Section 285 after the inter partes review was resolved.

MD Security provides insight that can help prevailing parties win their attorneys’ fees and shows the importance of obtaining evidence throughout discovery to support every claim – not only substantive positions but also claims for supplemental remedies. Prevailing parties seeking to recover attorneys’ fees must make sure that they are prepared to bring their claims before the conclusion of the case, which can happen abruptly when there is a pending parallel proceeding. The bar for obtaining a fee award is still high and judges might not allow additional discovery to prolong a case for a party that could be perceived as unprepared. While MD Security complicates the processes of discovery and recovering attorneys’ fees from related America Invents Act proceedings under Section 285, it does not foreclose this opportunity. However, parties who expect to prevail should begin their case for an award of attorneys’ fees under Section 285 as soon as possible.

Lionel M Lavenue is a partner and R Benjamin Cassady and Nicholas J Doyle are associates with Finnegan, Henderson, Farabow, Garrett & Dunner, Washington DC, United States

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