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Federal Circuit Holds Attorneys’ Fees Under 35 U.S.C. § 285 Do Not Include Parallel IPR Fees And Denies Recovery From Plaintiff’s Counsel
05/29/2024On May 20, 2024, the United States Court of Appeals for the Federal Circuit (“CAFC”) affirmed the United States District Court for the District of Delaware’s decision to deny recovery of attorneys’ fees incurred in inter partes review proceedings (“IPRs”), as well as recovery from plaintiff’s counsel. Dragon Intellectual Property, LLC (“Dragon”) separately sued DISH Network L.L.C. (“DISH”) and Sirius XM Radio Inc. (“SXM”), as well as eight other defendants, for patent infringement in December 2013. DISH and SXM (collectively, “Appellants”) sent letters to Dragon’s counsel explaining that their products do not practice the asserted claims and that a reasonable pre-suit investigation would have shown that. Ignoring the letters, Dragon continued to pursue its lawsuits.
In December 2014, DISH filed an IPR against the asserted patent. The Patent Trial and Appeal Board (“Board”) instituted the IPR and granted SXM’s request for joinder. The district court stayed the cases against DISH and SXM, and proceeded with claim construction as to the other eight defendants. After the claim construction order, all of the parties stipulated to noninfringement. Subsequently, the Board issued its final written opinion which found the asserted claims unpatentable.
At issue in this appeal was Appellants’ motion for attorneys’ fees. Finding that the cases were exceptional, the district court granted-in-part the motion for attorneys’ fees under 35 U.S.C. § 285 to the extent Appellants sought fees from Dragon relating to the district court litigation. However, the district court denied-in-part, refusing to award fees incurred solely during the IPR proceedings, as well as rejecting Appellants’ request for recovery from Dragon’s counsel.
On appeal, Appellants argued that the parallel IPR proceedings were “part and parcel” of the district court case and that the optional nature of IPR proceedings does not compel the denial of IPR fees. The CAFC rejected Appellants’ arguments and held that § 285 does not allow recovery of fees incurred in a parallel IPR proceedings. The CAFC reasoned that Appellants’ decision to pursue an IPR was a voluntary, strategic decision because of the advantages such proceedings have over the district litigation. Further, the CAFC noted that a district court is particularly well-positioned to determine whether a case before it is exceptional because the district court “lives with the case over a prolonged period of time.” Highmark Inc. v. Allcare Health Mgmt. Sys., Inc., 572 U.S. 559, 564 (2014). If “cases” under § 285 were to include IPR proceedings, district court judges would have to evaluate the exceptionality of arguments, conduct, and behaviors in a proceeding in which they had no involvement.
Regarding this point, District Judge Bencivengo, sitting by designation, dissented, expressing that the IPR was not “voluntary” or “parallel” to the district court litigation. Appellants were compelled to contest the validity of the asserted patent in response to Dragon’s meritless infringement suit. The IPR would have been “voluntary” had Appellants initiated the IPR before Dragon filed its lawsuit, the District Judge noted. She explained that the IPR was not “parallel” to the district litigation because the court stayed the litigation pending the outcome of the IPR. The IPR, therefore, substituted for district court litigation on Appellants’ validity challenge. Judge Bencivengo also rejected the majority’s concern that a district court is not well-situated to make an exceptional case finding based on the IPR proceedings. She explained that the Appellants did not seek an exceptional case finding based on the outcome of the IPR. Rather, the district court found this case exceptional based on a determination that the case was objectively baseless from its inception. The District Judge concluded that to categorically preclude recovery of IPR fees is inconsistent with § 285 and the intent of IPRs itself.
Appellants also argued that Dragon’s counsel should be held jointly and severally liable for the fees award under § 285. The CAFC, however, held that the text of the statute does not extend liability to counsel. Unlike other statutes that explicitly allow parties to recover costs and fees from counsel, § 285 is silent as to who can be liable for a fee award. Appellants argued that OhioCellular Products Corp. v. Adams USA, Inc. allowed assessment of § 285 fees against non-parties. 175 F.3d 1343 (Fed. Cir. 1999), rev’d sub nom. Nelson v. Adams USA, Inc., 529 U.S. 460 (2000). In OhioCellular, the CAFC affirmed a determination that fees could be collected from the plaintiff’s president and sole shareholder, who committed inequitable conduct during prosecution of a patent. OhioCellular, 175 F.3d at 1352. The Supreme Court reversed the CAFC’s opinion on due process grounds, but noted that its decision “surely does not insulate” the third party “from liability.” Nelson, 529 U.S. at 472. The CAFC, however, determined that Nelson is inapposite because the third-party in Nelson was not counsel for either party. The CAFC concluded that there is no basis to allow Appellants to recover § 285 fees from counsel.
