CAFC Says IPRs are Voluntary, Fees Not Recoverable Under ‘Exceptionality’ Rule
“Appellants were not compelled to argue invalidity before the Board. Eight other defendants chose not to pursue such proceedings and continued to litigate in district court.”- CAFC
The U.S. Court of Appeals for the Federal Circuit (CAFC) on Monday, May 20, said in a precedential decision that fees incurred during inter partes review (IPR) proceedings are not recoverable under the “exceptionality” rule of 35 U.S.C. § 285. The court also rejected Dragon Intellectual Property, LLC’s argument that the case should not qualify as exceptional and rejected DISH Network, LLC’s argument that Dragon’s counsel should be held jointly and severally liable for the award of attorneys’ fees. The majority opinion was authored by Chief Judge Moore and a dissent was filed by District Judge Cathy Ann Bencivengo of the U.S. District Court for the Southern District of California, sitting by designation.
The case relates to Dragon’s U.S. Patent No. 5,930,444 for a “Simultaneous Recording and Playback Apparatus.” Dragon separately sued DISH, SXM and eight other defendants in 2013, alleging infringement of certain claims of the patent, to which DISH and SXM responded by sending letters to Dragon’s counsel, Freitas & Weinberg LLP, advising that their products were not covered by the patent and could not infringe the asserted claims. DISH subsequently filed for IPR of the patent and SXM was joined to the proceeding. The district court litigation was stayed but claim construction hearings proceeded in district court with respect to the other eight defendants.
After the consolidated claim construction hearing, Freitas & Weinberg withdrew as Dragon’s counsel and the defendants all stipulated to noninfringement as to the accused products and the court entered a judgment of noninfringement for all defendants. The Patent Trial and Appeal Board (PTAB) ultimately invalidated all claims of the patent. DISH and SXM moved for attorneys’ fees in 2016 and the district court denied the motions in 2018. The court held that “neither DISH nor SXM was a prevailing party because invalidating the patent through IPR proceedings was not a basis for attorneys’ fees.” But the CAFC reversed and remanded that decision, holding that they were prevailing parties based on their success in the IPR.
The district court ultimately granted-in-part the motion for attorneys’ fees on remand but denied the motion with respect to fees incurred solely in the IPR as well as recovery from Dragon’s counsel, Robert Freitas. DISH and SXM appealed the denial of fees and Dragon cross-appealed the grant-in-part of fees.
In its discussion, the CAFC first rejected Dragon’s argument that the district court’s vacatur of the noninfringement judgment as moot due to the result of the IPR invalidated the prior claim construction order. The district court relied on its prior adjudication of prosecution disclaimer during claim construction to conclude that the cases “were exceptional based on “the substantive strength of Dragon’s infringement position.” Dragon argued “an award of fees based on the district court’s claim construction exposes it to harm based on an unreviewable decision.” The Federal Circuit explained:
“Dragon’s argument that vacatur of the noninfringement judgment required the district court to ignore its claim construction order in determining exceptionality is incorrect. The district court was not required to relitigate claim construction for an invalidated patent to resolve Appellants’ fee motions.”
Next, the CAFC disagreed with DISH and SXM’s argument that IPR proceedings are not optional in nature and therefore should be subject to the exceptionality rule. “Appellants voluntarily pursued parallel proceedings in front of the Board instead of arguing invalidity before the district court,” wrote the CAFC. While the dissent and the appellants argued the IPR process in this instance was not optional or voluntary because they were sued first, the majority explained that “Appellants were not compelled to argue invalidity before the Board. Eight other defendants chose not to pursue such proceedings and continued to litigate in district court.” Additionally, said the opinion, “[w]ere ‘cases’ under § 285 to include IPR proceedings, district court judges would be tasked with evaluating the exceptionality of arguments, conduct, and behavior in a proceeding in which they had no involvement.”
Finally, as to attorney liability for the fee award, the CAFC said the text of Section 285 supports its conclusion that it does not extend to counsel because it is silent on the issue of who can be liable. “Conversely, other statutes explicitly allow parties to recover costs and fees from counsel,” wrote the majority. DISH and SXM also argued that “Congress’ inclusion of exceptionality language in § 285 indicates intent to allow recovery of fee awards from counsel and parties alike,” but the CAFC called this reasoning “untenable.”
District Judge Bencivengo dissented as to the majority’s rejection of recovery of the IPR fees, opining that the IPR was not “voluntary” in this situation. The visiting judge explained:
“Appellants did not ‘voluntarily’ seek to invalidate Dragon’s patents through IPR as would arguably have been the case had Appellants initiated IPR before Dragon filed this lawsuit. Instead compelled to contest the validity of Dragon’s patents in response to Dragon’s meritless infringement suit, Appellants exercised their statutory option to litigate their affirmative invalidity defenses in IPR.”
Bencivengo said that district judges should have discretion to award all reasonable fees incurred by the prevailing party “including fees incurred in an IPR that resolved any invalidity defenses that were required to be asserted in response to the baseless complaint.”
Image Source: Deposit Photos
Author: iqoncept
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Eileen McDermott
Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at […see more]
