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Doubts Deepen if ‘Exceptional’ Patent Case Fees Include PTAB Work

Sept. 2, 2021, 9:01 AM

Companies that win an “exceptional” patent lawsuit can be reimbursed for their attorneys’ fees—but they can’t count on recouping money spent fighting at the Patent Trial and Appeal Board.

Patent law allows the winning side to collect fees from the losing side when a district court judge finds that the lawsuit is “exceptional,” as outlined in Section 285 of the Patent Act. Courts are split on how the law applies to PTAB expenses.

Some courts have found the fees can include money companies spent challenging a patent at the PTAB after being sued. Recently, however, other judges, including a magistrate judge in Delaware, have indicated those are likely sunk costs.

The U.S. Court of Appeals for the Federal Circuit has yet to provide a definitive answer, but “it is pointing in the direction, perhaps, that awards are not going to be given for proceedings that are outside of the district court case,” Akin Gump Strauss Hauer & Feld LLP attorney Rubén Muñoz said.

While PTAB reviews are a less expensive way to challenge a patent’s validity, the proceedings can still cost hundreds of thousands of dollars. In the Delaware case, a judge said PTAB fees may account for a significant portion of the $1.1 million and $1.5 million Dish Network LLC and Sirius XM Radio Inc. spent in the litigation, respectively.

For smaller businesses, in particular, that’s not an insignificant expense. A bar on recovering those fees could be a consideration in their litigation strategies.

‘Optional’ Proceedings

Questions about whether Section 285 allows companies to recover costs at the patent office predate the 2011 America Invents Act, the law that created the popular inter partes reviews at the PTAB.

In 1988, the Federal Circuit ruled Celanese Polymer Specialties Co. could recoup fees spent opposing PPG Industries Inc.’s reissue patent applications at the agency. Celanese had been sued for infringement, and the court said its participation in the agency proceeding wasn’t optional. The court also said the patent office proceeding “substituted for the district court litigation” on certain issues.

How the Federal Circuit views “the relevance of that case may drive its ultimate decision on whether or not fees can be awarded for PTAB work,” said Sandip Patel, an attorney at Marshall Gerstein & Borun LLP.

Without deciding the question, the Federal Circuit said last year in the Dish and Sirius cases it saw “no basis in the Patent Act for awarding fees under § 285 for work incurred in inter partes review proceedings that the Appellants voluntarily undertook.”

While the statement wasn’t binding, Magistrate Judge Jennifer Hall in the District of Delaware agreed. In a recent report, the judge emphasized Dish and Sirius weren’t required to challenge Dragon Intellectual Property LLC’s patent at the PTAB, but rather that they chose to do so.

Some attorneys say the realities of patent litigation mean PTAB reviews aren’t that optional. Most of the patents challenged at the PTAB are brought by a defendant that has been sued in district court on the patent, a 2016 study found.

“Because most IPRs are filed because there’s a parallel district court action and because it’s common sense to have an inexpensive determination of validity, rather than a ridiculously expensive evaluation of it, it’s not so voluntary,” Patel said.

“It’s practical,” Patel said, “and that’s the way people proceed. That’s the way business is conducted in patent litigation after the AIA passed.”

Substituting Work

Some district courts have been more willing to allow defendants to recover fees spent at the patent office.

A judge in the Eastern District of Texas, for example, said in 2017 that My Health Inc. owed companies almost $60,000 for work on an IPR petition because the “defendants never would have sought IPR if they had not been sued for allegedly infringing.”

In another case involving Southwest Airlines Co., a judge in the Southern District of California said the airline could recover fees for reexamination proceedings at the patent office because the proceeding “essentially substituted for work that would otherwise have been done before this court.”

Hall acknowledged the My Health and Southwest cases, but said their reasoning wasn’t persuasive. While Dish and Sirius argued they were effectively being punished for choosing the more “efficient route,” Hall said to take it up with Congress.

“Federal courts don’t make policy,” Hall wrote, recommending the companies’ fee award be limited to what they spent in the district court.

Dish and Sirius XM have objected to Hall’s report, which will be reviewed by a district court judge. The companies argue, among other things, that inter partes reviews aren’t optional because defendants sued for infringement have one year to file for inter partes review - “a non-extendable deadline to act.”

Revisiting PPG

Questions about PTAB fees have put a spotlight on the Federal Circuit’s decision in PPG. Some legal scholars say the court took a wrong turn in its decision, and skipped an important step by looking at whether the proceedings were optional.

Megan La Belle, a law professor at Catholic University of America who studied the subject, said the U.S. Supreme Court has established a clear framework for recovering fees for work in administrative tribunals.

The first step is to look at the language of the relevant statute.

Section 285 states that courts “in exceptional cases may award reasonable attorney fees to the prevailing party.” Administrative proceedings, like PTAB reviews, generally aren’t viewed as “cases,” La Belle said.

“You only get to that second step if there’s an argument that administrative proceedings are captured by the language of the statute,” La Belle said. “I think clearly they’re not under 285.”

Another avenue for companies could be to pursue fees directly at the patent office. The PTAB has the power to sanction a party for misconduct at the board, which can include frivolous arguments. But La Belle suggested in a 2016 article that Congress pass legislation allowing for recovery of PTAB fees in exceptional cases in district court.

“From a policy perspective, to me it seems obvious that the Congress that passed the AIA, if they thought about this and if they were asked the question, ‘Can you recover fees for AIA proceedings?,’ I don’t see why they would ever say ‘No,’” La Belle said.

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com

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