Attorney's Fees

35 U.S.C. § 285 provides for fee-shifting in exceptional patent cases: STATUTORY TEXT: 'The court in exceptional cases may award reasonable attorney fees to the prevailing party'; KEY ELEMENTS: (a) 'exceptional cases' — not all cases; only cases that stand out from others; (b) 'may award' — discretionary; the court can decline to award fees even in an exceptional case; (c) 'prevailing party' — the party who wins the case (defendant or plaintiff may be the prevailing party); OCTANE FITNESS v. ICON HEALTH & FITNESS (S.Ct. 2014): fundamentally changed the § 285 standard; BEFORE OCTANE: under the Brooks Furniture test, an exceptional case required either: (1) litigation brought in subjective bad faith; OR (2) the litigation was objectively baseless; and the determination was reviewed de novo on appeal; OCTANE FITNESS HOLDING: the Brooks Furniture test was too rigid; an exceptional case is one that stands out from others with respect to: (a) the substantive strength of a party's litigation position (considering both the governing law and the facts); OR (b) the unreasonable manner in which the case was litigated; the district court has discretion to consider the totality of the circumstances; NO REQUIREMENT FOR OBJECTIVE BASELESSNESS: Octane Fitness eliminated the need to prove the case was objectively baseless; a case can be exceptional based on the weakness of the position or on litigation conduct alone; HIGHMARK v. ALLCARE HEALTH MANAGEMENT (S.Ct. 2014): § 285 awards are reviewed for ABUSE OF DISCRETION (not de novo); this made fee awards more durable on appeal; combined with Octane, fee awards became significantly more available.

Courts look at the totality of the circumstances to determine exceptionality: SUBSTANTIVE STRENGTH OF LITIGATION POSITION: WEAK PATENT ASSERTION: filing suit on a patent with known invalidity; asserting infringement without adequate pre-suit investigation; pursuing claims clearly barred by exhaustion or prior license; ignoring obvious claim construction; WEAK DEFENSES: asserting invalidity defenses without evidentiary support; raising defenses solely for delay; ignoring strong evidence of infringement; UNREASONABLE MANNER OF LITIGATION: ABUSIVE LITIGATION TACTICS: vexatious discovery (excessive depositions; burdensome document requests without proportionality); misrepresentations to the court; hiding information during claim construction; filing motions solely for delay; DEMAND LETTER PRACTICE: demanding settlement for amounts below litigation cost (nuisance value); mass sending form letters; threatening frivolous litigation; SPECIFIC EXCEPTIONAL CONDUCT: failing to perform adequate pre-suit investigation; continuing to litigate after learning of fatal claim construction issue; asserting the same patent against hundreds of defendants with boilerplate complaints; pursuing claims in bad faith after clear non-infringement is established; FACTORS COURTS CONSIDER: the objective strength of the legal position; the subjective good faith of the litigant; the reasonableness of conducting investigation before filing; consistency with prior positions; DEFENDANT'S EXCEPTIONAL CONDUCT: patent owners can also seek fees for exceptional defendant conduct: defending with frivolous invalidity arguments; abusive discovery tactics by defendant; relying on baseless claim construction; AMOUNT OF FEE AWARD: the prevailing party recovers 'reasonable' attorney's fees; the court may limit fees to the exceptional aspects of the case; fees may not cover the entire litigation if only part was exceptional.

The threat of attorney's fees is a significant tool against abusive patent assertion: PRE-OCTANE NPE LANDSCAPE: before Octane Fitness (2014), it was difficult to obtain fee awards against NPEs; NPEs (non-practicing entities, colloquially 'patent trolls') filed infringement suits knowing defendants would settle rather than spend $1M+ litigating; defendants often settled even weak cases to avoid litigation costs; POST-OCTANE IMPACT: after Octane Fitness, district courts awarded fees more frequently against NPEs with weak positions; this created a deterrent against mass-mailing demand letters; courts awarded fees for: inadequate pre-suit investigation; using form complaints without analyzing each defendant's products; pursuing claims after obvious non-infringement was demonstrated; FEE AWARDS IN PRACTICE: Apple v. Uniloc USA (NDCA 2021): court awarded $3.5M fees against Uniloc after finding exceptional conduct; courts in WDTX and NDCA have been active in fee awards post-Octane; DEFENSIVE STRATEGIES AGAINST NPE ASSERTIONS: respond to demand letters by pointing out deficiencies in the infringement analysis; early motion for summary judgment of non-infringement; if successful, move for fees under § 285; file IPR to invalidate asserted patents; DEMAND LETTER RESPONSE STRATEGY: if you receive a demand letter: request all claim charts; analyze the infringement theory; determine whether the patent is even arguably infringed; if clearly not infringed, respond in writing to create a record for fees; PRO SE AND SMALL-ENTITY PLAINTIFFS: courts have discretion to consider the financial circumstances of the losing party when awarding fees; a fee award against an individual inventor who loses may be reduced or waived; against a funded NPE, courts are less likely to reduce.

Adequate pre-suit investigation is a key factor in § 285 exceptionality analysis: RULE 11 OBLIGATIONS (FRCP 11): before filing any patent infringement complaint, counsel must: conduct reasonable investigation of the factual basis for each allegation; confirm that each asserted claim is plausibly infringed by the accused product; not file for an improper purpose (delay, harassment); § 285 INVESTIGATION STANDARD: courts use evidence of pre-suit investigation (or lack thereof) in § 285 analysis; what did counsel do before filing? was a claim chart prepared? was the accused product analyzed against the claims? was prior art considered? was the prosecution history reviewed? INADEQUATE INVESTIGATION PATTERNS: (a) using form complaints that don't analyze each defendant's specific products; (b) asserting patent claims without understanding how the accused product works; (c) claiming infringement of method claims without determining who performs each step; (d) failing to obtain the accused product for analysis; (e) relying on website descriptions without technical analysis; DOCUMENTATION OF PRE-SUIT INVESTIGATION: plaintiff's counsel should document: date and nature of pre-suit investigation; who performed the analysis (claim charts; product acquisition); what information was available; DEFENDANT'S RIGHT TO DISCOVERY ON INVESTIGATION: defendants may seek discovery on whether pre-suit investigation was adequate; depose plaintiff's counsel (within limits); request claim charts; TIMING OF EXCEPTIONAL CASE MOTION: typically filed after final judgment; but early resolution is possible: motion for fees after case is dismissed; motion after summary judgment of non-infringement; courts may also award fees if plaintiff dismissed voluntarily after defendant raised substantive defenses.

Patent litigation has multiple overlapping fee-shifting provisions: § 285 vs. RULE 11 (FRCP 11): § 285 applies after the case is over (exceptional case standard); Rule 11 applies to specific frivolous filings (complaint; brief; motion); Rule 11 requires a 21-day safe harbor period (the objecting party must notify the filer to correct before seeking sanctions); § 285 has no safe harbor; § 285 vs. 28 U.S.C. § 1927 (UNREASONABLE MULTIPLICATION): § 1927: counsel personally liable for fees caused by unreasonably and vexatiously multiplying proceedings; requires bad faith; applies to attorney conduct specifically (not the party's substantive position); § 285 applies to the party's case; § 285 vs. INHERENT POWER: courts can award fees under inherent power for bad faith litigation; high standard; rarely used when § 285 is available; FEE AWARD AMOUNT: the prevailing party is entitled to REASONABLE attorney's fees; courts use a lodestar analysis: reasonable hours × reasonable hourly rate; if only part of the case was exceptional, fees limited to that part; ENHANCED DAMAGES vs. FEES: § 284 enhanced damages: up to 3× compensatory damages for willful infringement (Halo Electronics, S.Ct. 2016); § 285 fees: reimbursement of attorney's fees; both can be awarded in the same case for the same conduct; INTEREST: § 284 also allows pre-judgment and post-judgment interest; interest on damages separate from fees; INSURANCE IMPLICATIONS: many defendants have patent infringement insurance; insurance typically covers compensatory damages but may not cover § 285 fees; § 285 exposure is personal to the entity, not necessarily insured.