The general rule in American litigation is that each party must pay its own attorneys’ fees. However, in patent cases, the court can award attorneys’ fees to the prevailing party if the case is considered “exceptional.” Yet, even in these situations, not all categories of attorneys’ fees are recoverable.
In a recent ruling, the U.S. Court of Appeals for the Federal Circuit addressed this issue in Dragon Intellectual Property v. DISH Network. The court rejected DISH Network’s bid to recoup $3.3 million in fees, asserting that accused patent infringers cannot recover fees incurred in a parallel inter partes review (IPR) proceeding. Moreover, they cannot hold the patent owner’s counsel jointly and severally liable for attorneys’ fees.
This decision makes it clear that attorneys’ fees related to IPR proceedings are not recoverable under the patent law’s fee-shifting provision. As a result, accused infringers with strong cases for non-infringement or non-prior-art invalidity may reconsider filing IPR petitions in the future.
Evaluating Exceptionality
The Federal Circuit characterized IPR arguments as “voluntary” procedures before the Patent Trial and Appeal Board (PTAB) rather than federal district courts. It emphasized that district courts are particularly well-suited to determine whether a case before them is exceptional, given their prolonged involvement.
If the fee-shifting provision included IPR proceedings, district judges would have to evaluate the exceptionality of arguments in cases they hadn’t overseen. The court further clarified that the patent owner’s counsel cannot be held liable based on the patent owner’s litigation position rather than counsel’s conduct.
Supreme Court Influence
The Federal Circuit’s decision aligns with prior rulings by the U.S. Supreme Court on fee-shifting in patent cases. In 2014, the Supreme Court defined an “exceptional” case as one standing out due to the substantive strength of a party’s legal position or the unreasonable manner in which the case was litigated.
Both the Supreme Court and Federal Circuit have noted that whether a case is “exceptional” should be determined based on the totality of the circumstances, considering factors such as inequitable conduct, litigation misconduct, and frivolous suits.
Regarding the “prevailing party,” the Supreme Court stated in 2016 that a plaintiff achieves this status by materially altering the legal relationship between parties, while a defendant does so by rebuffing the plaintiff’s primary objective without needing a favorable judgment on the merits.
The Federal Circuit has since applied this principle. For example, in 2018, it found that dismissing a patent owner’s case with prejudice for lack of standing makes the accused infringer the prevailing party. Similar rulings followed in cases dismissed for mootness due to patent invalidation or judgment of unclean hands due to litigation misconduct.
However, in 2020, the Federal Circuit determined that a dismissal without prejudice does not confer “prevailing party” status.
Outlook
Accused infringers can achieve prevailing party status without a substantive judgment on the merits. But attorneys’ fees are awarded only if the court deems the case exceptional, an assessment based on the judge’s discretion.
Following the Dragon Intellectual ruling, accused infringers should strategically evaluate whether initiating a parallel IPR is economically sensible since attorneys’ fees incurred in IPRs are not recoverable. The Federal Circuit’s decision in this case offers pivotal clarification on the boundaries of fee recovery in exceptional patent litigation cases. Further details can be found in Bloomberg Law’s analysis.