Since the U.S. Supreme Court lowered the standard for prevailing parties to recover attorney fees in patent cases in the 2014 Octane Fitness LLC v. ICON Health & Fitness Inc. decision,1 district courts have been weighing the proper interaction between Title 35 U.S. Code Section 285 and Patent Trial and Appeal Board proceedings. Under Section 285, prevailing patent litigants may recover attorney fees in “exceptional cases.”
The Octane Fitness decision clarified that district court judges maintain broad discretion for determining what makes a case “exceptional.” It did not divulge whether that discretion permits a judge to review the losing party’s conduct in a related administrative proceeding or whether the court may award attorney fees for work done before that administrative body. These questions were abandoned to the lower courts, which tackle them with increasing frequency given the PTAB’s popularity.
In American Vehicular Sciences LLC v. Autoliv Inc., the U.S. District Court for the Eastern District of Michigan attempted to unwind these issues.2 Magistrate Judge Anthony Patti did not break ground by adopting standards for the awarding of attorney fees accumulated at the PTAB. But he entered rarified air in concluding that a losing party’s misconduct before the board could not, by itself, render a case “exceptional” if the board abstained from sanctioning it. The court denied an award, reaffirming the maxim that “exceptional cases” are indeed the exception, not the rule.
AVS v. Autoliv
In September 2015, American Vehicular Sciences sued Autoliv and 20 others for allegedly infringing U.S. Patent No. 9,043,093, directed to a single-curtain airbag capable of protecting passengers in a vehicle’s front and rear seats. Three months later, Unified Patents — independently of Autoliv — petitioned for inter partes review of a subset of the ’093 patent’s claims. The PTAB granted that petition in June 2016, prompting a stay of district court litigation pending resolution of the IPR.3
By September, Autoliv had filed two of its own IPR petitions against the ’093 patent. One challenged all claims as obvious over a combination of references “substantially similar” to that asserted by Unified; the other attacked the ’093 patent’s priority claim. Both were instituted in March of 2017.4
Two months later, the PTAB invalidated 10 of the claims challenged by Unified, sparing eight others. AVS appealed to the U.S. Court of Appeals for the Federal Circuit. The following spring, Autoliv’s IPRs invalidated the ’093 patent’s remaining claims. AVS again appealed. But, in June 2018, the Federal Circuit summarily affirmed the board’s decision in Unified’s IPR, leading AVS to dismiss its federal case.5
Autoliv moved for fees, asserting that AVS’ arguments before the board drove the case into exceptional territory.6
The Threshold Inquiry to Recovery
Proving exceptionality, however, was only one barrier to Autoliv’s recovery. Autoliv first had to persuade Judge Patti of the court’s authority under Section 285 to award those attorney fees accumulated at the PTAB. The handful of courts that have addressed the issue of awarding PTAB-related fees are split.7
Judge Patti identified the two most popular standards.8 Namely, a prevailing party can recover PTAB-related attorney fees when: (1) the PTAB’s proceedings “played a central role in determining the outcome of the federal court case ” or (2) “there was a stay of the related district court case, such that the [PTAB] proceedings effectively took the place of the of the federal court litigation.”9 The court recognized that Autoliv cleared the latter standard, thereby hurdling one obstacle to recovery.10 Yet the burden of showing exceptionality proved too weighty.
The Exceptionality Determination
Judge Patti was unenthusiastic about Autoliv’s exceptionality arguments for two principal reasons. First, the court was unconvinced that AVS made its arguments in bad faith (although bad faith is not a prerequisite to exceptionality under Octane Fitness). Asserting the opposite, Autoliv posited that the PTAB’s institution of Unified’s IPR put AVS on notice that it was “reasonabl[y] likel[y]” that the challenged claims would fall.11
Unmoved, the court recognized that AVS’ validity arguments, though ultimately unsuccessful before the PTAB, had once persuaded the U.S. Patent and Trademark Office examining corps — during prosecution of the ’093 patent, the examiner considered the same references that Unified and Autoliv would put forward in their IPRs and AVS overcame the same concerns about priority that ultimately doomed the ’093 patent. For the court, the examining corps’ surrender under the weight of AVS’ arguments justified AVS’ continued reliance on them.12 AVS’ validity position was, therefore, not baseless.
Second, and more notably, the court was reluctant to review the PTAB’s decision to not sanction AVS. AVS asserted that if Autoliv wanted to recover PTAB fees off the back of alleged misconduct before the PTAB, its remedy rested, quite naturally, with the PTAB.13
Yet Autoliv never appealed to that tribunal for attorney fees; it resorted to the district court — a body much less acquainted with the alleged misconduct, which was all alleged to have occurred before the PTAB. These considerations persuaded Judge Patti to defer to the “PTAB’s experience with exceptional cases and its composition of specialized administrative law judges”; if the PTAB didn’t sua sponte sanction AVS’ conduct, the court wouldn’t find an exceptional case.14
Analysis and Implications
American Vehicular needles the tension between Section 285 and the PTAB regime, providing insight into Section 285 motions. Judge Patti affirmed the court’s authority to grant attorney fees for work done before the PTAB. But only where the PTAB proceedings either substituted for the court’s work or played a central role in the case’s outcome.
By holding so, the Eastern District of Michigan aligned itself with several district courts that have addressed the issue. Accordingly, securing a litigation stay pending resolution of an IPR is important to setting the groundwork for seeking a Section 285 award for PTAB-related fees. This consideration implicates venue as some courts are more willing to stay cases in favor of the PTAB than others.
But more notably, Judge Patti highlighted the issue of circumvention: Does a prevailing party make an end-run around the PTAB by requesting relief from a federal court for PTAB-related work? The PTAB only shifts fees when sanctioning misconduct.15 Yet district courts may invoke Section 285 even where misconduct falls short of a sanctionable level.16 Cognizant of this imbalance, U.S. Circuit Judge Alan Lourie of the Federal Circuit recently asked a prevailing party if it was “trying to piggyback” off Section 285 in order to recover PTAB-related attorney fees.17
It is unclear how many other judges, apart from Judge Patti, share Judge Lourie’s skepticism for this method of recovering attorney fees from an IPR. For example, at least one court has considered the reasonableness of arguments made before the USPTO in finding a case exceptional.18 Nevertheless, when seeking such fees under Section 285, prevailing parties may do well to seek sanctions from the board, especially if conduct before the board is the sole basis for exceptionality.
1 Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014).
2 American Vehicular Sciences LLC v. Autoliv, Inc., No. 5:16-cv-11529, 2019 U.S. Dist. LEXIS 164343 (E.D. Mich. Aug. 30, 2019), R. & R. adopted by 2019 U.S. Dist. LEXIS 162914 (E.D. Mich. Sep. 24, 2019).
3 Id. at *2-5.
4 Id. at *5-6.
5 Id. at *7-8.
6 Id. at *9-10.
7 See Lionel M. Lavenue et al., Munchkin and the Recovery of Attorneys’ Fees from PTAB Proceedings, I.P. & Tech. L.J. (June 2019), https://www.finnegan.com/en/insights/munchkin-and-the-recovery-of-attorneys-fees-from-ptab-proceedings.html.
8 There are two other recorded standards that dictate recovery of PTAB-related attorneys’ fees. The first permits it where the PTAB-related work is “relevant” to successful claims. And second, recovery is permitted where the losing party’s misconduct is the but-for cause of the PTAB-related work. See id.
9 Am. Vehicular, 2019 U.S. Dist. LEXIS 164343 at *18-19.
10 Id. at *27.
11 A rarely effective argument. See, e.g., Joao Control & Monitoring Sys., LLC v. Chrysler Grp. LLC, No. 13-cv-13957, 2017 WL 3498951, at *8 (E.D. Mich. Aug. 16, 2017); Peschke Map Techs. LLC v. Miromar Dev. Corp., No. 2:15-cv-173-FtM, 2016 WL 11220475, at *4 (M.D. Fla. Dec. 22, 2016); W. Falcon, Inc. v. Moore Rod & Pipe, LLC, No. H-13-2963, 2015 WL 3823629, at *8 (S.D. Tex. June 18, 2015). But see Munchkin, Inc. v. Luv N’ Care, Ltd., No. CV 13-06787 JEM (C.D. Cal. Dec. 27, 2018), appeal docketed, No. 19-1454 (Fed. Cir. Jan. 23, 2019).
12 Am. Vehicular, 2019 U.S. Dist. LEXIS 164343 at *22-25.
13 Id. at *11.
14 Id. at *27-28.
15 See John D.V. Ferman, What We Know About Sanctions at the PTAB, Law360 (Mar. 2, 2016), https://www.law360.com/articles/762616/what-we-know-about-sanctions-at-the-ptab.
16 Octane Fitness, 572 U.S. at 555.
17 Oral Argument at 7:10, M-I Drilling Fluids UK Ltd. v. Dynamic Air Inc., 771 F. App’x 484 (Fed. Cir. 2019) (No. 2018-1775). Chief Judge Sharon Prost added that Congress passed the America Invents Act intending to shift validity issues from the courts to the PTAB, but in doing so it made no provision for fee-shifting at the PTAB. Id. at 7:21.
18 See Large Audience Display Sys., LLC v. Tennman Prods., LLC, No. CV 11-03398-R, 2017 WL 1528774, at *2 (C.D. Cal. Apr. 10, 2017) (finding that the “objective weakness of these claims [before the PTO] further contributed to the exceptionality of this case”).
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