September 2018
Intellectual Property & Technology Law Journal
By Lionel M. Lavenue; R. Benjamin Cassady; Nicholas J. Doyle
Leaps and bounds have been made in the last four years in the adjudication of 35 U.S.C. § 285, which allows the “prevailing party” to recover its attorneys’ fees in exceptional patent cases. These developments have included lowering the burden of proof for a moving party to prove that a case was “exceptional,” adjusting the definition of “exceptional case,” expanding the types of fees recoverable under Section 285 to those expended on a related Patent Trial and Appeal Board (PTAB) action, and allowing moving parties to recover from nonlitigants if the non-litigants’ conduct contributed to the exceptionality of the case. In Raniere v. Microsoft Corp.,1 the U.S. Court of Appeals for the Federal Circuit continued this pro-movant trend when it considered the U.S. Supreme Court’s definition of “prevailing party” in the context of a Section 285 motion.
Starting with the Supreme Court’s ruling in Octane Fitness, LLC v. Icon Health & Fitness, Inc.,2 courts have taken several pro-movant steps that have made it easier for prevailing parties to recover their fees from the losing party.
Octane opened the attorneys’ fees floodgates by (1) lessening the standard of proof for a motion for attorneys’ fees3 and (2) broadening the definition of “exceptional,” allowing district courts to award attorneys’ fees whenever a case merely “stands out from others.”4 Following Octane, district courts have begun to more readily award attorneys’ fees.
For example, in the U.S. District Court for the Eastern District of Texas (by far the most popular forum for patent cases), the number of Section 285 motions has increased tenfold in the last five years, and the proportion of successful motions has increased by roughly 30 percent.5 In addition to increased volume and success rates, the types of fees that are recoverable have broadened in the wake of Octane. Specifically, several district courts have held that attorneys’ fees spent in a related inter partes review are recoverable under Section 285 so long as the inter partes review essentially substituted for work that would otherwise have been done by the district court. 6 Courts have also expanded whom fees can be recovered from, ordering non-parties to pay attorneys’ fees of the prevailing party if the non-party is found to be the driving force behind the exceptional case.7
In this landscape of ever-broadening application and utilization of Section 285, Keith Raniere, an inventor and alleged sole proprietor of a short-lived “technology” company sued Microsoft Corp. for patent infringement.
In 1995, the inventors of the patents-at-issue, including Keith Raniere, assigned their rights to those patents to Global Technologies, Inc. (GTI), which was administratively dissolved a year later.8 Nearly 10 years after that, Raniere—claiming to be GTI’s sole owner—executed a transfer of the patents to himself and sued Microsoft, among others, in the U.S. District Court for the Northern District of Texas.9 Microsoft, having discovered that Raniere was not the owner of the asserted patents per the Patent Office’s assignment records, and discovering that Raniere was not the owner of record of the asserted patents, moved to dismiss for lack of standing.10 After protracted third-party discovery—during which Raniere subpoenaed documents from a Washington-state lawyer in an attempt to prove ownership of the patents11 —the district court’s patience ran thin, and the court dismissed the suit with prejudice for lack of standing.12
While the dismissal was on appeal, Microsoft moved for attorneys’ fees and costs under 35 U.S.C. § 285.13 The district court granted the motion, describing Raniere’s conduct during the litigation as “demonstrate[ing] a pattern of obfuscation and bad faith” in attempting to “vexatiously multiply the[] proceedings and avoid early dismissal.”14
More controversially, the district court deemed Microsoft to be the “prevailing party” even though it had only won a threshold jurisdictional decision, and the merits of the patent infringement case were never explored.15
According to the Federal Circuit’s jurisprudence at the time it heard Raniere, on December 8, 2017, a party could only be considered to have prevailed in a patent litigation if it won some relief on the merits that alters the legal relationship of the litigating parties.16 “Relief on the merits” was later clarified by the court as requiring that the prevailing party obtain a court order that materially changes the legal relationship of the parties.17
However, in 2016, the Supreme Court had considered how to determine whether a party had prevailed in CRST Van Expedited, Inc. v. EEOC.18 While noting that the “touchstone of the prevailing party inquiry must be the material alteration of the legal relationship of the parties,”19 the Court concluded that it was nonsensical to say that a party had not prevailed unless it had won on the merits of its case. 20 The Court determined that it was logical to consider a party to have prevailed if the party achieved its primary objective in the case: the defeat of the other party’s challenge without regard to the court’s reasoning or the prevailing party’s preferred outcome. 21 As such, the Supreme Court determined, “a defendant may prevail even if the court’s final judgment rejects the plaintiff’s claim for a nonmerits reason.”22
Over Raniere’s pleas for the court to apply the Federal Circuit’s prevailing party jurisprudence, under which Microsoft would only have “prevailed” if there had been a decision on the merits, the Federal Circuit incorporated the CRST holding into its prevailing party analysis.23 The Federal Circuit decided that Microsoft prevailed because it successfully earned a dismissal of Raniere’s patent infringement case for lack of standing, which was the fullest relief it could possibly obtain.24 Microsoft may have also wanted a decision that it did not substantively infringe, but Microsoft won without it. In this case, a dismissal with prejudice for lack of standing was such an instance where the defendant had rebuffed the plaintiff’s attempt to alter the legal relationship between the parties.25 Thus, Microsoft was the prevailing party under the new CRST analysis.
Raniere is another of many recent Section 285 cases that have expanded the ability of the movant to recover its fees. Prior to Raniere, well-established Federal Circuit law held that a party was not prevailing unless it won on the merits. This rule naturally foreclosed parties who nonetheless prevailed on nonmerits grounds from recouping their litigation expenses even in extraordinary cases. Requiring a win on the merits also likely suppressed defendant-movants because nonmerits routes to victory are generally used by defendants.26
Under Raniere, Section 285 motions should be even more prevalent. Because there is no longer a requirement for a decision on the merits, almost all victorious parties are eligible for recovery of their attorneys’ fees under Section 285, regardless of the manner of their victory. Because this new interpretation of “prevailing party” opens the door to Section 285 fees for defendants more so than plaintiffs, it is also likely that there will be an increase in defendant-movants under Section 285. Motions for attorneys’ fees could also become a stronger tool for defendants to use against plaintiffs who assert patents with defective assignments.
Raniere may have further impact in conjunction with the Supreme Court’s recent decision in TC Heartland v. Kraft Foods Group Brands LLC,27 which significantly limited the scope of the venue statute for patent cases, providing defendants with more leverage to challenge venue.28 A dismissal for improper venue under TC Heartland (and 28 U.S.C. § 1406)—now a realistic possibility for defendants—could result in an opportunity to recover attorneys’ fees. Although this is more likely to be the case when the venue challenge results in a dismissal with prejudice, the result achieved in Raniere,29 Section 1406 does not foreclose a dismissal with prejudice on venue grounds, and the Raniere court did not take a position on whether the “prevailing party” must obtain a dismissal with prejudice.30
Ultimately, the Federal Circuit’s re-defining of “prevailing party” as it pertains to Section 285 is, at least according to the Supreme Court, logical and sensible. The term post- Raniere more closely resembles its plain meaning— a party is prevailing if it won—instead of an esoteric definition where a successful party could somehow not be a prevailing one. This fact alone should lead to more consistent and predictable applications of Section 285, which, much like the re-defining of “extraordinary cases,” may lead to more motions for attorneys’ fees at the district court.
The Federal Circuit in Raniere v. Microsoft Corp. continued the pattern of pro-movant decisions in Section 285 attorneys’ fees jurisprudence. Without the requirement for a decision on the merits, Section 285 attorneys’ fees are a plausible remedy in almost every case where there is exceptional conduct by a party who “loses” in any sense of the word. This potentially opens the door to another wave in the tide of attorneys’ fees motions brought on by Octane Fitness, and successful patent litigants should feel confident in the possibility of recovering their fees whenever they are involved in a case that stands out from the others.
Endnotes
1 887 F.3d 1298 (Fed. Cir. 2018).
2 134 S. Ct. 1749 (2014).
3 Id. at 1758.
4 Id. at 1756.
5 Lionel M. Lavenue et al., The Developing Landscape for Attorney Fee Motions in the Eastern District of Texas, 24 No. 26 Westlaw J. Intell. Prop. 01 (Apr. 11, 2018), available at https://www.finnegan.com/en/insights/thedeveloping-landscape-for-attorney-fee-motions-in-the-eastern-district-of-texas.html.
6 See, e.g., Deep Sky Software, Inc. v. Sw. Airlines Co., No. 10-cv-1234-CAB, 2015 WL 1084423 (S.D. Cal. Aug. 19, 2015); Chaffin v. Braden, No. 14-cv-0027, 2016 WL 5372540 (S.D. Tex. Sept. 26, 2016); Lionel M. Lavenue et al., Potential Limits to Fee Recovery May Make Petitioners Rethink Post-Grant Procedures, 89 Intell. Asset Mgmt. 72 (May/June 2018); Lionel M. Lavenue et al., Recovering Attorneys’ Fees for AIA Proceedings, 92 Pat. Trademark & Copyright J. (BNA) 597 (June 24, 2016).
7 See Lionel M. Lavenue et al., The Eastern District of Texas Shifts Fees to Nonparty in Exceptional Case, Westlaw J. Intell. Prop., 2017 WL 1179545 (Mar. 29, 2017).
8 Raniere, 887 F.3d at 1300.
9 Id.
10 Id.
11 These documents showed that GTI’s shareholders had consented to the transfer of 75 percent of the company’s shares from Raniere’s ex-girlfriend to Raniere. Id. However, this transfer was never completed because, Raniere claimed, the ex-girlfriend had agreed to hold those shares in trust for him. Id. at 1301. This claim was never substantiated with written documentation, and the court found the idea to be “wholly incredible and untruthful.” Id.
12 Id.
13 Id.
14 Id. at 1301-02.
15 Id. at 1301.
16 Id. at 1304 (quoting Inland Steel Co. v. LTV Steel Co., 364 F.3d 1318, 1320 (Fed. Cir. 2004)).
17 Id. (quoting Rice Servs. Ltd. v. United States, 405 F.3d 1017, 1023 (Fed. Cir. 2005)).
18 136 S. Ct. 1642. Though CRST considers the fee-shifting provision of Title VII, the Supreme Court noted that its interpretation of “prevailing party” should apply to all fee-shifting statutes promulgated by Congress. Raniere, 887 F.3d at 1305 (quoting CRST, 136 S. Ct. at 1646) (“Congress has included the term ‘prevailing party’ in various fee-shifting statutes, and it has been the Court’s approach to interpret the term in a consistent manner.”).
19 CRST, 136 S. Ct. at 1646.
20 Raniere, 887 F.3d at 1305 (quoting CRST, 136 S. Ct. at 1651).
21 Id.
22 Id. (quoting CRST, 136 S. Ct. at 1651).
23 Id. at 1306.
24 Id. at 1308.
25 Id.
26 That the Raniere decision will be more helpful to defendants than plaintiffs makes sense in that most nonmerits jurisdictional challenges—i.e., lack of personal jurisdiction, venue, standing, improper service, failure to state a claim, or suing the wrong party—are all defenses to a defective complaint. For example, the U.S. District Court for the District of Maryland used the reasoning in Raniere to allow a defendant to recover its attorneys’ fees after winning a motion to dismiss on the grounds of forum shopping. Citi Trends, Inc. v. Coach Inc., No. RDB-17-1763, 2018 WL 2276151, *3-*4 (D. Md. May 17, 2018).
27 137 S. Ct. 15154 (2017).
28 See David K. Mroz & Samhitha Muralidhar Medatia, Venue Challenges After TC Heartland: Move Fast or Risk Waiver, IP Litigator (Jan./Feb. 2018), available at https://www.finnegan.com/en/insights/venue-challengesafter-tc-heartland-move-fast-or-risk-waiver.html .
29 See, e.g., Raniere, 887 F.3d at 1307-08 (“‘[W]ith prejudice’ is an acceptable form of shorthand for ‘an adjudication upon the merits.’” (quoting Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 505 (2001))).
30 Indeed, the court in Citi Trends awarded the defendant its attorneys’ fees, based largely on the reasoning provided in Raniere, when the defendant had only prevailed on a motion to dismiss for forum shopping. Citi Trends, 2018 WL 2276151 at *3-*4. This instance was similar to a venue challenge in that there was a parallel litigation in the U.S. District Court for the Central District of California. Id. at *2.
Originally printed in Intellectual Property & Technology Law Journal in September 2018. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
Lecture
Patent Protection for Software-Related Inventions in Europe and the USA Training Course
June 5, 2024
Hybrid
Due to international data regulations, we’ve updated our privacy policy. Click here to read our privacy policy in full.
We use cookies on this website to provide you with the best user experience. By accepting cookies, you agree to our use of cookies. Please note that if you opt not to accept or if you disable cookies, the “Your Finnegan” feature on this website will be disabled as well. For more information on how we use cookies, please see our Privacy Policy.
Finnegan is thrilled to announce the launch of our new blog, Ad Law Buzz, devoted solely to breaking news, developments, trends, and analysis in advertising law.