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AMERICAN BAR ASSOCIATION
SECTION OF INTELLECTUAL PROPERTY LAW
REPORT TO THE HOUSE OF DELEGATES
RESOLUTION
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RESOLVED, That the American Bar Association opposes a mandatory award of attorney fees to
the prevailing party in a civil action arising under the patent laws of the United States.
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FURTHER RESOLVED, That the American Bar Association supports the authority of a district
court to award attorney fees to the prevailing party where the district court finds that a nonprevailing party: (i) engaged in material inappropriate conduct in litigating or in securing the
patent;, (ii) asserted a position in litigation on the merits that was objectively baseless; or, (iii)
brought, prosecuted, or defended a litigation in subjective bad faith; provided, however, that the
district court retains discretion not to render such an award upon a finding that special
circumstances would make such award unjust.
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REPORT
Several bills have been introduced in the 113th Congress to address abusive litigation tactics of
so-called “patent trolls” or “Patent Assertion Entities” (PAEs), so named because of their
practices of acquiring and holding patents not for commercial exploitation, but primarily if not
solely to sue for monetary relief or extortionist settlements. One proposed legislative response is
to use fee shifting in patent litigation to deter nuisance lawsuits that seek to force defendants into
settlements in which a licensing fee is paid to the PAE plaintiff.
H.R. 3309, introduced by House Judiciary Committee Chairman Robert M. Goodlatte on
October 22, 2013, calls for a mandatory award of attorney fees to a prevailing party in patent
litigation, unless the court finds that the position of the non-prevailing party “was substantially
justified or that special circumstances make an award unjust.”
On June 4, 2013, the White House announced a number of executive actions and legislative
recommendations to address these abusive practices, including a proposal to “Permit more
discretion in awarding fees to prevailing parties in patent cases, providing district courts with
more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings
(similar to the legal standard that applies in copyright infringement cases)”.
The Section of Intellectual Property urges the House of Delegates to approve its proposed
resolution expressing opposition to a mandatory award of attorney fees to a prevailing party in
patent litigation, and expressing support for greater discretion for judges to make such awards
under section 285 or successor legislation.
According to the Presidential report, PAEs filed 2,500 patent infringement lawsuits in 2012,
accounting for 62 percent of all initiated infringement suits—compared to just 29 percent in
2010. At the same time, as a result of Federal Circuit precedent, it has become increasingly
difficult for prevailing defendants to be awarded attorney fees under section 285 of title 35, U.S.
Code. Section 285 provides discretionary authority for a court to award reasonable attorney fees
to the prevailing party “in exceptional cases.” The high standard for the award of fees to
defendants under section 285 is also under review in the Supreme Court, as a result of a grant of
writ of certiorari in Octane Fitness, LLC v. Icon Health Fitness, Inc. Citing the services
provided by LegalMetric, Octane Fitness stated in its petition for certiorari that attorney fees are
awarded in only 1 percent of all patent cases filed, with the plaintiff being twice as likely to win
on a fee motion.
Absent litigation misconduct, a prevailing party must show that the non-prevailing party’s
position was objectively baseless, and that the non-prevailing party brought the infringement
claim in subjective bad faith. Additionally, in Highmark, Inc. v. Allcare Health Management, the
Federal Circuit held that a district court finding of objective baselessness is a matter of law
subject to de novo review, thereby parting with previous long-standing precedent that objective
baselessness is a matter of fact subject to the more deferential review for clear error. Certiorari
has been granted in this case also.
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Federal Circuit Interpretation of section 285
A district court has discretion to award reasonable attorney fees to a prevailing party in patent
litigation, if the court determines that the case is exceptional. The district court engages in a twostep inquiry to determine whether (1) the prevailing party proved the case is exceptional by clear
and convincing evidence, and (2) if the case is exceptional, whether an award of attorney fees is
justified.
1.
Misconduct in the Course of Litigation or in Securing the Patent
A case may be found exceptional where there is “material inappropriate conduct” related to the
litigation, including willful infringement, fraud or inequitable conduct in procuring the patent,
misconduct during litigation, vexatious or unjustified litigation, conduct that violates FRCP Rule
11, filing of incomplete or misleading evidence with the court, or a “cavalier attitude towards the
patent litigation process as a whole.” Several of the factors outlined below in regards to the
subjective bad faith requirement may on their own constitute litigation misconduct if the
violation is egregious.
Absent such misconduct in securing the patent or in the course of litigation, sanctions may be
imposed against a party only if:
(1)
the litigation is objectively baseless; and
(2)
the litigation is brought in subjective bad faith.
This current standard originates in the 2005 decision Brooks Furniture Manufacturing, Inc. v.
Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005). Numerous district court and
Federal Circuit decisions have subsequently applied the standard, resulting in the standard being
referred to as “established law under section 285.”
2.
Objective Baselessness
The prevailing party must first show by clear and convincing evidence that the non- prevailing
party’s asserted position on a claim is objectively baseless.
To be objectively baseless, the infringement allegations must be such that “no reasonable litigant
could reasonably expect success on the merits.” Dominant Semiconductors Sdn. Bhd. v. OSRAM
GmbH, 524 F.3d 1254, 1260 (Fed. Cir. 2008). The inquiry involves both law and facts, focusing
on a party’s asserted claims and claim construction, offered evidence, and conduct. The district
court will look at all relevant aspects, including the claims, the specification, the prosecution
history of the patent, the non-prevailing party’s positions and expert testimony, admitted
limitations on the claims, and any other actions and behavior evidencing the non-prevailing
party’s position.
If the claim language as constructed by the court clearly precludes the non-prevailing party’s
asserted position on the claims as objectively reasonable, the litigation is objectively baseless.
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For example, it was objectively baseless for a party to assert a claim construction that ignored
limitations and exclusions to the claims agreed to during the prosecution of the patent. MarcTec
v. Johnson & Johnson, 664 F.3d 907, 918 (Fed. Cir. 2012). A non-prevailing party, however,
only need to show that its claim construction position was not “so unreasonable that no
reasonable litigant could believe it would succeed.” Highmark at 1315 (citing iLor v. Google,
631 F.3d 1372, 1378 (Fed. Cir. 2011)). The prevailing party must then overcome a high bar by
proving by clear and convincing evidence that the non- prevailing party’s position lacks any
reasonable interpretation and therefore could not even be reasonably argued.
As a result, the Federal Circuit has held that absent litigation misconduct, surviving a motion for
summary judgment shows that the asserted position was not objectively baseless and that the
litigation is not eligible for fee shifting under section 285.
3.
Subjective Bad Faith
A determination of subjective bad faith is “irrelevant if the assertions are not objectively
baseless.” GP Indus., Inc. v. Eran Indus., Inc., 500 F.3d 1369, 1375 (Fed. Cir. 2007). That is,
“[e]ven if the claim is objectively baseless, it must be shown that lack of objective foundation for
the claim ‘was either known or so obvious that it should have been known’ by the party asserting
the claim.” Therefore, under current Federal Circuit precedent, subjective bad faith is closely
related to objective baselessness and involves a circular application of objective baselessness,
because knowledge is required that the litigation was completely without merit.
As a result, without actual or deemed knowledge of a meritless claim, the close relationship
between the two requirements prevents fee shifting and permits a non-prevailing party to extend
the litigation and drive up the prevailing party’s costs by any means, which do not independently
constitute litigation misconduct.
Case law containing determinations of subjective bad faith is limited, but includes “indicia of
extortion” where a plaintiff files identical lawsuits against “a plethora” of defendants, each
quickly followed by a demand for settlement at a cost far below expected litigation costs to
exploit the high costs of defending litigation. Other factors held by the Federal Circuit to
constitute subjective bad faith include:
(1) a plaintiff’s ability to “impose disproportionate discovery costs” at the expense of the
producing party to drive up the nuisance value of the lawsuit;
(2) the advantageous defensive position of a PAE, because PAEs do not face any business risk
and are “immune from counterclaims for patent infringement, antitrust, or unfair competition”
claims;
(3) asserting a claim construction clearly refuted by the court’s claim construction;
(4) misrepresenting the prosecution history of the patent;
(5) failure to investigate indirect infringement of the patent; and
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(6) expert testimony which does not meet requirements for scientific reliability or relevance
required by Federal Rules of Evidence Rule 702 and Daubert.
Fee Shifting
The American Rule holds that each litigant must pay its own way. The fundamental policy goal
is “to avoid penalizing a party for merely defending or prosecuting a lawsuit.” Rohm & Haas Co.
v. Crystal Chem. Co., 736 F.2d 688, 690 (1984). Section 285 is a limited exception to the
American Rule. Congress specifically stated that the award of attorney fees under section 285
should not “become an ordinary thing.” S. Rep. No. 1503, 79th Cong., 2d Sess. (1946), reprinted
in 1946 U.S. Code Cong. Serv. 1386, 1387.
1.
Award of Fees should not be Mandatory
The rights granted under a patent are not always clearly defined. Litigation therefore functions to
demarcate the boundaries of a contested patent. Mandatory fee shifting in all patent cases is
clearly against the American Rule and would deter meritorious litigation, because plaintiffs may
seek to avoid the risk of paying the opposing party’s fees where an infringement claim has a
lower probability of success.
In addition, mandatory fee shifting would eviscerate the traditional balance in American patent
law, which allows a patent holder to vigorously assert the rights granted by the patent without
fear of being burdened with a substantial financial penalty for losing on a reasonably brought
claim. The Section of Intellectual Property Law therefore urges that the ABA oppose any
legislation that restricts the conduct of litigants beyond specific actions or claims found to
constitute litigation misconduct, objective baselessness, or subjective bad faith.
2.
Disjunctive Application of Objective Baselessness and Subjective Bad Faith and
Presumption of Fee Shifting in Exceptional Cases
The current section 285 standard has proven too difficult for prevailing parties to meet, because
the objective baselessness requirement is easily defeated by the broad assertion of a patent claim.
Even the most tenuous position asserted on claim interpretation may still preclude fee shifting if
a modicum of reasonableness is found to exist in the argument advanced by the non-prevailing
party.
For section 285 to have its intended deterrent effect on unnecessary and abusive litigation, fee
shifting must be applicable beyond only objectively baseless cases, where a plaintiff attempts to
assert rights clearly outside the grant of the patent. Instead, section 285 should also apply
independently to situations where a claim initially brought in good faith is continued in bad faith.
3.
Factors a Court May Consider when Finding Subjective Bad Faith
Courts should consider a variety of factors in establishing subjective bad faith, and no single
factor should be dispositive. Possible factors could include:
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Continuing to argue a claim interpretation outside the limitations imposed on the claims
by the proceedings, including the Markman hearing;
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Failure to investigate actual or indirect infringement of the patent;
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Pre-filing infringement opinion letter from counsel lacking evidentiary support;
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Presenting unreliable or irrelevant evidence to support a claim;
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Misrepresenting the prosecution history of the patent; and or
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Expert testimony proffered does not meet requirements for scientific reliability or
relevance required by FRE 702 and Daubert.
Recommendation and Proposed Resolution
The Section of Intellectual Property recommends that the ABA express its opposition to a
mandatory award of attorney fees to a prevailing party in patent litigation, as called for in H.R.
3309 or similar legislation. The Section also recommends that the Association adopt a position in
favor of a more flexible application of 35 U.S.C. § 285. Section 285 is currently interpreted
narrowly by the Federal Circuit to only apply in limited circumstances where a non-prevailing
party engaged in material inappropriate conduct in litigating or in securing the patent, or its
position is both objectively baseless and brought in subjective bad faith. The recommended
standard would allow fee shifting where any of the three circumstances is present: litigation
misconduct by the non-prevailing party, its position is either objectively baseless, or the action is
brought in subjective bad faith. This disjunctive structure can provide an adequate remedy to
deter abusive lawsuits such as those filed by PAEs to extract underserved licensing fees.
Respectfully submitted,
Robert O. Lindefjeld, Chair
Section of Intellectual Property Law
February 2014
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GENERAL INFORMATION FORM
Submitting Entity:
Section of Intellectual Property Law
Submitted by:
Robert O. Lindefjeld, Section Chair
1.
Summary of Resolution
The Resolution opposes a mandatory award of attorney fees to the prevailing party in
patent cases, and supports the discretionary authority of federal district courts to award
attorney fees to the prevailing party in a patent case in circumstances that are less
restrictive than those currently required by judicial precedent.
2.
Approval by Submitting Entity
The Section Council approved the resolution on November 8, 2013.
3.
Has this or a similar resolution been submitted to the House of Delegates or Board of
Governors previously?
No.
4.
What existing Association policies are relevant to this Resolution and would they be
affected by its adoption?
At its 2005 Midyear Meeting, the House of Delegates adopted Resolution 109C, which
expresses ABA opposition to proposed legislation calling for the imposition of
mandatory sanctions under Rule 11 of the Federal Rules of Civil Procedure. Although not
directly applicable to the issue addressed in this Resolution, Resolution 109C appears to
be relevant in that this Resolution opposes a legislative mandate and denial of judicial
discretion in a similar matter, award of attorney fees to a prevailing party.
5.
What urgency exists which requires action at this meeting of the House?
Proposed legislation that is addressed in the Resolution is under active consideration in
Congress. If the Association is to provide timely comments to Congress on this
legislation, the report cannot be considered by the House of Delegates at a time later than
the 2014 Midyear Meeting, in that completion of congressional action on the legislation
is likely before the next meeting of the House of Delegates.
6.
Status of Legislation. (If applicable.)
As noted in paragraph 5.
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7.
Brief explanation regarding plans for implementation of the policy, if adopted by the
House of Delegates.
The policy would support submission of ABA congressional testimony and/or written
submissions on the proposed legislation in question.
8.
Cost to the Association (both direct and indirect costs).
Adoption of the recommendations would not result in additional direct or indirect costs to
the Association.
9.
Disclosure of Interest
There are no known conflicts of interest with regard to this recommendation.
10.
Referrals
This recommendation is being distributed to each of the Sections and Divisions and
Standing Committees of the Association.
11.
Contact Person (prior to meeting)
Susan Barbieri Montgomery
Section Delegate to the House of Delegates
Foley Hoag LLP
155 Seaport Boulevard Ste. 1600
Boston, MA 02210-2600
Ph: 617 832-1222
Fax: 617 832-7000
sbm@foleyhoag.com
12.
Contact Persons (who will present the report to the House)
Susan Barbieri Montgomery (See item 11 above).
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EXECUTIVE SUMMARY
1.
Summary of the Resolution
The Resolution opposes a mandatory award of attorney fees to the prevailing party in
patent cases, and supports expanding the discretionary authority of federal district courts
to award attorney fees to the prevailing party in patent cases.
2.
Summary of the Issue that the Resolution Addresses
Proposed legislation currently under consideration in Congress calls for a mandatory
award of attorney fees to the prevailing party in a patent case. The U.S. Supreme Court
has granted certiorari in a case that addresses the discretionary authority of district courts
to award attorney fees to the prevailing party in patent cases under a statute that
authorizes such an award “in exceptional cases.”
3.
Please Explain How the Proposed Policy Position will Address the Issue
The Resolution opposes the provisions of H.R. 3309, 113th Congress that call for a
mandatory award of attorney fees to the prevailing party in patent cases. It supports the
discretionary authority of federal district courts to award attorney fees to the prevailing
party in a patent case in circumstances that are less restrictive than those currently
required by judicial precedent.
4.
Summary of Minority Views
None known at this time.
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