Source: http://www.thenalfa.org/blog/category/prevailing-party/
Timestamp: 2019-04-21 16:22:36+00:00

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Subject to certain exceptions, patent litigation in the United States typically adheres to the “American rule”: Each party pays its own attorney fees, win or lose. But many may not be aware that assertions of patent infringement against the United States government itself are not governed by this same rule, making it easier for some successful plaintiffs to recover attorney fees at the conclusion of litigation.
A recent ruling from the U.S. Court of Federal Claims awarding a plaintiff more than $4 million in attorney fees explains the different standard in detail, and may lead to increased interest in bringing patent claims against the government.
Under 28 U.S.C. § 1498, the Court of Federal Claims has exclusive jurisdiction over patent infringement suits brought against the federal government. Because “infringement” by the government is generally treated as a Fifth Amendment taking of a license to use a patented invention, plaintiffs in such suits cannot receive injunctive relief, but are limited only to “reasonable and entire compensation” for the use or manufacture of the patented invention by or for the government.
Originally, the statute did not clarify whether “reasonable and entire compensation” included costs and attorney fees; the Court of Federal Claims has also found that Section 1498 claims are not directly analogous to other takings claims. It therefore determined that the Equal Access to Justice Act (the statute that typically provides for attorney fee awards in claims against the government) did not apply to Section 1498 claims, leaving patent owners with no avenue to obtain attorney fees even in the most egregious Section 1498 cases.
Recognizing this disparity between the taking of real property and intellectual property, in 1996 Congress amended Section 1498(a) to expressly provide awards of “reasonable costs, including reasonable fees for expert witnesses and attorneys.” The sponsors of the amendment noted that without the ability to recover fees, small businesses in particular may be unable to afford the expense of defending patents against government expropriation.
The ability to recover attorney fees as a “default” stands in sharp contrast to typical patent infringement suits, where plaintiffs — even small businesses or nonprofits — recover fees only “in exceptional cases.” As Congress observed, however, suits against the government “authorize the government to take a license in any patent,” making such suits more analogous to takings of real property than to private infringement suits.
Yet in the near quarter-century since Section 1498 was amended, the Court of Federal Claims has handed down only three decisions on awards of attorney fees. The previous cases, decided well over a decade ago, both resulted in the Court of Federal Claims denying fees. But on March 15, 2019, the court for the first time awarded a successful plaintiff attorney fees under Section 1498.
In Hitkansut LLC et al. v. United States, the court had previously found that the government used Hitkansut’s patented invention, and awarded $200,000 in compensatory damages. While Hitkansut had sought nearly $6 million in compensatory damages, the court found that much of these requested damages were not appropriate under the law. The court’s prior infringement and damages findings were affirmed on appeal, and Hitkansut subsequently sought to recover its attorney fees and litigation expenses: $4.51 million. In a thorough and detailed opinion, the court granted Hitkansut the vast majority of its fee request.
The court first addressed the fact that Hitkansut had engaged in a contingency fee arrangement with its attorneys. The government argued that this meant that Hitkansut had not “actually incurred” any fees, disqualifying it from any award. But the court observed that the fee arrangement was irrelevant, noting that “[a]ccepting the government’s argument would ... dissuade litigation by the very class of people the fee-shifting provision of 28 U.S.C. § 1498(a) exists to help.” Because “[t]he patent owners most likely to use contingent arrangements are those ... specifically identified by the statute,” the court found that the fact of a contingent arrangement should not impact an award of costs.
The court then considered whether the government’s position in the suit was “substantially justified.” Adopting the standard from the Equal Access to Justice Act, the court explained that a position is “substantially justified” when it is “justified to a degree that could satisfy a reasonable person, which is no different from the ‘reasonable basis both in law and fact’ formulation.” In the court’s view, an award depends on whether the government can demonstrate that the positions it took “were such that a reasonable person could conclude that its position was supportable,” taking into account both pre- and post-litigation conduct.
Applying this standard, the court found that the government’s positions on both non-infringement and invalidity lacked substantial justification. Regarding potential infringement, the court observed that the government had (1) altered its research activity in line with disclosures Hitkansut had made to the government under a confidentiality agreement; (2) represented the opposite of claims their employees had made in invention disclosures and in depositions; and (3) advanced arguments inconsistent with the court’s claim construction.
The government argued that (1) because damages were reduced to 5% of those sought, fees should be reduced proportionately; and (2) the requested fees should be capped at the amount of damages. But the court rejected both of these arguments, finding the reduction in damages was unrelated to the primary issue of infringement, and that the remaining award — even where Hitkansut proved infringement of only some of the claims — indicated a sufficient degree of success.
Notably, the court found that the purpose of the fee-shifting portion of the statute is “to accommodate suits where the cost to bring the suit could not be recovered from the damages awarded.” As a result, there was no reason that fees could not greatly exceed actual damages — even where, as here, the fees exceeded compensatory damages by a factor of 20.
While the court’s decision in Hitkansut is likely to be appealed, it may lead to increased consideration from patent owners in bringing Section 1498 patent actions against the government (currently, only a handful of such suits are filed each year). A common refrain among patent owners in recent years has been that it is too expensive to enforce patents. Indeed, the high cost of litigation leads many patentees, especially those with a relative lack of resources, to outsource enforcement to patent assertion entities, or rely on contingency arrangements and/or litigation funders to assist with litigation.
For those patent owners who believe that their patents may be used by the U.S. government and/or government contractors, the court may be an avenue to seek compensation for infringement, with the knowledge that they may have a substantial chance at recovering their attorney fees and other expenses — in sharp contrast to suits against private entities.
Additionally, the prospect of a substantial fee award may lead to the government entering into settlements in these cases at higher levels than it may have previously. And the increased attention for Section 1498 actions may come from more than just independent inventors or nonprofit organizations — given that many nonpracticing entities, even publicly traded ones, likely fall below the 500-employee threshold, they may also increase their activity at the Court of Federal Claims.
Finally, the Hitkansut court’s decision to award fees in the face of the plaintiff’s contingency arrangement may also attract firms who work on alternative fee and contingency arrangements, as well as litigation funding entities, to explore becoming involved in Section 1498(a) actions.
Matthew J. Rizzolo is a partner and Steve Meil is an associate at Ropes & Gray LLP. For the full text of this article, including footnotes, visit https://www.law360.com/articles/1149324/fee-award-highlights-patent-litigation-in-claims-court.
A recent Law 360 story by Nathan Hale, “No Added Atty Fees in Nationstar Case, 11th Circ. Says,” reports that a Florida woman who won a judgment against Nationstar Mortgage LLC for charging improper fees is not entitled under state law to collect appellate attorney fees for her counsel's work defending an initial attorney fees award in the case, the Eleventh Circuit ruled. The federal appeals court backed a lower court's decision to deny Sara Alhassid's request for attorney fees covering Nationstar's appeal based on a finding that the benefit would be purely for her attorneys and that she has no obligation to pay them for this work.
The appeals panel said it agreed with the district court that the controlling case on the issue is the Second District of Florida's ruling in B & L Motors Inc. v. Bignotti. In that case, the state appeals court found that if a plaintiff has no interest in a fee award because it would not affect her payment obligation to her attorneys, then the plaintiff may not receive a fee award under the Florida Deceptive and Unfair Trade Practices Act, according to the opinion.
Alhassid's counsel, Reuven T. Herssein of Herssein Law Group PA, said that his side intends to seek an en banc rehearing of the decision, which he said promotes meritless appeals by mortgage companies and other large institutions and has a chilling effect on plaintiffs who bring and litigate these cases. "In light of this decision, plaintiffs attorneys will shy away from taking on these kind of cases since we won on the merits of the appeal and the appellate court’s decision means we are not paid for the successful result we obtained for our client in the appellate court," he said.
The dispute stems from Bank of America's decision to place Alhassid’s reverse mortgage in default for failure to pay flood insurance on her property. After acquiring Alhassid’s mortgage and note in April 2013, Nationstar called her loan due and payable and started a foreclosure action on the property in January 2014, according to case records. Alhassid filed the suit as a proposed class action against Bank of America NA and Nationstar in February 2014 and was joined by Sarah Drennen in August 2014. The two women filed their third amended complaint in December 2014, bringing three breach-of-contract claims, a claim for breach of the covenant of good faith and fair dealing, the FDUTPA claim and a claim of violation of the Fair Debt Collection Practices Act.
They alleged the two companies charged improper fees, placed loans in default when borrowers did not pay those fees and then charged more unlawful fees after the defaults, according to the opinion. The district court in Miami denied class certification in August 2015, finding that the nine class definitions didn’t show commonality and only individualized evidence could prove wrongdoing. The claims against Bank of America were ultimately dismissed voluntarily, but Alhassid won summary judgment against Nationstar on all but the good-faith and fair-dealing claim, which the court found to be duplicative, the opinion said.
Alhassid was awarded $5,000 in actual damages and $1,000 in statutory damages under the FDCPA, according the opinion. The district court also found that she was entitled to attorney fees as the prevailing party under the FDUTPA and awarded her $435,704 in fees. The Eleventh Circuit affirmed the award on appeal. The case is Alhassid v. Nationstar Mortgage LLC, case number 18-11985, in the U.S. Court of Appeals for the Eleventh Circuit.
It is also noted that where a plaintiff is unable to show actual damages, a jury does have the authority to award presumed damages (generally limited to $1.00) in order to offer some solace to the plaintiff whose reputation has been damaged. Mr. Bolson says that New Jersey is in a minority of states that limit presumed damages to nominal damages. He urges that, “To eliminate any confusion as to whether attorney fees can be awarded in defamation cases, the New Jersey legislature should pass legislation to definitively establish that attorney fees are compensable to successful plaintiffs as actual damages.” Mr. Bolson contends that protecting one’s reputation should not be worth just a dollar. He urges that successful plaintiffs should be able to receive legal fees and costs even where only nominal damages are awarded.
Although the internet has revolutionized publishing and made it far easier to broadcast malicious lies about anyone, the fact is that to adopt Mr. Bolson’s suggestion would be to drastically change our American system whereby, except for specified statutory or contractual exceptions, litigants bear their own legal costs. Whether that established system is ever to be changed remains to be seen. However, to provide in defamation actions that, even in the absence of actual harm, a prevailing plaintiff may receive attorney fees as “actual damages” would be to distort the meaning of such damages and, in effect, adopt the British system where the loser pays. While we respect Mr. Bolson’s contention that one’s reputation should be compensable, irrespective of demonstrated harm, we are not yet prepared to endorse such change in our American system.
Know and understand the applicable jurisdiction’s rules pertaining to Rule 45’s protections.
Be able to demonstrate that the non-party has attempted to respond to Rule 45 discovery in the most efficient manner available.
If possible, demonstrate that review for compliance with regulations or attorney-client privilege is consistent with any applicable protective order or local rule and, therefore, not just for the non-party’s benefit.
In order to increase the likelihood of recovering costs of any motion practice, attempt to cooperate with the requesting party and demonstrate a willingness to resolve or mitigate the costs and the dispute.
The cases discussed below evaluate motions for costs and fees in two broad categories: (1) those incurred when litigating the scope of the subpoena itself and (2) those incurred in compliance.
The district court in In re Aggrenox Antitrust Litigation considered the motion of a nonparty, Gyma Laboratories of America, to recover $72,778.20 in costs and fees incurred in response to a Rule 45 subpoena from the direct purchaser plaintiffs. Gyma objected to the requests as overbroad and asserted that production would be unduly burdensome. At the hearing on cross-motions to compel and to shift costs and fees, the court expressed concern that Gyma had not made a record establishing the alleged difficulties in production, but directed that Gyma would be eligible for reimbursement of reasonable costs incurred.
In reviewing Gyma’s subsequent motion for costs and fees, the court reasoned that Rule 45 makes cost-shifting “mandatory in all instances in which a non-party incurs significant expense from compliance with a subpoena,” but that it did not require the requesting party to bear the entire cost of compliance. Further, the court held that only “reasonable” costs are compensable under Rule 45 and that the moving party bears the burden of proof. The court found that Gyma had not established that a reasonable client would use its “expensive” New York counsel to handle the subpoena, and further that costs and fees incurred prior to the date it provided an estimate of costs to the plaintiffs and the court were not fairly chargeable.
Moreover, the court found that many of the costs and fees were incurred in connection with Gyma’s efforts to resist compliance with the subpoena, which the court found was a unilateral “decision to litigate the subpoena zealously.” Finding that Gyma was “notably intransigent and dilatory in its response,” and considering the admonition of the U.S. Court of Appeals for the Second Circuit, that courts should “not endorse scorched earth tactics” or “hardball litigation strategy,” the district court denied Gyma’s motion for fees in bringing the motion, and awarded only $20,000 in reasonable costs and fees for compliance with the subpoena.
The court in Valcor Engineering Corp. v. Parker Hannifin Corp. considered the motion of non-party MEDAL, to shift the entire cost of production pursuant to a subpoena, $476,000, to the requesting party. The court found that the costs and fees were objectively unreasonable, and that much of the cost resulted from MEDAL’s tactical decision to aggressively challenge every aspect of the subpoena, which led to two separate motions to compel. Moreover, the court found that MEDAL demonstrated little interest in minimizing expenses or preventing further motion practice. For example, after the court granted the first motion to compel, MEDAL withheld nearly 90 percent of the documents identified by search terms as non-responsive, without providing any explanation. The court also found that MEDAL’s aggressive tactics tended to demonstrate that it was not a truly disinterested non-party, and that it had been intimately involved in the acts giving rise to the litigation. Finding that MEDAL’s motion came “close to wielding the shield of Rule 45 as a sword,” the court denied its motion for cost-shifting.
By contrast, the court in Linglong Americas Inc. v. Horizon Tire Inc. granted, in full, a similar request by non-party GCR Tire & Service for costs and fees associated with a Rule 45 subpoena served by Horizon. GCR objected to the scope of the subpoena, and its counsel spent several months negotiating with Horizon’s counsel to narrow the request. GCR moved to recover its costs and fees, and Horizon objected to allocation of fees incurred in narrowing the scope of the subpoena. Reviewing Rule 45 case law, including Aggrenox, the court reasoned that it was required to protect the non-party from significant, reasonable expenses incurred in compliance. The court found that narrowing the subpoena took several months of work by GCR’s attorneys and that the charges were reasonable, particularly since GCR had already paid them. The court further found that expenses incurred in litigating the fee dispute were reasonable and incurred in compliance with the subpoena. Accordingly, the court awarded the full $24,567 sought for responding to the subpoena and another $15,338 in fees for filing the fee dispute.
In Sands Harbor Marina Corp. v. Wells Fargo Insurance Services of Oregon, the plaintiffs alleged that EVMC Real Estate Consultants, Inc. and others conspiring with EVMC fraudulently induced the plaintiffs to pay advance loan commitment fees when, in fact, no financing was available. Wells Fargo, the employer of one of the defendants, served a subpoena on Dogali Law Group, a nonparty law firm that had represented EVMC in connection with the loan transactions at issue. Dogali withheld multiple documents on the basis of attorney-client privilege. Several years later, the court ruled that a defendant law firm could not withhold documents on the basis of attorney-client privilege because no surviving entity had standing to invoke the privilege on EVMC’s behalf. Wells Fargo then renewed and expanded its earlier subpoena to Dogali, seeking the withheld documents. When Dogali argued that an electronic production would be time-consuming, Wells Fargo proposed to use its own vendors to reduce time and costs. After unsuccessful negotiations about the payment of costs and fees for the production, the court ordered production of the previously withheld privileged documents, as well as all documents responsive to the expanded subpoena. Dogali later filed a motion for costs and fees in the amount of $39,709.
Weighing the mandate of Rule 45, the court held that Dogali was entitled to an award of fees. While the court generally agreed that the legal services rates charged were reasonable, it found that the legal time spent responding to the second subpoena and renewed subpoena included time for tasks that were unreasonable, such as time spent researching whether Dogali had standing to assert the attorney-client privilege, reviewing the documents for privilege, creating privilege logs for documents reviewed previously, and researching privilege and waiver issues. In addition, the court held that time spent communicating with former partners, preparing file memoranda, and conferring with Wells Fargo’s counsel about costs and production was not reasonable.
Finally, the court looked at the attorney time spent researching and preparing the motion for costs as well as the paralegal time spent reviewing documents for production. The court denied Dogali’s request for the costs of drafting and reviewing the application as unnecessary and excessive. As to time billed for the paralegal and cost of production, the court noted Wells Fargo’s offer to allow Dogali to utilize its vendor and determined that “rather than explore a more efficient and economical approach for the production, [Dogali] opted to have [its] paralegal print each email individually and convert it into a pdf…[Wells Fargo] should not be required to bear the cost of [Dogali’s] unilateral decision to utilize a more time-consuming approach.” After carving out costs and fees determined to be unreasonable, the court awarded Dogali fees and costs in the amount of $10,537.33.
In Nitsch v. Dreamworks Animation SKG Inc., the court determined that attorneys’ fees and costs associated with protecting the confidentiality of affected non-parties were reasonable and therefore compensable. Non-party Croner Company, a consulting company that conducted annual compensation benchmarking, moved for reimbursement of costs incurred in responding to the plaintiffs’ subpoena, which sought survey data that Croner obtained from companies in the animation and visual effects industry over several years. Before Croner responded to the subpoena, its counsel conferred with plaintiffs’ counsel, advised that it would seek reimbursement of costs, and provided an initial estimate of those costs.
Because all surveys Croner conducted were subject to confidentiality provisions, Croner notified affected clients about the subpoena and devised a form of production to produce the information for the plaintiffs but preserve the anonymity of the survey participants. The process was more time-consuming than expected, and Croner sought costs, including outside attorneys’ fees, in the amount of $67,787.55. The plaintiffs objected on the basis that the request was unreasonable, arguing that Croner had produced only 16 documents and that the requested sum was grossly over-inflated and unreasonable.
Citing Rule 45(d)(2)(B)(ii)’s requirement that a court must protect a person who is neither a party nor a party’s officer from “significant expense resulting from compliance,” the court stated that the “shifting of significant expenses is mandatory, but the analysis is not mechanical; neither the Federal Rules nor the Ninth Circuit has defined ‘significant expenses.’” The court then discussed whether costs tied to Croner’s confidentiality concerns were compensable, as “resulting from compliance” with a subpoena.
The court noted that reimbursable fees include those incurred in connection with legal hurdles or impediments to production, such as ensuring that production does not violate federal law or foreign legal impediments, but reimbursable fees do not include fees incurred for services for the non-party’s sole benefit and peace of mind. The plaintiffs argued that Croner’s efforts to protect client confidentiality were purely business interests that inured solely to Croner’s benefit and that the protective order was sufficient to address Croner’s confidentiality issues. The court disagreed, finding that the efforts to address confidentiality issues were reasonable and compensable.
Significantly, the court held that Croner’s efforts were consistent with the protective order entered into by the parties, stating that: Croner’s efforts to protect client confidentiality were not made to be obstreperous, but were the result of compliance with the subpoena. Indeed, if any of the parties in this case were asked to produce a non-party’s confidential information, the stipulated protective order requires them to do what Croner did.
In Steward Health Care System LLC v. Blue Cross & Blue Shield of Rhode Island, however, the court reached the opposite conclusion when the non-party, Nemzoff & Company LLC, requested reimbursement for costs and fees associated with complying with a subpoena from Blue Cross, which included a review for relevancy and privilege. Nemzoff initially refused to comply due to the costs involved, resulting in a court order compelling compliance and a warning that Nemzoff should minimize expense as it may bear the cost. The court explained that only “reasonable expenses” incurred — and not all expenses — may be shifted.
The court held that attorneys’ fees have traditionally been awarded as sanctions in the most egregious circumstances or when the requested fees were for work that benefited only the requesting party. Since it was not presented with any argument for sanctions, the court found that Nemzoff’s use of its own attorneys to review the documents for relevancy, confidentiality and privilege matters was only for Nemzoff’s benefit, and conferred an unwanted benefit upon Blue Cross. Nemzoff’s attorneys were protecting its own interests. As such, the court denied Nemzoff’s request.
While cost-shifting remains within the discretion of the court, courts have consistently been more likely to award costs and fees when a non-party has worked in good faith to narrow the scope of a subpoena and responded in an efficient fashion. To the contrary, when a non-party attempts to obstruct the discovery process, courts have refused to shift costs and fees. As demonstrated by the case law, the potential for cost-shifting must necessarily turn on the particular facts and circumstances of each case.
Article: When Is a Prevailing Party Not a Prevailing Party for Purposes of Awarding Fees?

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