Source: http://webiis05.mondaq.com/unitedstates/x/827842/Patent/Hitkansut+V+United+States+Recovering+Attorneys+Fees+When+The+Government+Infringes+Your+Patent
Timestamp: 2019-08-18 11:34:04
Document Index: 34888816

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Hitkansut v. United States: Recovering Attorneys' Fees When The Government Infringes Your Patent - Intellectual Property - United States
United States: Hitkansut v. United States: Recovering Attorneys' Fees When The Government Infringes Your Patent
Article by Lionel M. Lavenue, Benjamin R. Cassady and Regan Rundio
In Hitkansut v. United States, the U.S. Court of Federal Claims (CFC) has, likely for the first time, awarded attorneys’ fees under 28 U.S.C. § 1498(a).1 Senior Judge Charles F. Lettow awarded the patent owner, Hitkansut LLC, approximately $4.4 million in costs and fees—20 times more than what the court awarded Hitkansut for the government’s unauthorized patent use.
Recovering costs and fees under § 1498(a) is, by Congressional design, rare. Only three classes of patent owners may recover—independent inventors, nonprofit organizations, and corporations with 500 employees or less—and even then, only if litigation spans beyond 10 years or if the government’s “position” is not “substantially justified.” In the 20 years preceding Hitkansut, the CFC published its response to only three motions for costs and fees under § 1498(a); in each case the court found the government’s position justified.2 Bucking this trend, Judge Lettow supported his order for fees by denigrating not only the government’s substantive positions but also its conduct.
This groundbreaking case sheds light on a variety of issues arising under § 1498(a)’s fee-shifting provision: the timing of the fee award; a complainant’s standing to request attorneys’ fees for a trial litigated on contingency; the “substantially-justified” inquiry’s scope and relevant factors; and limitations on an award’s size. How the Hitkansut court addressed these issues has important meanings for practitioners.
In 2003, Donna Walker filed a patent application claiming a process for reducing internal stress in manufactured metals by applying thermal and oscillatory energy. Beginning that same year, Walker, attempting to solicit contracts, described and demonstrated her invention to researchers at Oak Ridge National Laboratory (ORNL) under a years-long nondisclosure agreement (NDA). ORNL—a government lab primarily funded by the Department of Energy—had not been making headway in researching similar processes. Walker developed a successful proof of concept for ORNL and in return the lab exploited Walker’s invention without her involvement or license—garnering awards, grants, and additional patents in the process.
In 2007, Walker received a patent on her process—U.S. Patent No. 7,175,722 (the ‘722 patent). Five years later, Hitkansut LLC and Acceledyne Technologies, Ltd. (collectively “Hitkansut”),3 respectively the holder and exclusive licensee of the ‘722 patent, sued the federal government in the CFC for infringement under 28 U.S.C. § 1498(a).4 In view of the $45 million in research funding Oak Ridge received based on Walker’s process, Hitkansut sought to recover $4.5 to $5.6 million in royalties.
After a six-year trial, though it found that ORNL had infringed the ‘722 patent, the court held that patent owners cannot collect royalties on research funding. Hitkansut’s award was limited to an upfront licensing fee of $200,000.5 The U.S. Court of Appeals for the Federal Circuit affirmed the judgment,6 and on remand Hitkansut moved for $4.5 million in costs and fees.
Section 1498(a) waives the U.S. government’s sovereign immunity against patent infringement claims, delegating exclusive jurisdiction over such suits to the CFC. In such actions, prevailing claimants may recover “reasonable and entire compensation.”7 This compensation excluded attorneys’ fees until 1996, when Congress amended § 1498(a) to allow recovery of “reasonable fees for expert witnesses and attorneys” if:
(1) “[T]he owner is an independent inventor, a nonprofit organization, or an entity that had no more than 500 employees at any time during the 5-year period preceding the use or manufacture of the patented invention by or for the United States,”8 and
(2) The position of the United States was not substantially justified.9
Bifurcation of “Reasonable and Entire Compensation”
The court first addressed whether Hitkansut10 waived recovery of costs and fees by failing to request them before final judgment. In finding that Hitkansut did not, the court stated that a claim for infringement is distinct from a claim for costs and fees.11 And pursuant to its rules of procedure, where there is “just reason,” the court can separate claims and enter final judgment for some but not others.12
Accordingly, it is appropriate to forestall a decision on attorneys’ fees until after rendering final judgment on infringement.13
Three bases supported Judge Lettow’s refusal to read into § 1498(a) a superseding requirement to merge the two claims. First, a plain reading of “reasonable and entire compensation” does not imply a timing requirement.
Second, the CFC favorably compared § 1498(a) with the Equal Access to Justice Act (EAJA), a fee-shifting statute that, like § 1498(a), was passed to support individuals and small entities in litigating against the government. In Commissioner, I.N.S. v. Jean, the Supreme Court reasoned that, because the EAJA does not refer to “separate parts of the litigation, such as discovery, requests, fees, or appeals,” the statute permits recovery for “all aspects of the civil action”—including appeal.14 The same rationale applies to § 1498(a) which makes no such categorizations. Accordingly, the CFC reasoned that because § 1498(a) awards may include appellate costs and fees, the law contemplates a preceding judgment on damages from which to appeal.15
Third, because it found that Congress passed § 1498(a)’s fee-shifting provision intending to enlarge patent owners’ potential recovery, the CFC refused to infer a timing requirement contrary to that intent. On these three bases, the court concluded that nothing in § 1498(a) barred the bifurcation of “reasonable and entire compensation” into a first award compensating infringement and a subsequent award for costs and fees.16
Standing to Request Fees
The court next addressed whether Hitkansut had standing to request attorneys’ fees that it did not incur. Specifically, Hitkansut requested $2.9 million in pre-appeal attorneys’ fees that, because of a contingency agreement with its counsel, Hitkansut never had to pay. Nevertheless, the court refused to construe § 1498(a)’s recitation of “the owner’s . . . costs” as barring the recovery of fees expended on contingency. The court supported this decision on two grounds.
First, the court recognized that, in the context of fee-shifting statutes, the word “actually” has talismanic significance. Because § 1498(a), like the EAJA, does not limit recovery to those costs and fees “actually” incurred by the prevailing party, that party may recover fees even where counsel incurs them on the complainant’s behalf.17
Second, § 1498(a) limits the benefit of the feeshifting provision to three classes: independent inventors, nonprofit organizations, and small businesses. The court acknowledged that Congress selected these classes because they were unlikely “to be able to ‘actually incur’ litigation costs.” Accordingly, the Hitkansut court refused to foreclose a complainant—likely incapable of supporting litigation alone—from recovering attorneys’ fees merely because it utilized one of the only fee arrangements that would facilitate the pursuit of its meritorious claim.18
The Government’s Position Includes Pre-Litigation Conduct
As discussed above, § 1498(a) bars a complainant’s recovery if the government’s “position” is “substantially justified.” In three prior cases, the court addressed the evidentiary scope of the “substantially-justified” inquiry. The first two opinions established a narrow scope of inquiry, excluding consideration of pre-litigation conduct; the third opinion adopted a laxer standard, which the Hitkansut opinion emulates, allowing for consideration for pre-litigation conduct.
In 1999’s Gargoyles, Inc. v. United States, a patentee asserted that settlement negotiation records were relevant to whether the government’s position was substantially justified under § 1498(a).19 The CFC disagreed, holding that § 1498(a) constrained the inquiry into the government’s position such that the court could not consider extra-record evidence (like the settlement negotiation documents). The court did not distill this limitation from § 1498(a), which is silent on the scope of the inquiry; it adapted it from the EAJA, which specifies that the government’s position “shall be determined on the basis of the record . . . made in the civil action.”20
The CFC expounded upon this principle one year later in B.E. Meyers & Co. v. United States.21 There, the court refused to weigh evidence that, prior to litigation, the government had learned of the infringed invention under an NDA and exploited it without the patent owner’s license. The opinion stated that the substantially-justified inquiry is “generally restricted” to conduct that occurs during the litigation. But more relevant to Hitkansut, the Meyers court acknowledged that the proffered evidence spoke to whether the government intentionally infringed. And in its judgment, the nature of infringement is irrelevant where punitive damages are unavailable, as they are in § 1498(a) actions.22
In 2003’s Wright v. United States, and subsequently in Hitkansut, the CFC allowed for a wider scope of inquiry.23 Both opinions considered pre-litigation conduct and relied on the Supreme Court’s decision in Commissioner, I.N.S. v. Jean to support their findings.24
In Jean, the Supreme Court recognized that, because the EAJA defines “position of the United States” to include “the action or failure to act by the agency upon which the civil action is based,” the EAJA’s substantially-justified inquiry captures the government’s pre-litigation conduct. By invoking Jean, the Wright and Hitkansut courts called Gargoyles’s narrow interpretation of “position of the United States” into question. Adopting Jean’s evidentiary scope, the Hitkansut court cited pre-litigation evidence that spoke to the nature of the infringement. Specifically, the court noted:
(1) How ORNL shifted its metal-processing research onto the Walker process immediately after Walker disclosed it to ORNL researchers under an NDA;
(2) How ORNL “took sole credit” for the Walker process while not contracting with or funding Hitkansut;25 and
(3) How ORNL filed patents on the Walker process without disclosing the ‘722 patent to the USPTO.26
According to Judge Lettow, this conduct poisoned the government’s position on noninfringement.27 Absent from the opinion, however, is any suggestion on how to reconcile this decision with Meyers’s holding that evidence of the nature of the infringement is irrelevant.
Importantly, Judge Lettow did not rely on prelitigation conduct alone to find the government’s position not substantially justified. Rather, the court also criticized the government’s invalidity positions on several fronts. Regarding obviousness,28 the court found that the government:
(1) Failed to address essential elements of the asserted claims;
(2) Failed to proffer a motivation to combine; and
(3) Failed to rebut its own witnesses’ acknowledgment of unexpected results. Regarding patent eligibility, the court found that the government did not apply either step of the Alice test.29 Considering the totality of the circumstances, the court held that the government failed to prove that its position was substantially justified.30
Attorneys’ Fees Capped by Reasonableness
The court awarded Hitkansut $4.4 million in costs and fees,31 making only minor adjustments to the patentee’s request. It made a point of noting that Hitkansut left money on the table by failing to request fees for work done in preparing its request for fees.32 The court concluded its opinion by rejecting two pleas by the government to drastically reduce the award.
First, the government unsuccessfully asserted that the court should diminish Hitkansut’s fees by 95 percent because the patentee was only awarded five percent of the damages it initially requested. The court retorted that, though the government succeeded in reducing damages by successfully arguing that research funding could not give rise to royalties, Hitkansut prevailed on the primary issue: infringement. And the $200,000 in up-front licensing fees was more than nominal relief that might counsel for a reduction in attorneys’ fees.33
Second, the government asserted that attorneys’ fees must be capped at the amount of damages; an award exceeding damages would contravene § 1498(a)’s provision that complainant’s entire compensation be “reasonable.” In rejecting this argument, Judge Lettow stated that § 1498(a) does not specify a cap. Capping fees at damages would, in the court’s opinion, contradict the fee-shifting provision’s purpose: attracting attorneys to likely-meritorious suits that cost more to litigate than could be recovered in damages.34
Moreover, Judge Lettow chided the government for focusing on Hitkansut’s actual recovery when reasonableness is dictated by its potential recovery. Had the government failed to convince the court that a patent owner could not recover royalties on research funding—an issue of first impression—the government could have been on the hook for up to $5.6 million in damages.35
Requesting Fees Under § 1498(a)
Judge Lettow’s 30-page opinion supplies a mass of grist for patent practitioners to mill. But most impactful is the fact of the award itself. The CFC’s inaugural grant of costs and fees may presage a fresh amenability to similar requests. If so, the CFC will have stimulated its bar to pursue meritorious § 1498(a) claims, even where potential damages are low.
Alternatively, Hitkansut may be aberrant—an isolated judgment motivated by the egregiousness of the government’s treatment of a sympathetic plaintiff. Judge Lettow will soon decide another motion for attorneys’ fees under § 1498(a) in FastShip, LLC v. United States,36 potentially revealing whether Hitkansut is a one-off or a trendsetter. Moreover, the government has appealed the Hitkansut order, meaning the Federal Circuit will have an opportunity to consider these issues itself.
Apart from the impact of being the first of its kind, the Hitkansut opinion elucidates important principles for claimants seeking costs and fees under § 1498(a). The following are five significant practical takeaways:
First, a patent owner does not waive the recovery of costs and fees by failing to request them before final judgment.
Second, the patent owner has standing to request even those attorneys’ fees solely incurred by the owner’s legal counsel under a contingency agreement.
Third, the court can consider the government’s pre-litigation conduct when conducting the substantially-justified inquiry. In Hitkansut, the court even considered the nature of the infringement. Accordingly, some claimants may knowledgeably evaluate the strength of a potential future motion for costs and fees even before filing a complaint.
Fourth, costs and fees under § 1498(a) are capped only by reasonableness, which depends upon the potential value of the suit during litigation, not on the actual damages awarded. Fifth, successful patent owners can request and recover costs and fees from every phase of the litigation, including those expended to request costs and fees.
1 No. 12-303C, 2019 WL 1233416 (Fed. Cl. Mar. 15, 2019), appeal docketed, No. 2019-1884 (Fed. Cir. May 17, 2019).
2 Wright v. United States, 56 Fed. Cl. 350, 352–56 (2003); B.E. Meyers & Co. v. United States, 47 Fed. Cl. 375, 380 (2000); Gargoyles, Inc. v. United States, 45 Fed. Cl. 139, 147 (1999).
3 Walker, now deceased, was a majority owner of both Hitkansut and Acceledyne.
4 This article at times uses “infringement” as shorthand for the government’s unauthorized use of a patent. Whether or not the government commits “infringement” under § 1498(a) is a topic of debate. See, e.g., Return Mail, Inc. v. U.S. Postal Serv., 868 F.3d 1350, 1360–64 (Fed. Cir. 2017), rev’d on other grounds, 587 U.S.___(2019). Likewise, this article uses “damages” as shorthand for the compensation patentee recovers for the government’s infringement. Because § 1498(a) provides compensation for a Fifth Amendment taking, the patentee does not, in the legal sense, recover damages. See infra note 7.
5The court so limited recovery because the grant money did not support commercialization of the patented invention. See Hitkansut, No. 12-303C, 2019 WL 1233416, at *2.
6 721 F. App’x 992 (Fed. Cir. 2018), aff’g 130 Fed. Cl. 353, 395 (2017).
7 For a comprehensive review of § 1498, see Lionel M. Lavenue, Patent Infringement Against the United States and Government Contractors Under 28 U.S.C. § 1498 in the United States Court of Federal Claims, 2 J. Intell. Prop. L.
389 (1995).
8 The court can also decline to award fees if “special circumstances make an award unjust.”
9 Congress cribbed the “substantially justified” language from the Equal Access to Justice Act (EAJA), which provides for fee-shifting in federal eminent domain actions. 28 U.S.C. § 2412(d)(1)(A) (2012). Due to this identity of language, the CFC has consistently read § 1498(a)’s feeshifting provision through an EAJA-tinted lens, as detailed below. The core of § 1498(a) is more than 100 years old and since its passage consensus among federal courts has been that it is not a tort law, but rather a statute authorizing the government to take a patent license via eminent domain. In de Graffenried v. United States, the CFC defied consensus, holding that § 1498(a) did not implicate eminent domain, meaning that the EAJA did not apply to patentees slighted by the government. 29 Fed. Cl. 384, 387 (1993). In adding the fee-shifting provision to § 1498(a) three years after de Graffenried, Congress endeavored to supply EAJA-style recovery to (some) § 1498(a) claimants.
10 It was undisputed that Hitkansut fit into the category of patent owners who could recover under § 1498. No. 12-303C, 2019 WL 1233416, at *5 n.8.
11 Id. at *6.
12 Id. at *5 (citing RCFC 54).
13 Though the CFC dealt with this issue in 1999, reaching the same result, the Hitkansut court believed this to be “an issue of first impression.” Compare Gargoyles, Inc. v. United States, 45 Fed. Cl. 139, 143–44, with Hitkansut,
No. 12-303C, 2019 WL 1233416, at *5.
14 496 U.S. 154, 158, 161, 166 (1990), cited by Hitkansut, No. 12-303C, 2019 WL 1233416, at *7.
15 Hitkansut, No. 12-303C, 2019 WL 1233416, at *7. The court also favorably compared § 1498 to the Uniform Relocation Act, which allowed for separate claims for compensation and fees.
16 This is also consistent with the fee-shifting provision of the Patent Act, 35 U.S.C. § 285, which only allows for fee shifting after there is a “prevailing party.”
17 Id. at *10 (citing Phillips v. Gen. Servs. Admin., 924 F.2d 1577, 1582 (Fed. Cir. 1991)). The court also favorably compared § 1498(a)’s fee-shifting provision to that of the Back Pay Act. Id. at *9.
18 Id. at *11–12.
19 45 Fed. Cl. 139, 147 (1999).
20 Id. (quoting 28 U.S.C. § 2412(d)(1)(B)) (emphasis added). Nevertheless, the court considered the evidence for the sake of argument, and determined that it did not undermine the reasonableness of the government’s position. Id. at 147–48.
21 47 Fed. Cl. 375 (2000).
22 Id. at 380. The government is not subject to punishment for exercising its inherent authority to take a patent license under eminent domain. See supra note 9.
23 56 Fed. Cl. 350, 352–56 (2003).
24 Id. at 352 (citing Comm’r, I.N.S. v. Jean, 496 U.S 154, 158 (1990)); Hitkansut, No. 12-303C, 2019 WL 1233416, at *13 (same).
25 Hitkansut, No. 12-303C, 2019 WL 1233416, at *15.
27 Id. The court was not forthcoming as to how this prelitigation conduct affected the sufficiency of the government’s noninfringement argument.
28 See 35 U.S.C. § 103.
29 The Supreme Court holds that abstract ideas are not patentable under 35 U.S.C. § 101. In Alice Corp. v. CLS Bank International, the Supreme Court established a two-step test for determining whether a claim constituted a patent-ineligible abstract idea. 573 U.S. 208, 216–17 (2014). First, determine whether the claim is directed to an abstract idea; and second, determine whether the claim recites additional limitations that transform the claim into a patent-eligible application of that idea. Id. at 217.
30 The court also noted that the government advanced positions inconsistent with the court’s claim construction. Id.
31 Id. at *25.
32 Id. at *16.
33 Id. at *20.
34 Id. at *24.
36 No. 12-484C (Fed. Cl. Mar. 25, 2019) (setting a hearing on attorneys’ fees and expenses for April 3, 2019). In 2017, Judge Lettow awarded FastShip $6.5 million in compensation for the government’s infringement; the Federal Circuit increased that to more than $7.1 million. FastShip, LLC v. United States, 892 F.3d 1298, 1310 (Fed. Cir. 2018), aff’g in part 131 Fed. Cl. 592 (2017). Notably, the government’s pre-litigation conduct in FastShip is similar to that in Hitkansut.
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