More on the Innovation Act's provisions on attorneys' fees; upcoming roundtable on U.S. Supreme Court cases on attorneys' fees

1.  The Innovation Act was approved by the U.S. House of Representatives last week, as I reported here.  It may or may not be enacted into law.  Among the most important provisions of the bill are the provisions on attorneys' fees (section 3(b)).  To better understand them also requires some understanding of section 3(c) on joinder of interested parties.  I quote both sections below, in their entirety:

(b) FEES AND OTHER EXPENSES.—

(1) AMENDMENT.—Section 285 of title 35, United States Code, is amended to read as follows:

"§ 285. Fees and other expenses

(a) AWARD.—The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position and conduct of the nonprevailing party or parties were reasonably justified in law and fact or that special circumstances (such as severe economic hardship to a named inventor) make an award unjust. 

(b) CERTIFICATION AND RECOVERY.—Upon motion of any party to the action, the court shall require another party to the action to certify whether or not the other party will be able to pay an award of fees and other expenses if such an award is made under subsection (a). If a nonprevailing party is unable to pay an award that is made against it under subsection (a), the court may make a party that has been joined under section 299(d) with respect to such party liable for the unsatisfied portion of the award.

(c) COVENANT NOT TO SUE.—A party to a civil action that asserts a claim for relief arising under any Act of Congress relating to patents against another party, and that subsequently unilaterally extends to such other party a covenant not to sue for infringement with respect to the patent or patents at issue, shall be deemed to be a nonprevailing party (and the other party the prevailing party) for purposes of this section, unless the party asserting such claim would have been entitled, at the time that such covenant was extended, to voluntarily dismiss the action or claim without a court order under Rule 41 of the Federal Rules of Civil Procedure."

(2) CONFORMING AMENDMENT AND AMENDMENT.—

(A) CONFORMING AMENDMENT.—The item relating to section 285 of the table of sections for chapter 29 of title 35, United States Code, is amended to read as follows:

‘‘285. Fees and other expenses.’’.

(B) AMENDMENT.—Section 273 of title 35, United States Code, is amended by striking subsections (f) and (g).

(3) EFFECTIVE DATE.—The amendments made by this subsection shall take effect on the date of the enactment of this Act and shall apply to any action for which a complaint is filed on or after the first day of the 6-month period ending on that effective date.

 (c) JOINDER OF INTERESTED PARTIES.—Section 299 of title 35, United States Code, is amended by adding at the end the following new subsection: 

'‘(d) JOINDER OF INTERESTED PARTIES.—

(1) JOINDER.—In a civil action arising under any Act of Congress relating to patents in which fees and other expenses have been awarded under section 285 to a prevailing party defending against an allegation of infringement of a patent claim, and in which the nonprevailing party alleging infringement is unable to pay the award of fees and other expenses, the court shall grant a motion by the prevailing party to join an interested party if such prevailing party shows that the nonprevailing party has no substantial interest in the subject matter at issue other than asserting such patent claim in litigation.

(2) LIMITATION ON JOINDER.—

(A) DISCRETIONARY DENIAL OF MOTION.—The court may deny a motion to join an interested party under paragraph (1) if—(i) the interested party is not subject to service of process; or (ii) joinder under paragraph (1) would deprive the court of subject matter jurisdiction or make venue improper.

(B) REQUIRED DENIAL OF MOTION.—The court shall deny a motion to join an interested party under paragraph (1) if—(i) the interested party did not timely receive the notice required by paragraph (3); or (ii) within 30 days after receiving the notice required by paragraph (3), the interested party renounces, in writing and with notice to the court and the parties to the action, any ownership, right, or direct financial interest (as described in paragraph (4)) that the interested party has in the patent or patents at issue.

(3) NOTICE REQUIREMENT.—An interested party may not be joined under paragraph (1) unless it has been provided actual notice, within 30 days after the date on which it has been identified in the initial disclosure provided under section 290(b), that it has been so identified and that such party may therefore be an interested party subject to joinder under this subsection. Such notice shall be provided by the party who subsequently moves to join the interested party under paragraph (1), and shall include language that—(A) identifies the action, the parties thereto, the patent or patents at issue, and the pleading or other paper that identified the party under section 290(b); and (B) informs the party that it may be joined in the action and made subject to paying an award of fees and other expenses under section 285(b) if—(i) fees and other expenses are awarded in the action against the party alleging infringement of the patent or patents at issue under section 285(a); (ii) the party alleging infringement is unable to pay the award of fees and other expenses; (iii) the party receiving notice under this paragraph is determined by the court to be an interested party; and (iv) the party receiving notice under this paragraph has not, within 30 days after receiving such notice, renounced in writing, and with notice to the court and the parties to the action, any ownership, right, or direct financial interest (as described in paragraph (4)) that the interested party has in the patent or patents at issue.

(4) INTERESTED PARTY DEFINED.—In this subsection, the term ‘interested party’ means a person, other than the party alleging infringement, that—(A) is an assignee of the patent or patents at issue; (B) has a right, including a contingent right, to enforce or sublicense the patent or patents at issue; or (C) has a direct financial interest in the patent or patents at issue, including the right to any part of an award of damages or any part of licensing revenue, except that a person with a direct financial interest does not include—(i) an attorney or law firm providing legal representation in the civil action described in paragraph (1) if the sole basis for the financial interest of the attorney or law firm in the patent or patents at issue arises from the attorney or law firm’s receipt of compensation reasonably related to the provision of the legal representation; or (ii) a person whose sole financial interest in the patent or patents at issue is ownership of an equity interest in the party alleging infringement, unless such person also has the right or ability to influence, direct, or control the civil action.’’

I believe the basic idea behind the provision on "interested parties" is to enable recovery of fees under some circumstances from someone who has an interest in a shell company patent assertion entity.  (See the bill's section 4 on transparency of ownership as well.)  A discussion on an IP law professors' listerv yesterday, however, prompts the following hypothetical.  Suppose that Inventor A assigns her rights to her Employer, B (a commonplace situation).  The assignee B at some point thereafter assigns the patent to patent assertion entity C.  C sues D.  If C loses but can't pay D's attorneys' fees, can D recover from B (assuming all the procedural hoops specified above have been satisfied)?  B, after all, was the original "assignee" of the patent and therefore under a literal interpretation of section 3(c) above is an "interested party."  But that really doesn't make sense if B has made a complete assignment of the patent to C, which is where the provision allowing B to renounce any interest in the patent could come into play.  (Or perhaps a court could just interpret the language to refer only to someone who is a current assignee, not a former assignee who has since assigned its interest to another assignee.)  But if B has merely licensed the patent to C or made something short of a full assignment, it looks like B could still qualify as an interested party (unless it renounces whatever interest it retained, I guess).  Perhaps one could say that as a licensor B has an obligation to supervise C's decision to litigate.  Of course, if C is a nonexclusive licensee, it can't sue anyway; if C is an exclusive licensee, B should be joined anyway.  See Roger D. Blair & Thomas F. Cotter, The Elusive Logic of Standing Doctrine in Intellectual Property Law, 74 Tulane Law Review 1323 (2000).

2.  On Tuesday, December 10, Erin Dungan and I will be leading an ABA Roundtable discussion on the pending U.S. Supreme Court cases on attorneys' fees in patent litigation.  The event will be held from noon to 1 p.m. at Briggs & Morgan, 2200 IDS Center, 80 South Eighth Street, Minneapolis, MN  55402.  For the discussion paper, see here.  For my previous blog post on these two cases, see here.