Federal Circuit Vacates Award of Double Attorneys' Fees

This morning the Federal Circuit published an opinion in Lumen View Technology LLC v. Findthebest.com, Inc. (opinion here).  Judge Lourie wrote the opinion, joined by Judges Moore and Wallach.  

The plaintiff Lumen View is described as "the exclusive licensee of U.S. Patent 8,069,073 (“the ’073 patent”), which is directed to a method for facilitating bilateral and multilateral decisionmaking.  The claims are directed to a method of matching parties, involving analyses of preference data from both a first class of parties and a second class of counterparties" (p.2).  The defendant FTB "operated a specialized search website with a comparison feature entitled 'AssistMe' that provided users with personalized product and service recommendations."  FTB moved for judgment on the pleadings, which the court granted on the ground that the patent in suit was directed to an unpatentable abstract idea and therefore invalid.  The court also found that the case was "exceptional" and therefore merited an award of attorneys' fees under Patent Act § 285, which states that "The court in exceptional cases may award reasonable attorney fees to the prevailing party." The court then awarded FTC double its attorneys' fees, citing “'the need to deter the plaintiff’s predatory strategy, the plaintiff’s desire to extract a nuisance settlement, the plaintiff’s threats to make the litigation expensive, and the frivolous nature of the plaintiff’s claims'”  (pp. 3-4).  In addition, "the court noted that the lodestar was uncharacteristically low due to the court’s expeditious resolution of the case. As a result, the court found that, here, the lodestar amount alone would be insufficient to deter similar misconduct by Lumen in the future, justifying an enhancement of the lodestar amount" (p.4).  

Citing the Supreme Court's opinions in Highmark and Octane Fitness, the Federal Circuit concludes that the district court did not abuse its discretion in finding that, in view of the totality of the circumstances, the case was exceptional for purposes of § 285.  Nevertheless, and despite the fact that the amount of fees to be awarded is also committed to the district court's discretion, § 285 did not provide a basis for an award of double fees:

In calculating an attorney fee award, a district court usually applies the lodestar method, which provides a presumptively reasonable fee amount . . . by multiplying a reasonable hourly rate by the reasonable number of hours required to litigate a comparable case . . . . This method has been characterized as “readily administrable” and “objective,” but “not perfect” and “never intended to be conclusive in all circumstances” . . . .  

We have noted that “although the amount the client paid the attorney is one factor for the court to consider in determining a reasonable fee, it does not establish an absolute ceiling.” Junker v. Eddings, 396 F.3d 1359, 1365 (Fed. Cir. 2005). In “rare” and “exceptional” cases, a district court may enhance the lodestar amount based on various factors, provided they are not adequately taken into account by the lodestar calculation. . . .

We agree with Lumen View that the district court failed to provide a proper rationale to justify enhancing the attorney fee award by a multiplier of two. The district court justified its award based on the specific circumstances of the case, the court’s proactive case management and expeditious resolution on the merits, which resulted in an “extremely low” lodestar. Lumen View Tech., 63 F. Supp. 3d at 326–27. If the court had adopted Lumen View’s proposed schedule, it stated, FTB would have reasonably incurred “significantly greater” attorney fees. Id. at 327. That analysis, however, appears to align more with the “results obtained” rationale disfavored by Supreme Court precedent, rather than being a justification for enhancing the lodestar determination. See Bywaters, 670 F.3d at 1230–31 (explaining that “the ‘results obtained’ factor is generally subsumed within the lodestar calculation and thus normally should not provide an independent basis for a departure from the lodestar figure.” (citing Blum v. Stenson, 465 U.S. 886, 900 (1984); Perdue, 559 U.S. at 554)).

The district court further reasoned that the calculated lodestar amount would be insufficient to deter an ongoing predatory strategy of baseless litigation, and thus the deterrent aspect of awarding fees would not be well served by a relatively low amount. But deterrence is not generally a factor to be considered in determining a reasonable attorney fee under § 285. Although deterrence may be a consideration when determining whether to award attorney fees, it is not an appropriate consideration in determining the amount of a reasonable attorney fee, which is principally based on the lodestar method. Unlike sanctions that are explicitly tied to an amount that suffices to deter repetition of conduct, see Fed. R. Civ. P. 11(c)(4), § 285 only specifies “reasonable attorney fees” once an exceptional case is found. And the lodestar method, yielding a presumptively reasonable attorney fee amount, focuses on the counsel retained by the prevailing party: higher standing attorneys are theoretically reflected by higher rates charged, and more complex issues are reflected by more hours worked. 

Adjusting the lodestar has been condoned for situations in which the prevailing party’s attorney’s performance or conduct somehow is not factored into the lodestar calculation. Perdue, 559 U.S. at 554–56 (finding that enhancement may be appropriate where lodestar does not adequately measure attorney’s “true market value”; attorney is subjected to “extraordinary outlay of expenses” for protracted litigation; or “exceptional delay” in payment of fees). However, factors outside the realm of performance or conduct attributable to the prevailing party’s attorney have not been accepted as justifying an enhancement. See id., 559 U.S. at 554 (noting that “inferior performance by defense counsel, unanticipated defense concessions, unexpectedly favorable rulings by the court, an unexpectedly sympathetic jury, or simple luck” cannot justify an enhanced award).

As such, we do not find proper support for the district court’s decision to enhance the lodestar amount by the specified multiplier as a reasonable fee award. . . .  Because we conclude that the expedited schedule and the deterrence purpose are unrelated to the suitability of compensation of FTB’s attorneys, and hence not relevant to enhancement of the lodestar, we conclude that the district court has not properly justified the amount awarded.

We therefore vacate the attorney fee award and remand the case for recalculating a reasonable attorney fee award and determining whether there may be other issues open for consideration relating to attorney conduct. Whether the court wishes to utilize Rule 11 or any other statutory framework is of course up to the district court (pp.6-10).

I'm inclined to agree with the Federal Circuit that the relief awarded under § 285 is intended to be compensatory; and that if, in a given case, there is a need for additional deterrence, there are other mechanisms (enhanced damages, Rule 11 sanctions) that may take this interest into account.  Relevant to this issue, I would note as well that the briefs filed last week in the Halo and Stryker cases (see here) argue that § 285 is compensatory in nature, because this fact might provide a basis for concluding that something other than a discretionary, totality of the circumstances test might be appropriate for awards of enhanced damages under § 284.   

A further thought.  Enhanced damages under § 284 would of course not be an available remedy in a case in which the accused infringer prevails.  I have at times wondered whether it would be desirable, as a matter of policy, for courts to have the authority to award attorneys' fee multipliers or some other monetary award in favor of prevailing defendants in certain circumstances, in order to deter overly broad assertions of IP rights.  See, e.g., Thomas F. Cotter, Fair Use and Copyright Overenforcement, 93 Iowa L. Rev. 1271, 1301 (2008).  I'm inclined to think nonetheless that the Federal Circuit is correct in holding that § 285 doesn't contemplate such a remedy.