Federal Circuit Affirms Fee Award Against U.S. Government

The decision is Hitkansut LLC v. United States, opinion by Chief Judge Prost, joined by Judges Clevenger and Moore.  The case arose under 28 U.S.C. § 1498, which permits patent owners to obtain compensation for the federal government's unauthorized use of their inventions.  Section 1498(a) reads, in relevant part:

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture. Reasonable and entire compensation shall include the owner's reasonable costs, including reasonable fees for expert witnesses and attorneys, in pursuing the action if the 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. Notwithstanding the preceding sentences, unless the action has been pending for more than 10 years from the time of filing to the time that the owner applies for such costs and fees, reasonable and entire compensation shall not include such costs and fees if the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

In this case, the plaintiffs alleged that the Oak Ridge National Laboratory (OKNR), which is part of the U.S. Department of Energy, infringed United States Patent No. 7,175,722 (“Methods and Apparatus for Stress Relief Using Multiple Energy Sources”).  The U.S. Court of Federal Claims ruled in favor of the plaintiffs, and awarded $200,000 as compensation.  (The plaintiffs had sought a royalty between $4.5 and $5.6 million, however.)  The court also awarded attorneys' fees in the amount of $4,387,889.54.  In this appeal, the government challenges the fee award on three grounds:

First, it argues that the Claims Court erred in statutory interpretation by determining that “the position of the United States”—which must be substantially justified under 28 U.S.C. § 1498(a)—includes not only the government’s litigation positions but also its pre-litigation conduct. Second, it argues that, regardless of statutory interpretation, the position of the United States in this case was substantially justified. Third, it argues that because Hitkansut’s damages award was lower than the maximum damages figure it initially sought, the Claims Court erred by not proportionally reducing its attorneys’ fees award (p.3).

As for the first challenge, the Federal Circuit agrees that a section 1498 fee award must be based on the government's position during litigation, not before.  It reaches this conclusion based on the fact that another federal statute, the Equal Access to Justice Act (EAJA), also permits fee awards against the government and contains similar language.  In the 1980s, courts (including the Federal Circuit) had interpreted the language about "position of the United States" as referring only to conduct during litigation.  Congress thereafter amended the EAJA to state that "'position of the United States' means, in addition to the position taken by the United States in the civil action, the action or failure to act by the agency upon which the civil action is based."  When Congress later amended section 1498, however, to add the current fee-shifting provision, it didn't incorporate the definition found int he EAJA.  This leads the court to infer that "'the position of the United States' as used in § 1498(a) refers to the litigation positions taken by the United States in the civil action in which the attorneys’ fees were incurred" (p.8).

Nevertheless, the court concludes that "although the Claims Court relied on an overbroad definition of 'the positions of the United States,' its analysis demonstrates that the position of the United States was not substantially justified even under a correct definition of that term."  Specifically:

The “position of the United States” in this case includes its invalidity and non-infringement positions, as well as its discovery responses and other positions expressed during litigation. It does not include the act of infringement itself, the purported breach of contract, or any other underlying governmental actions. To the extent the Claims Court concluded that ORNL “breach[ing] the [non-disclosure] agreement and infring[ing] the invention” were positions of the United States that needed to be substantially justified, Fees Decision at 358, that was error, and we do not rely on these statements.

Relying solely on the Claims Court’s statements regarding litigation positions, however, the record before us nonetheless reflects that the position of the United States was not substantially justified. As the Claims Court found, the United States maintained non-infringement positions that were factually inconsistent with the actions ORNL took after having learned of the ’722 patent. Id. at 359. For example, ORNL provided interrogatory responses that were contrary to both documentary evidence and the deposition testimony of its employees. Id. at 359. Its obviousness arguments “failed to address an essential element of each of the three asserted claims or to demonstrate any motivation to combine the prior art.” Id. (internal quotation marks omitted). And its enablement argument was contradicted by its own expert witness, who conceded that “a person of ordinary skill in the art could account for the errors in the patent without undue experimentation and perform all necessary calculations within approximately one hour.” Id.

The court also notes that "nothing in our holding prevents the Claims Court from looking to the facts of an individual case, including facts that occurred pre-litigation, when deciding whether those litigation positions were substantially justified" (p.8).

Finally, the court concludes that, even though the plaintiffs recovered only a portion of the compensation they sought, the Claims Court had discretion to award over $4 million in fees.  In so doing, the court distinguishes two civil rights cases, Hensley v. Eckerhart and Farrar v. Hobby, on the ground that "Hitkansut succeeded on its sole claim, and proved a material amount of actual, compensable damages . . . ."