Federal Circuit Vacates Fee Award Against the Federal Government

In other news yesterday, the Federal Circuit vacated a fee award in FastShip, LLC  v. United States (precedential opinion by Judge Dyk, joined by Judges Wallach and Chen).  This was an action by a patent owner for compensation against the U.S. government, pursuant to 28 U.S.C. § 1498(a), which states:

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 earlier proceedings, the patent owner had prevailed in part, and was awarded approximately $7 million.  See FastShip, LLC v. United States, 892 F.3d 1298 (Fed. Cir. 2018).  The Court of Federal Claims thereafter awarded an additional $6.1 million in attorneys' fees, based partly on the government's pre-litigation conduct, which in that court's view was not (to use the statutory language above) "substantially justified."  See yesterday's opinion p.3, discussing how the Claims Court "found it unreasonable for a government contractor to gather information from FastShip about designing a [littoral combat ship] but not to include it as part of the team that awarded the contract," and also that "the Navy took an exceedingly long to time to act on FastShip's administrative claim and did not provide sufficient analysis in denying that claim."  In May 2020, however, the Federal Circuit in Hitkansut v. United States held that a fee award under § 1498(a) cannot be based on pre-litigation conduct (see previous blog post here, discussing the court's reasons for reaching this conclusion).  In that case, the court nevertheless affirmed the award based on the government's conduct during litigation; here, however, the court remanded for further consideration, noting that one of the two problems the Claims Court found with the government's litigation conduct (its use of an expert witness who was a person of "extraordinary," rather than "ordinary," skill in the art) wasn't relevant either.

Note that, in normal patent infringement litigation in which the government is not the defendant, the court can award fees only in "exceptional cases" under Patent Act § 285.  This would seem to be a higher standard than in a § 1498(a) action--though in the latter context, the statute limits awards to prevailing plaintiffs only, and even then only if they qualify as small entities ("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").  On the other hand, the case law under § 285 makes it clear that pre-litigation conduct (e.g., willful infringement on the part of the defendant, or a pattern of questionable patent assertion by the plaintiff) can be relevant to the determination of whether a case is exceptional.

For further discussion of FastShip, see this story on Bloomberg.