Tuesday, May 28, 2024

Rantasaari on Fee Shifting and the UPC

Krista Rantasaari has published an article titled Patent Litigation in Europe:  intermediate fee shifting and the UPC, 18 JIPLP 642 (2023).  Here is a link to the paper, and here is the abstract:


            This writing explores the European understanding of fee shifting rules and how the unitary patent regime addresses fee shifting rules. In European jurisdictions, the IP Enforcement Directive has harmonized some parts of the remedies, even though they are mainly governed by national law.  European jurisdictions often apply fee shifting rules, meaning that the losing party pays the winning parties’ expenses and fees.


            However, in most cases, costs are not fully covered. Instead, European jurisdictions use intermediate fee shifting that allows the winning litigant to recover some, but not all, of its litigation expenses.


            The UPC follows intermediate fee shifting. Hence, the UPC may lower or raise the ceiling of the recoverable costs or, upon request, wholly or partially reimburse expenses. For example, the recoverable cost might be disproportionate if the unsuccessful party is a small and medium size company. Like national rules, fee shifting in the unitary patent regime has limitations and discretionary elements, such as proportionality, equity, and partial success. In addition, the UPC will follow the case law of the Court of Justice of the European Union related to the interpretation of the IP Enforcement Directive.

I’ve been working on a book chapter that addresses, among other matters, fee shifting, and I found this article very informative.  The UPC approach reminds me a bit of the aborted attempt by the U.S. Congress in 2013 to incorporate a version of intermediate fee shifting into U.S. patent law—it would have made fee shifting mandatory  “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.”  Although compromises are not always the best solution, it may be that some sort of intermediate fee shifting is the best way to reconcile the positive and negative effects of fee shifting, though I’m still inclined to think that in most cases the prevailing party should recover the majority of their actual fees and expenses.   

Thursday, May 23, 2024

Franzoni and Kaushik on Damages for Trade Secret Misappropriation

As the title suggests, this paper is not about patent remedies, but since trade secrets are an alternative option for inventors—and since I’m interested in, in fact writing a book about, IP remedies generally, I thought I would mention it here.  The authors are Luigi Alberto Franzoni and Arun Kumar Kaushik, and the paper is Lost Profits and Unjust-Enrichment Damages for the Misappropriation of Trade Secrets, 53 J. Legal Stud. 237 (2024).  Here is a link to the journal’s website, and here is the abstract:

            This paper analyzes civil remedies for the misappropriation of trade secrets. We study the impact of different damages doctrines on firms’ competitive behavior and on the incentives to misappropriate. We find that the owner of a trade secret is better off under the lost-profits regime, while the rival (independently of whether he obtained the technology by misappropriation or by independent development) is better off under the unjust-enrichment regime. The unjust-enrichment regime provides fewer incentives to misappropriate and yields a smaller market deadweight loss. The choice between the two rules essentially depends on the lawmaker’s goal.

This is an interesting paper in its application of game theory to the topic of damages.  The model assumes that the defendant is either an honest or a dishonest rival, but that the trade secret owner has imperfect knowledge of which.  I would note, however, that as the authors state toward the end of the article, their “analysis assumes away some important factors,” including “the possibility that the rival develops a product to which consumers attach a greater value” and “litigation costs”; and the authors “posit errorless adjudication” (p.262; cf. p.247).  (Errorless adjudication in particular may be a stretch in the real world, as Norman Siebrasse has pointed out in connection with the Canadian Supreme Court’s analysis of how to calculate the infringer’s profits in patent litigation, see here.)  Most of the analysis also assumes that the rival/defendant is as efficient as, or slightly more efficient than, the trade secret owner (with a substantially more efficient infringer being considered later in the paper).  Of course, if enforcement is perfect and adjudication error-free, the rival will always be deterred with unjust enrichment damages; but if enforcement is not perfect and the rival is less efficient, the trade secret owner will be worse off, perhaps a lot worse off, if misappropriation occurs and causes the secret to become widely known (and thus no longer a secret), in which case I would think lost profits are unambiguously the correct remedy.  (Maybe the authors would agree, see p.260 n.24.)  For now, I remain convinced that the best operable rule in the real world is one that permits the trade secret owner the option of either lost profits or the infringer’s profits, whichever is higher, with reasonable royalties being preferable in a case in which the misappropriation was initially inadvertent (e.g., the defendant started using the secret information before learning that it was disclosed in breach of a duty of secrecy); but I could be wrong, and this paper does highlight the consumer welfare tradeoffs of awarding lost profits versus infringer’s profits under its assumed conditions.   

Monday, May 20, 2024

Federal Circuit: No Awards for Fees Incurred in IPRs

Florian Mueller beat me to this one (see here).  The Federal Circuit held this morning in Dragon Intellectual Property LLC v. Dish Network L.L.C. that 35 U.S.C. § 285 (“The court in exceptional cases may award reasonable attorney fees to the prevailing party”) does not authorize awards for fees incurred in PTAB proceedings.  (The majority opinion is by Chief Judge Moore, joined by Judge Stoll; dissenting opinion by U.S. District Judge Cathy Bencivengo, sitting by designation.)  In this particular case, in 2013 the plaintiff asserted claims for the infringement of the ’444 Patent.  In response, DISH filed a petition for inter partes review, which the PTAB instituted.  While the PTAB proceeding was pending and the district court litigation otherwise stayed, the district court entered a claim construction order resulting in a judgment of noninfringement as to all defendants.  In 2016, the PTAB held that all of the asserted claims were unpatentable; the Federal Circuit affirmed this decision in 2017.  (The noninfringement judgment was ultimately vacated as moot.)  DISH and SXM moved for an award of fees, which the district court initially denied on the ground that “invalidating the patent through IPR proceedings was not a basis for attorneys’ fees” (p.4), but the Federal Circuit in 2020 reversed on the ground that “Appellants were prevailing parties under § 285 because they successfully invalidated the asserted clams in a parallel IPR proceeding” (id.).  On remand, the district court found the case to be exceptional and awarded fees “to the extent Appellants sought fees from Dragon for time spent litigating,” but denied fees “incurred solely during the IPR proceedings,” as well as “recovery from Dragon’s former counsel.” (p.5).  The Federal Circuit now affirms.

First, the court holds that there was no abuse of discretion in awarding fees for the district court litigation.  Noting that “[t]he bases for exceptionality included clear prosecution history disclaimer, which precluded a finding of infringement by any of the accused products; public availability of information demonstrating noninfringement by the accused products before Dragon filed the infringement suits; notice of noninfringement sent by Appellants to Dragon after the complaints were filed; and Dragon’s continued litigation after being put on notice of the objective baselessness of its infringement allegations” (p.6), the court rejects Dragon’s argument that the “vacatur of the noninfringement judgment invalidated the prior claim construction order” and thus “exposes [Dragon] to harm based on an unreviewable decision” (id.) on the grounds that “Dragon did not request, and the district court did not grant, vacatur of the claim construction order,” (id.) and “the magistrate judge independently considered whether the prosecution history disclaimed the functionality of the accused devices” (p.7).

Second—the more interesting part—the majority concludes that “cases” under § 285 do not include IPR proceedings.  In this regard, the majority states that the “[a]ppellants voluntarily pursued parallel proceedings in front of the “PTAB,” and that “there are advantages to doing so”;  and that “were ‘cases’ under § 285 to include IPR proceedings, district court judges would be tasked with evaluating the exceptionality of arguments, conduct, and behavior in a proceeding in which they had no involvement” (p.10).  (The court also affirms the judgment that “liability for attorneys’ fees awarded under § 285 does not extend to counsel” (p.10), because some other fee-shifting statutes do expressly authorize awards against counsel, but § 285 does not.)

As noted above, Judge Bencivengo dissents from the affirmance of the denial of fees incurred in the IPR proceeding.  In Judge Bencivengo’s view, “[a]ppellants did not ‘voluntarily’ seek  to invalidate Dragon’s patents through IPR as would arguably have been the case had Appellants initiated IPR before Dragon filed this lawsuit. Instead compelled to contest the validity of Dragon’s patents in response to Dragon’s meritless infringement suit, Appellants exercised their statutory option to litigate their affirmative invalidity defenses in IPR” (dissent p.2).  Further, “[a]s contemplated by the creation of IPR, Appellants utilized this substitute venue pursuant to 35 U.S.C. § 315(b) for efficiencies in lieu of district court proceedings” (id.).  She also notes that “[i]n this case the IPR was not ‘parallel’ to the district court litigation. The Appellants were not litigating invalidity, or anything else, in parallel in the district court” (dissent p.3).  Finally, she writes:

            The majority expresses concern that a district court is not situated to make an exceptional case finding based on the proceedings in the IPR over which it did not preside. That, however, is not the situation at hand. The Appellants do not seek an exceptional case finding based on the outcome of the IPR.


            The district court found this case exceptional based on a determination that it was objectively baseless from its inception. Appellants seek the fees they expended in the IPR, in which they prevailed, as compensation for their defense of this baseless litigation. The incurrence of these fees is not wholly unrelated to the bases for exceptionality. Appellants incurred fees in the IPR that they would not have incurred but for being sued by Dragon in a case that should not have been initiated by Dragon.  To categorically preclude recovery of IPR fees in this circumstance is inconsistent with § 285 or the intent of IPR itself.


            In a case such as this, where exceptionality is based on a determination that the case was objectively baseless from its inception, it should be within the discretion of the district judge to award all reasonable fees incurred by the prevailing defendant, including fees incurred in an IPR that resolved any invalidity defenses that were required to be asserted in response to the baseless complaint (dissent pp. 3-4).

Personally, I find Judge Bencivengo’s analysis more persuasive.  To be sure, it is unlikely that this decision will discourage accused infringers from petitioning the PTAB if they think it is in their interest to do so, but the ruling does marginally decrease the risk for asserting claims that may subsequently be invalidated by the PTAB, which seems like a bad idea to me.  That said, it has long been my view that, as a policy matter, U.S. courts should be more receptive to fee awards—the merits of some version of the so-called English Rule (loser pays) are, to my mind, manifestly superior to the American Rule (each side bears its own costs)—though I recognize that in the patent law context the statute expressly makes such awards “exceptional.” (Coincidentally, I happen to be working this week on the portion of one of my book projects that discusses fee awards.)

Perhaps Congress should consider intervening by authorizing the PTAB to award fees in some cases?  Cf. European Patent Convention art. 104(1) (“Each party to the opposition proceedings shall bear the costs it has incurred, unless the Opposition Division, for reasons of equity, orders, in accordance with the Implementing Regulations, a different apportionment of costs”); Implementing Regulations Rule 88.