United States: Claims Court Clears Cobwebs For Fee Shifting In Patent Cases

The U.S. Court of Federal Claims may grant attorney fees to certain patent owners who successfully litigate infringement claims against the federal government. The claims court obtained this authority in 1996 but did not exercise it until March 2019, when it granted Hitkansut LLC $4.4 million in fees on top of a $200,000 damages judgment.1

And though more than two decades elapsed before that first fee award, the second followed just three months later. On June 27, 2019, on the back of a $12.4 million damages judgment, the claims court granted FastShip LLC $7.1 million in fees and costs.2 Do these decisions herald a new era of patent litigation at the claims court? That may be premature. But it should make patent owners, attorneys and litigation finance companies take notice.

28 U.S.C. Section 1498(a)

When Uncle Sam infringes a patent, 28 U.S.C. Section 1498(a) limits the patent owner’s legal recourse to suit in the claims court for “reasonable and entire compensation” — typically a reasonable royalty.3 No matter how egregious its infringement, the government is immune from enjoinder and enhanced damages.

Pursuant to a 1996 amendment, however, “reasonable and entire compensation” includes attorney and expert fees for some subset of prevailing patent owners — independent inventors, nonprofit organizations and entities with no more than 500 employees. (FastShip and Hitkansut both qualified.) For this subset of patent owners, Section 1498(a) presumes the plaintiff’s entitlement to fees.

But it forecloses their recovery in two situations: where recovery would be unjust or where the government-defendant’s position was “substantially justified.”4 Before Hitkansut, the government always satisfied the latter exception, defeating the plaintiff-favoring presumption.5

FastShip v. United States

The FastShip decision touches on a gamut of Section1498(a) topics in its ranging 34 pages.6 Two of the more consequential issues include: litigation financing’s effect on a patent owner’s standing to request fees; and the fee-shifting inquiry’s occupation with prelitigation conduct.

As to litigation financing, FastShip’s receipt of funds from an entity controlled by one of its own counselors of record did not disrupt its standing to requests fees under §1498(a). One of FastShip’s attorneys, Donald Stout both represented FastShip at critical junctures and managed a company that invested $600,000 in FastShip’s case.

Stout is better known as the co-founder of NTP Inc., the beneficiary of a $612 million infringement settlement from Research in Motion Ltd. in 2006.7 Court of Federal Claims Judge Charles Lettow found Stout’s financing arrangement with FastShip immaterial to the plaintiff’s standing to request fees. To hold otherwise would frustrate Congress’ purpose in enacting Section 1498(a)’s fee-shifting provision: incentivizing the prosecution of meritorious infringement claims against the government.8

With standing established, the claims court proceeded to evaluate the government’s position, concluding that it was not “substantially justified,” partly due to prelitigation conduct. The claims court highlighted some unreasonable government conduct during litigation: presenting expert analysis with errors that ranged from convenient to nonsensical, mischaracterizing an extraordinarily skilled expert as ordinary and misstating the law of enablement.9 But the court was particularly concerned with the government’s willful infringement and its unresponsiveness to the plaintiff’s initial administrative complaint.10

Specifically, FastShip’s suit originated from its solicitation of a subcontract from a U.S. Navy contractor. As part of its pitch, FastShip divulged its invention: a semi-planing monohull ship. Though no subcontract materialized, FastShip soon discovered that the contractor had incorporated its designs into navy vessels.

FastShip filed an administrative claim with the navy; two years of silence followed, culminating in the navy’s two-page, perfunctory denial of wrongdoing.11 These actions, supplemented by its questionable litigation conduct, rendered the government’s overall position not “substantially justified,” even though the claims court found the government’s conduct reasonable in other respects.

Patent Trends in FastShip

FastShip and Hitkansut may hint at Octane Fitness LLC v. ICON Health & Fitness Inc.'s indirect influence on the claims court. Moreover, both decisions raise issues, likely to be addressed on appeal, relevant to patents’ status as property — an issue that continues to percolate to the U.S. Court of Appeals for the Federal Circuit’s docket.

With Hitkansut, and now FastShip, the claims court has, like federal district courts, proved amenable to fee-shifting in the patent context. Federal district courts now shift attorney fees in one-third of patent infringement cases.12 That represents a stark increase from, for example, 2011,13 a few years before Octane Fitness, where the U.S. Supreme Court returned broad discretion to trial judges to determine which cases justify fee-shifting.14

Though Octane does not control Section 1498(a)’s fee-shifting provision, the claims court has only now exercised said provision in the post-Octane era. A prevailing sympathy for fee-shifting in the patent context, marked by Octane, may have influenced these recent claims court opinions.

Yet, FastShip’s impact may be short-lived; the government will likely appeal FastShip, as it has the Hitkansut award.15 An appeal presents another opportunity for the Federal Circuit to grapple with one of the more significant questions in the field: Are patents property?

Though recent cases have muddled the question,16 courts have historically construed the government’s unauthorized patent use as an eminent-domain taking of a license. Section 1498(a), then, supplies “just compensation” to affected patent owners.

Twenty years ago, in B.E. Meyers & Co. Inc. v. United States, the claims court reasoned that the government cannot be punished for taking — willfully or otherwise — that which it has the authority to condemn.17 Recognizing the government’s authority to take a patent license, Meyers held that the willfulness of a lawful taking can never justify punitive fee-shifting against the government.18

FastShip and Hitkansut, of course, implicitly rejected that theory — willfulness supported both awards. On appeal, the government will likely argue, as it did at trial, that the claims court’s substantially justified inquiry should have ignored any prelitigation conduct, including the nature of the government’s infringement. The Federal Circuit, thus, has an opportunity to affirm the Meyers theory and its underlying premise that patents are property subject to eminent domain.

The court, however, has more attractive vehicles for resolving this issue, including recently docketed  Oil States Energy Services LLC v. Greene's Energy Group LLC follow-on suits that present the patents-as-property question more squarely.19 As cases present this question with growing frequency, the Federal Circuit is poised to definitely resolve it (and likely do so in a Section 1498(a) action).

Practical Implications

In clearing the cobwebs from Section 1498(a)’s fee-shifting provision, the claims court has increased the allure of patent suits against the government — including suits where litigation costs would dwarf potential damages. Hitkansut’s and FastShip’s vindication of litigation financiers and attorneys operating on contingency in this space will only spur their further participation. And the awards give leverage to licensors negotiating with government agents and contractors.

That said, fee-shifting under Section 1498(a) only benefits the three named classes of patent owners: independent inventors, nonprofit organizations and entities with no more than 500 employees. Hitkansut and FastShip supply little obvious insight for larger, for-profit plaintiffs litigating infringement against the government, who cannot recover attorney fees under Section 1498(a) or 35 U.S.C. Section 285.20

But, because of Hitkansut and FastShip, the potential value of a patent, held by a large, for-profit company and infringed by the government, surges when transferred to a member of one of the named classes. Some larger patent owners may thus nonetheless still benefit from a strategic transfer made in the shadow of FastShip.

Footnotes

1 Hitkansut LLC v. United States, 142 Fed. Cl. 341 (2019); see also Lionel M. Lavenue, R. Benjamin Cassady & Regan Rundio, Hitkansut v. United States: Recovering Attorneys’ Fees When the Government Infringes Your Patent, 31 Intell. Prop. & Tech. L.J. 3 (2019), https://www.finnegan.com/en/insights/hitkansut-v-united-states-recovering-attorneys-fees-when-the-government-infringes-your-patent.html; Matthew Rizzolo & Steve Meil, Fee Award Highlights Patent Litigation in Claims Court, Law360 (Apr. 15, 2019), https://www.law360.com/articles/1149324/fee-award-highlights-patent-litigation-in-claims-court.

2 FastShip, LLC v. United States, No. 12-484C, 2019 WL 2702073 (Fed. Cl. June 27, 2019).

3 For a comprehensive review of §1498, see Lionel M. Lavenue, Patent Infringement Against the United States and Government Contractors Under 28 U.S.C. §1498 in the United States Court of Federal Claims, 2 J. Intell. Prop. L. 389 (1995).

4 These two exceptions fall away when the §1498(a) action endures beyond a decade. 28 U.S.C. §1498(a) (2012).

5 See Wright v. United States, 56 Fed. Cl. 350, 352–56 (2003); Gargoyles, Inc. v. United States, 45 Fed. Cl. 139, 147 (1999).

6 The most entertaining excerpts recount a more-than-$1-million downward adjustment to one damages expert’s fees. FastShip, 2019 WL 2702073, at *24–*25.

7 See Anne Urda, Wiley Rein Reaps $200M in BlackBerry Fees, Law360 (Mar. 17, 2006), https://www.law360.com/articles/5738/wiley-rein-reaps-200m-in-blackberry-fees.

8 FastShip, 2019 WL 2702073, at *8–*9.

9 Id. at *13–*14.

10 Id. at *13.

11 Id. at *2, *13.

12 See Christine Armellino & Robert Frederickson, Examining Octane Fitness Five Years On, IPWatchDog (Apr. 29, 2019), https://www.ipwatchdog.com/2019/04/29/examining-octane-fitness-five-years/id=108693/.

13 See Lionel M. Lavenue, Sean D. Damon & R. Benjamin Cassady, Making the Nonprevailing Party Pay: The Statistics of Exceptional Cases Two Years After Octane and Highmark, Landslide (2016), https://www.finnegan.com/en/insights/making-the-nonprevailing-party-pay-the-statistics-of-exceptional.html.

14 572 U.S. 545 (2014).

15 Hitkansut LLC v. United States, No. 2019-1884 (Fed. Cir. May 17, 2019). 

16 See, e.g., Return Mail, Inc. v. USPS, 868 F.3d 1350, 1361 (Fed. Cir. 2017) (holding that §1498 is both an eminent domain statute and an infringement statute), rev’d on other grounds, 139 S. Ct. 1853 (2019); Zoltek Corp. v. United States, 442 F.3d 1345, 1351 (Fed. Cir. 2006) (holding that patents are not property), vacated, 672 F.3d 1309 (en banc); see also Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC, 138 S. Ct. 1365, 1379 (2018) (“Our decision should not be misconstrued as suggesting that patents are not property for purposes of . . . Takings Clause”).

17 B.E. Meyers & Co., Inc. v. United States, 47 Fed. Cl. 375, 380 (2000).

18 Id. Of course, this principle does not hold in cases against private infringers; there, willfulness goes to enhanced damages and attorneys’ fees. See, e.g., SRI Int’l, Inc. v. Cisco Sys., Inc., No. 2017-2223, at 1 (Fed. Cir. July 12, 2019).

19 See, e.g., Christy, Inc. v. United States, 141 Fed. Cl. 641 (2019) (holding that patents are not property), appeal docketed, No. 2019-1738 (Fed. Cir. Apr. 4, 2019).

20 See Motorola, Inc. v. United States, 729 F.2d 765, 768 n.3 (Fed. Cir. 1984). Of course, the government and third-party defendants may recover fees under § 285. See Judin v. United States, 34 Fed. Cl. 483 (1995). And any party may recover fees by sanction levied under Rule 11 or the CFC’s inherent authority.

Originally printed in Law360 on July 29, 2019. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions