United States: To Fee Or Not To Fee

In Amneal Pharmaceuticals LLC v. Almirall, LLC, the Federal Circuit determined that it cannot award attorneys' fees under 35 U.S.C. § 285 for work done on an underlying inter partes review (IPR).¹ However, it also provided welcome guidance suggesting that district courts can, in limited circumstances, invoke § 285 to award attorneys' fees for parallel Patent Trial and Appeal Board (PTAB) proceedings. Yet the panel also refused to award fees accumulated at the Federal Circuit itself, supported by a rationale that district court judges may co-opt to deny attorneys' fees accumulated in related proceedings in other fora. We examine this decision in the context of district court orders finding for and against attorneys' fees awards for PTAB proceedings.

I.  The Federal Circuit Lacks Authority to Grant PTAB Fees

In the underlying dispute, Amneal petitioned the PTAB for inter partes review of Almirall's patent; the Board instituted the IPR but eventually upheld all the claims. (There was no district court litigation related to the IPR.) Amneal appealed the IPR decision to the Federal Circuit but quickly moved to dismiss its appeal. Patent-owner Almirall joined that motion but requested that the Federal Circuit grant it attorneys' fees under 35 U.S.C. § 285 (which allows for fee awards in “exceptional cases”) for work done (i) in defending the IPR and (ii) in preparing the fee request itself. The Federal Circuit declined that request in toto.

Two grounds justified denying an award of fees accumulated at the PTAB (hereinafter “PTAB fees”). First, the Court cited Court of Customs and Patent Appeals jurisprudence that declined to award fees for USPTO invalidity proceedings. For example, a Federal Circuit predecessor had reasoned that, because § 285 is located in a chapter of title 35 dedicated to infringement actions, it was inappropriate to invoke it in the context of proceedings limited to patent validity (at least when there was no associated district court proceeding).

Second, the Court relied on an opaque reading of § 285. Section 285 provides that only “[t]he court” may award fees. The opinion states that the phrase, “[t]he court,” implies a limitation on fees to only those “incurred during, in close relation to, or as a direct result of, judicial proceedings.” The relevant judicial proceeding for Almirall's fee request, according to the Court, was the Federal Circuit appeal. And any administrative action preceding Amneal's appeal was not “incurred during, in close relation to, or as a direct result” of the “judicial proceeding” (i.e., the appeal).

This holding was, according to the Court, consistent with the Supreme Court's decision in Sullivan v. Hudson.² The underlying dispute in Sullivan—not touched on in Amneal—focused on a request for benefits from the Social Security Administration (SSA). After the SSA denied that request the complainant sought review from a federal district court. That court vacated the SSA's ruling, remanded the issue to the agency, and retained continuing jurisdiction over the appeal “to determine if its legal instructions on remand have been followed.” After the complainant prevailed on remand, the district court dismissed the action but maintained jurisdiction to determine the complainant's entitlement to attorneys' fees under the Equal Access to Justice Act (EAJA), which provides for such fees “in any civil action” reviewing an agency decision.

The court's fee determination was appealed to the Supreme Court, which concluded that the EAJA permitted fee-shifting for the post-remand SSA proceedings because they were “so intimately connected with judicial proceedings as to be considered part of the ‘civil action.'” The Supreme Court divined that connection from the district court's retention of jurisdiction through remand and by dint of the district court action's “dependence for its resolution upon the outcome of the administrative proceedings.” According to the Federal Circuit, no analogous relationship existed between the IPR and Amneal's ensuing appeal. Almirall's request for PTAB fees was therefore denied.

II.  District Courts' Authority to Grant PTAB Fees

A district court that has stayed infringement proceedings pending conclusion of an IPR cannot distinguish Sullivan in such a tidy manner. Indeed, Sullivan maps onto such district court and parallel IPR proceedings with relative ease, suggesting they are so intimately connected that § 285 would permit the district court to award PTAB fees. At least a few pre-Amneal district courts awarded PTAB fees under § 285 in such circumstances.

In Munchkin, Inc. v. Luv N' Care, Ltd., the Central District of California awarded attorneys' fees for an IPR that was filed in response to district court proceedings and invalidated the asserted patent.³ Those PTAB fees were included in the § 285 award because the IPR “substituted for work that otherwise would have occurred in [that] proceeding.” In another case, the Eastern District of Texas in My Health, Inc. v. ALR Technologies, Inc. granted fees under § 285 for the cost of preparing an IPR petition that the PTAB had not reviewed by the time the court itself invalidated the patent.⁴ The court reasoned that the accused infringer was owed fees attributable to a petition it would not have drafted if it was not accused of infringement before the district court.

Yet other pre-Amneal Federal Circuit opinions signaled—without holding—that such rulings were potentially contrary to law. Judge Alan Lourie, in oral arguments occurring a year before he joined the Amneal opinion, asked whether a party meant to “piggyback” off § 285 to recover PTAB fees. Chief Judge Sharon Prost added that Congress passed the America Invents Act to shift validity issues from the courts to the PTAB, but in doing so made no provision for fee-shifting at the PTAB.⁵ Then, this past April, the Court issued an opinion, penned by Judge Kimberley Moore and joined by Judges Lourie and Kara Stoll, stating that it recognized “no basis in the Patent Act for awarding fees under § 285 for work incurred in IPR proceedings that Appellants voluntarily undertook,” before leaving that question to the district court on remand.⁶

Contrary to those sentiments, Amneal sets out circumstances where it may be appropriate to include PTAB fees in a § 285 award. For example, though the Court distinguishes Sullivan to limit its own authority regarding PTAB fees, a district court would be hard pressed to distinguish Sullivan if it has stayed infringement proceedings in favor of an IPR. The Amneal decision also cites PPG Industries, Inc. v. Celanese Polymer Specialties Co.⁷ “In PPG,” wrote the Court, “[we] allowed for the award of fees where Patent Office ‘proceedings substituted for the district court litigation on all issues considered by the PTO and the Board.'” By explicitly endorsing Sullivan and PPG, the Amneal opinion provides some much-needed guidance as to when PTAB fees may be wrapped into a § 285 award.

It is unclear, however, whether district courts will defer to that guidance, especially given how Amneal's discussion of PPG did not bear on the opinion's central holding regarding the Federal Circuit's fee-shifting authority. At worst, it represents a jumping off point for courts.

III.  Implications of Amneal's Final Paragraph

The impact of the Court's suggestion that district courts can use § 285 to recover PTAB fees is, however, blunted by Amneal's final paragraph. There, the Court denied Almirall's § 285 request for fees attributable to drafting of the request itself. According to the Court, shifting fees not incurred in conjunction with an underlying district court proceeding would be inappropriate given that the behavior Almirall complained of had everything to do with “work before the Patent Office” and “nothing to do with conduct before this court.”

This holding is susceptible to multiple interpretations. Interpreted broadly, it means a court should deny any § 285 request that is based on misconduct before another tribunal. The Eastern District of Michigan has invoked this logic to deny a § 285 request for PTAB fees.⁸ The Amneal Court could have justified its refusal to grant PTAB fees under the same rationale. But it did not. (It did, however, highlight the PTAB's own authority to shift fees through sanctions under 37 C.F.R. § 42.12.)

A second, narrower interpretation is that courts should deny shifting fees for work done before one tribunal if the allegedly exceptional conduct occurred before a second tribunal. Following this rationale, a district court should not award PTAB fees if the allegedly exceptional conduct occurred only before the district court (or vice versa). This would not preclude a district court from awarding PTAB fees if the allegedly exceptional conduct occurred before the PTAB or if the entire premise of one party's action against another was exceptional—another recent Federal Circuit opinion indicates that § 285 fee-shifting is only appropriate where the complained of conduct renders the “case overall” exceptional.⁹

The effect of the Court's earlier citations to Sullivan and PPG is undercut by the final paragraph indicating that, even if PTAB and district court proceedings are so intimately connected they could be considered part of the same action, recovery of PTAB fees may depend on the location of the alleged misconduct. It is, however, not likely that Amneal is the Federal Circuit's final word on district courts' authority to award PTAB fees and worth noting that district court judges have wide discretion in awarding fees. This issue deserves to be fully briefed and argued, which it likely will be as relevant cases continue to percolate to the Court thanks to the PTAB's popularity and the increased fee-shifting discretion district courts enjoy after the Supreme Court's decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc.

Until a more definitive opinion issues, a party that anticipates seeking PTAB fees while litigating parallel district court and PTAB proceedings should consider whether an opponent's misconduct justifies seeking sanctions directly from the PTAB, short-circuiting any Amneal-related concerns. Alternatively, the prevailing party should move in the district court under § 285 and invoke Sullivan, PPG, and even other caselaw providing even lower thresholds for recovery.¹⁰ Those defending against a § 285 fee request, on the other hand, should consider whether they can use Amneal's final paragraph to shield conduct that occurred in other fora from a district court's fee-shifting inquiry.

Footnotes

1 960 F.3d 1368 (Fed. Cir. 2020).

2 490 U.S. 877 (1989).

3 No. CV 13-06787 2018 WL 7504404, at *7 (C.D. Cal. Dec. 27, 2018), rev'd on other grounds, 960 F.3d 1373 (Fed. Cir. 2020).

4 My Health, Inc. v. ALR Techs., Inc., No. 2:16-cv-00535-RWS-RSP, 2017 WL 6512221, at *6 (E.D. Tex. Dec. 19, 2017), adopted, No. 2:16-cv-00535-RWS-RSP (E.D. Tex. Nov. 29, 2018).

5 Oral Argument at 7:10-25, M-I Drilling Fluids UK Ltd. v. Dynamic Air Inc., 771 F. App'x 484 (Fed. Cir. 2019) (No. 2018-1775).

6 Dragon Intellectual Prop., LLC v. Dish Network LLC, 956 F.3d 1358, 1362 (Fed. Cir. 2020).

7 840 F.2d 1565, 1569 (Fed. Cir. 1988).

8 American Vehicular Sciences LLC v. Autoliv, Inc., No. 5:16-cv-11529, 2019 U.S. Dist. LEXIS 164343, at *11 (E.D. Mich. Aug. 30, 2019), R. & R. adopted by 2019 U.S. Dist. LEXIS 162914 (E.D. Mich. Sep. 24, 2019); see also Lionel M. Lavenue et al., Parties Seeking PTAB Attorney Fees Face High Bar in Courts, Law360.com (Nov. 4, 2019).

9 Intellectual Ventures I LLC v. Trend Micro Inc., 944 F.3d 1380, 1384 (Fed. Cir. 2019).

10 See, e.g., Lionel M. Lavenue et al., Munchkin and the Recovery of Attorneys' Fees from PTAB Proceedings, I.P. & Tech. L.J. (June 2019) (discussing the “but-for” standard of Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186–87 (2017)).

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