Federal Circuit shuts the door on recovering IPR attorney fees

Angela Morris

24 May 2024

It is understandable why companies that are frequent targets of US patent infringement suits want to recover their attorney fees, which is only allowed in exceptional circumstances in the United States. Defendants have also tried recouping fees from inter partes review proceedings – with no success.

Dragon Intellectual Property v DISH Network is the latest precedential ruling since 2020 where the US Court of Appeals for the Federal Circuit rejected requests by litigants to recoup their attorney fees from IPRs in the Patent Trial and Appeal Board. But this time, the 2-1 decision contained a dissent by a judge who would have allowed the IPR fee collection.

This series of precedents has established that a patent holder may not recoup attorney fees when a patent challenger files an IPR before being sued in district court. Later, it held that an IPR winner could be seen as a “prevailing party” in parallel district court litigation (this was an earlier appeal involving Dragon IP). The recent precedent decided that IPR fees may not be recovered – even when the petition followed a lawsuit – because filing an IPR is voluntary considering that the same invalidity arguments may proceed in district court.

An article by Axinn Veltrop & Harkrider Associate Ramya Auroprem mentions that DISH won $3.3 million in fees from Dragon IP. But DISH discovered the patent holder has no assets to pay the fee award. Dragon IP’s lawyer financed the case in exchange for a share of the proceeds and he made decisions in the case. For that reason, DISH was seeking to collect the fees from the attorney and firm, Auroprem wrote.

Background of the case

The Federal Circuit ruling explains that litigation by Dragon IP against DISH began in late 2013 and involved US Patent No 5,930,444. DISH argued its products did not infringe the patent and that the claim construction showed this was true. In the end, the US District Court for the District of Delaware entered judgment of non-infringement in favour of the defendants. 

Also, DISH (joined by and Sirius XM Radio Inc) won an inter partes review at the Patent Trial and Appeal Board, which ruled that all asserted claims were unpatentable.

The parties argued over the recovery of attorney fees under 35 U.S.C. § 285 and 28 U.S.C. § 1927. Initially, the court denied DISH and Sirius’ request for fees, saying invalidating a patent in an IPR wasn’t a basis for fees. But the Federal Circuit in 2020 reversed and remanded the case, holding that DISH and Sirius were “prevailing parties” under Section 285 because of the IPR invalidation.

An article by lawyers at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo noted that the 2020 Federal Circuit decision in Dragon IP differed from a similar appeal in the past because the trial court had issued a judgment of non-infringement (no matter that it was later vacated and dismissed as moot because of the PTAB invalidation). A final judicial decision is needed before a court can determine “prevailing party” status.

“Dragon Intellectual Property, therefore, demonstrates that a patent owner facing an adverse outcome at the PTAB should consider voluntarily dismissing a lawsuit, if possible, as opposed to stipulating to a dismissal, as an avenue to prevent a final judicial decision and thus to avoid paying attorneys’ fees,” said the article.

Next, the district court granted attorney fees for the defendants’ litigation in district court. The Federal Circuit ruling noted the trial court denied fees they paid in the IPR proceedings. The court also rejected a request to recover the fees from Dragon IP’s law firm and attorney.

Appellate issues

The Federal Circuit ruling noted that Dish and Sirius appealed, arguing that the trial court made an error by refusing to award attorney fees they spent for the IPR and the joint recovery from Dragon IP’s firm and attorney. Dragon IP also appealed, arguing the trial court should not have awarded any fees because its case was not exceptional. 

The Federal Circuit rejected Dragon IP’s arguments, holding that the case counted as exceptional under Section 285 and the attorney fee recovery was appropriate. The circuit also rejected DISH and Sirius’s arguments to recover fees jointly and severally from the patentee’s lawyer and firm because the statute does not allow it.

Much of the court’s 2-1 majority ruling, written by Chief Judge Kimberly A Moore and joined by Judge Kara F Stoll, explains why it rejected DISH and Sirius’s arguments that Section 285 enables the recovery of IPR attorney fees. Their view was the IPR was part and parcel of the case and though IPRs are optional, it should not compel a court to deny fees. The majority rejected this, explaining:

“Appellants voluntarily pursued parallel proceedings in front of the Board instead of arguing invalidity before the district court. Indeed, there are advantages to doing so. In district court, challengers must prove each patent claim invalid by clear and convincing evidence. … Before the Board, petitioners need only establish unpatentability by a preponderance of the evidence. … By statute, IPR proceedings must be completed within one year of institution, 35 U.S.C. § 316(a)(11), providing an expeditious alternative to potentially years-long litigation. Based on these advantages, parties often strategically choose to argue invalidity before the Board.”

The court’s holding will allow DISH and Sirius to recover from Dragon IP the fees they spent litigating in the district court, but not the PTAB.

Dissent

Dissenting, Judge Cathy Ann Bencivengo said that Section 285 “categorically” bars recovery of fees from an IPR. The judge distinguishes filing an IPR before district court litigation and filing an IPR after being sued.

Bencivengo explained:

“The majority, by characterizing Appellants’ election to utilize IPR as “voluntary” and “parallel” to the district court litigation, holds that there is no basis for awarding IPR fees under § 285. Appellants 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.”

Her view is because the district court issued a stay pending IPR, that the IPR was a substitute for the district court validity litigation – not a parallel proceeding. 

Here, Bencivengo wrote, “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”.

DISH’s attorney declined to comment and the lawyers for Dragon IP and Sirius did not respond to requests for comment.

Going forward, the majority ruling seems to close the door to parties seeking to recover IPR attorney fees. The PTAB has procedures to award fees as sanctions for misusing the IPR process or filing IPRs meant to harass or cause unnecessary delay or increase legal costs. But the board has a strict standard to issue sanctions and it is rare to win fee awards there.