Can a defendant who prevails in an exceptional patent infringement suit by invalidating the patent in inter partes review (IPR) recover its associated Patent Office-related attorney’s fees? A split three-judge panel of the Federal Circuit recently said no in Dragon Intellectual Property LLC v. Dish Networks LLC, Appeal Nos. 2022-1621, -1777, Slip Op. at 8 (Fed. Cir. May 20, 2024) (“Dragon V”). This blogsite previously discussed (link) several instances where courts, including the Federal Circuit, have authorized this recovery when the Patent Office proceedings substituted for aspects of the district court litigation between the same parties. How then did this two-judge majority conclude otherwise?

The relevant facts are simple. First, the patent owner (Dragon) filed a district court action alleging patent infringement by Dish, Sirius XM Radio, and several others. Next, Dish and Sirius successfully petitioned the Patent Office to review the patent, and the district court action paused for these parties. In time, the Patent Office issued a decision canceling the patent, which the Federal Circuit affirmed.[1] Meanwhile, as the Patent Office proceeding progressed, the court construed the claims in a way that led all of the parties to stipulate to no infringement. Dragon appealed the court’s claim construction to the Federal Circuit. But with no patent claims remaining to enforce, the patent infringement issue—and claim construction—became moot.[2] In this case, there were therefore two bases for non-infringement: the claims were not valid and, as construed, the claims were not infringed.

The IPR and associated appeal cost Dish and Sirius about $800K in attorney’s fees. Joint Principal Brief of Defendants-Appellants in Dragon V, Dkt. 58, at 13 n.4 (Feb. 7, 2023). Dish and Sirius thereafter asked the district court to award it the attorney’s fees they incurred in prevailing before the court and the Patent Office proceeding/appeal. The court found that Dragon’s infringement allegations were frivolous and therefore determined the litigation before it was “exceptional” under 35 U.S.C. § 285. It awarded Dish and Sirius attorney’s fees expended in court but not fees expended in the Patent Office proceeding/appeal. The court characterized the Patent Office proceeding as one voluntarily undertaken and for which the statute does not affirmatively authorize recovery of attorney’s fees.[3]

On appeal, the Federal Circuit affirmed. The two-judge majority similarly reasoned that the Patent Office proceedings were voluntary insofar as validity could have been contested before the district court instead. But the majority never explains why it should matter where accused infringers successfully challenge validity when the challenge moots the district court infringement action (and associated appeal). Instead, they highlighted some benefits accused infringers enjoy when petitioning the Patent Office to reassess validity, as if those benefits somehow forfeit later recovery of attorney’s fees. Continuing, they explained that “[i]n cases where a party voluntarily elects to pursue an invalidity challenge through IPR proceedings, we see no basis for awarding IPR fees under § 285.” Dragon V, Slip Op. at 8. Interestingly, the same two judges said the same thing four years ago in dicta when deciding a related issue in the same case.[4]

There are several bases for awarding these fees, and Dish and Sirius explained some in their opening brief:

  • The patent statute authorizes AIA trials, which offer quicker and more cost-sensible substitutes to litigating patent validity as a defense to infringement actions in district court, and courts often stay their own actions pending the Patent Office’s re-review.
  • The statutory language governing § 285 is broad and does not limit awardable fees to those incurred in the district court litigation, but rather to cases: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”
  • Supreme Court precedent permits fee awards for ancillary administrative proceedings, which are encompassed by the statute’s reference to “cases.”
  • The Federal Circuit has affirmed or endorsed awards for fees expended in reexamination, reissue, and ITC proceedings in materially indistinguishable cases.
  • No authority prohibits recovery of fees expended in administrative proceedings where the relief sought in those proceedings could also have been obtained in the related district court case.

Joint Principal Brief of Defendants-Appellants in Dragon V, at 21–33.

Incredibly, the majority’s opinion hardly addresses these bases, beyond a paragraph attempting to distinguish PPG Industries, Inc. v. Celanese Polymer Specialties Co., 840 F.2d 1565, 1569 (Fed. Cir. 1988). In PPG, Judge Rich and his colleagues allowed the recovery of attorney’s fees incurred in Patent Office proceedings that substituted for the district court’s assessment of patent validity. The distinguishing fact, according to the Dragon V majority, is that the proceeding was not “voluntary” in PPG, whereas it was here. Dragon V, Slip Op. at 9. Tellingly, the judge authoring the Dragon V majority opinion previously acknowledged that PPG supports awarding attorney’s fees incurred in certain Patent Office proceedings, but thought it was “wrongly decided” anyways:

[T]he only case I can find that supports [recovery of attorney’s fees expended in IPRs] is PPG, and I’ll tell you flat out that I think it’s wrongly decided. But, lucky for me, it says it found that [the Patent Office proceeding there] was required.[5]

The distinction the majority suggests between this case and PPG is not so clear. The accused infringer’s participation in the Patent Office proceeding in PPG was not required, but rather “permitted.” See, e.g., PPG Indus., 840 F.2d at 1568 (noting the Patent Office “permitted [the accused infringer’s] participation in [patentee’s] reissue proceeding” (emphasis added)). Nevertheless, by fixating on its own view of PPG revealed in Dragon III, the majority seems to have fallen prey to the “Ostrich Effect,” a cognitive bias that causes one to completely ignore the countervailing arguments, like those Dish and Sirius presented across more than a dozen pages in its opening brief.

The majority suggested that district court judges are not necessarily well suited to “evaluat[e] the exceptionality of arguments, conduct, and behavior in a [Patent Office] proceeding in which they had no involvement.” Id. at 10. At oral argument, the authoring judge of the majority opinion said that to have district judges undertake this evaluation in potentially every case also involving an IPR would be “an effing nightmare.”[6] But it’s a rare patent case where the parties and district court don’t have to evaluate the arguments, conduct, and behavior that occurred in the Patent Office to obtain the patent. Indeed, the district court here expressly based its finding that the case was exceptional primarily on the fact that the patentee disclaimed certain subject matter during prosecution, a finding the majority did not disturb. Id. at 5–6. The district court undertook this routine evaluation of the patent’s prosecution history just as easily as it would undertake an evaluation of the written record of IPR proceedings.

The majority’s commentary seems all the more suspect in view of the dissent penned by a district court judge (sitting by designation on this appeal) who is likely the only one among the judges on the panel to have tried a patent case. Her dissenting opinion explains that Dragon’s infringement action compelled Dish and Sirius to contest validity as a defense and, accordingly, they “exercised their statutory option to litigate” validity via an IPR despite its well-known constraints. Dragon V, Dissenting Op. at 2. The opinion acknowledges the IPR substituted for the district court litigation on the validity issue, and that exceptionality did not stem from the IPR. Dish and Sirius simply sought recovery of fees expended in the IPR “as compensation for their defense of [the] baseless litigation.” Id. at 3. The opinion concludes that district judges should have discretion to award all reasonable fees to the prevailing party in patent cases that qualify as exceptional under the statute:

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.

Id. at 4.

The dissenting judge also lamented that “[t]o categorically preclude recovery of IPR fees in this circumstance is inconsistent with § 285 or the intent of IPR itself.” Id. The Supreme Court has thrice “declined to construe fee-shifting provisions narrowly on the basis that doing so would render them superfluous.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1758 (2014) (citing cases). Because patent validity is so often determined by the Patent Office (instead of a district court), the holding that § 285 fee-awards are categorically unavailable to recover attorney’s fees incurred in closely related Patent Office proceedings may fare poorly at the Supreme Court.

[1] See Dragon Intell. Prop., LLC v. Dish Network LLC, 711 F. App’x 993, 998 (Fed. Cir. 2017) (“Dragon I”). 

[2] See Dragon Intell. Prop., LLC v. Apple Inc., 700 F. App’x 1005, 1006 (Fed. Cir. 2017) (“Dragon II”).

[3] Dragon Intell. Prop., LLC v. Dish Network LLC, Civil Action Nos. 13-2066-RGA, 13-2067-RGA (D. Del. Nov. 8, 2021) (“Dragon IV”).

[4] Dragon Intell. Prop,, LLC v. Dish Network LLC, 956 F.3d 1358, 1362 (Fed. Cir. 2020) (“Dragon III”).

[5] Oral Argument in Dragon III (Jan. 6, 2020) at 10:27, available at https://oralarguments.cafc.uscourts.gov/default.aspx?fl=2019-1283.MP3.

[6] Oral Argument in Dragon V (Feb. 7, 2024) at 53:38, available at https://oralarguments.cafc.uscourts.gov/default.aspx?fl=22-1621_02072024.mp3.

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PTABWatch, provided by Marshall, Gerstein & Borun LLP, analyzes and reports recent developments concerning Post-Grant Proceedings at the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office (USPTO), including Inter Partes Review (IPR), Post Grant Review (PGR), and Covered Business Method (CBM) proceedings.