Attorneys' Fees Awarded to Small Business Patent Owner to Advance Considerations of "Compensation and Deterrence"

08 October 2014 IP Litigation Current Blog

A recent case in the District of Connecticut demonstrates that courts may be more willing to award attorneys’ fees to a small plaintiff, encouraging such a plaintiff to protect its patent when it is the plaintiff’s “primary business asset[],” even if potential damages for patent infringement are relatively small and the accused products are only a “minute portion” of the defendant’s business. In Romag Fasteners, Inc. v. Fossil, Inc., No. 3-10-cv-01827 (D. Conn. Aug. 14, 2014), the court granted attorneys’ fees and costs to the plaintiff under 28 U.S.C. § 285 and noted that “this case raises special concerns regarding compensation and deterrence of patent infringement.” The Court interpreted Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1755 (2014), in its analysis, and while many people have viewed Octane Fitness as an opportunity for defendants to more easily obtain fees in weak cases brought by plaintiffs (including “patent trolls” that bring weak cases hoping defendants will settle rather than spend attorneys’ fees defending the case), Romag Fasteners shows that plaintiffs may also now sometimes obtain fees in cases they might not have prior to Octane Fitness.

In Romag Fasteners, the jury awarded the plaintiff a reasonable royalty of $66,372.75 for the defendants’ patent infringement, although it was subsequently reduced to $54,425.65 based on a laches defense. After trial, the plaintiff moved for an award of approximately $3 million in attorneys’ fees and costs, relying at least in part on 28 U.S.C. § 285. The case also involved claims of trademark infringement, false designation of origin, state common law unfair competition, and violation of the Connecticut Unfair Trade Practices Act (“CUTPA”), and therefore the plaintiff’s motion for attorneys’ fees also relied on the Lanham Act and CUTPA.

The Patent Act states that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” 28 U.S.C. § 285. The Supreme Court recently clarified this provision in Octane Fitness by lowering the Federal Circuit’s standard to define “an ‘exceptional’ case [to be] simply one that stands out from others with respect to the substantive strength of a party’s litigation position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” The Supreme Court also held that district courts could determine what was “exceptional” on a case-by-case basis while considering the totality of circumstances in the case. This case-by-case analysis can be performed by applying the factors used for awarding fees under the Copyright Act—“frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.”

In reaching  its decision, the court in Romag Fasteners considered each of the above listed factors. With respect to the defendants’ invalidity claims, the court found that the defendants’ indefiniteness defense “bordered on frivolous” and that the defendants acted unreasonably by failing to formally withdraw their remaining invalidity defenses until after the close of evidence, despite having presented no evidence in support of these defenses at trial. The court found these facts to weigh in favor of an award of attorneys’ fees. The court went on to analyze whether this case was a circumstance to advance considerations of “compensation and deterrence of patent infringement.” The court found that “[a]lthough [the accused products] represent a minute portion of Defendants’ costs and profits, the [patent-in-suit] is Plaintiff’s primary business asset. Thus, there is a risk that plaintiffs similar to [the plaintiff] could be discouraged from bringing claims that may garner only small awards but are nonetheless vital to the survival of their businesses where defendants, as was the case here, aggressively pursue invalidity counterclaims in an attempt to prolong litigation and exponentially increase the cost and risk of pursuing a lawsuit.” The court concluded that this was an “exceptional” case and that the plaintiff was entitled to recover its attorneys’ fees under § 285. The court has not yet ruled on the specific amount of fees that plaintiff may recover.

While many people have commented that Octane Fitness likely will provide more opportunities for defendants in patent litigation to receive attorneys’ fees in weak cases brought by plaintiffs, including “patent trolls,” this case is an example on the opposite spectrum, showing that attorneys’ fees may also be easier for plaintiffs to obtain in certain circumstances, including perhaps situations in which the plaintiff is a small business whose patent is its primary asset and is pursuing litigation to ensure the company’s survival. After Octane Fitness, just as a “patent troll” plaintiff must be careful about bringing a weak case because of the increased risk that a defendant, rather than settle, may choose to spend the typically large amount of money to defend the case to the end and be awarded those attorneys’ fees, so must a defendant be careful about litigating a case in which its non-infringement and invalidity defenses are weak, even if it faces minimal damages exposure, because a defendant in that situation also faces a risk that it will have to pay attorneys’ fees at the end of the case.

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