PTAB + Octane Fitness = Problem

Back in 2014, I explained that the recent shift in exceptional case analysis under Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark Inc. v. Allcare Health Mgmt. Sys., would provide opportunity for successful Patent Trial & Appeal Board (PTAB) petitioners. This is because accused infringers are universally embracing PTAB proceedings as an alternative to high cost litigation, and, are increasingly seeking fees after Octane.  

Last week, the Southern District of California awarded fees of roughly $400k to a successful USPTO patent challenger in Deep Sky Software, Inc. v. Southwest Airlines Co., 3-10-cv-01234 (CASD).

In Deep Sky, (Order here) the parties jointly moved to stay the proceeding in 2011 pending inter partes patent reexamination. Once the reexamination concluded, cancelling all claims, the defendant moved to recover costs associated with the reexamination. In awarding fees, the Court explained:  

The issue of whether a prevailing party in an exceptional case may recover fees for proceedings before the PTO, when the case was stayed due to the PTO proceedings, has received little attention. Several courts have awarded fees for PTO proceedings, others have not.

The Federal Circuit "interpret[s] attorney fees to include those sums that the prevailing party incurs in the preparation for and performance of legal services related to the suit." Cent. Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1578 (Fed. Cir. 1983) (emphasis added). Here, the legal services counsel performed for defendant during reexamination of the '770 Patent were related to this suit. Reexamination was initiated during and in reaction to plaintiff's action here. Further, the PTO's cancellation of the asserted '770 Patent claims on grounds of invalidity disposed of plaintiff's complaint here and made defendant the prevailing party. Thus, just as the parties envisioned when they jointly moved to stay this case, the reexamination proceedings essentially substituted for work that would otherwise have been done before this court. See PPG Indus., Inc., 840 F.2d at 1569 (the prevailing party was "entitled to reasonable attorney fees based upon the premise that the reissue proceedings substituted for the district court litigation on all issues considered by the PTO and the Board."). Thus, under the unique circumstances of this case, defendant may recover fees for the reexamination proceedings.

While many courts may still be reluctant to find a case exceptional, actions of plaintiffs that have patents under PTAB review should alter the analysis.  For example, plaintiffs that are still pursuing new litigations against other defendants while their patents are under PTAB review would not seem to be especially prudent. Especially those that settle the PTAB trial only to force new defendants to restart the PTAB petition process. Another red flag may be a plaintiff suing on patent claims that are related to, or of broader scope to claims being reviewed by the PTAB.