Exceptional Cases & The PTAB

As discussed last month, as PTAB proceedings conclude at the Federal Circuit and return to the district courts, courts are finding themselves faced with new questions on estoppel. Another question that has been recently posed for successful PTAB challenges is whether, and to what extent, a prevailing party in an “exceptional” case (35 U.S.C. § 285) can obtain fees for work done at the PTAB?

Once again, the answer may depend on the particular district court.

As discussed back in January, a court may award not only attorney’s fees stemming from the parallel PTAB proceeding, but may even award the PTAB fees themselves, provided that the court finds the entire case “exception” under Section 285. But can “exceptional” conduct at the PTAB form the sole basis for fees in the parallel district court proceeding?

A recent decision out of the Eastern District of Michigan seems to suggest this possibility.

In American Vehicular Sciences LLC v. Autoliv, Inc., (here) the defendants (Autoliv) moved for an award of attorney’s fees based on plaintiff AVS’s “exceptional” conduct at the PTAB. There, the district court case was stayed shortly after filing pending the outcome of multiple IPRs filed against the asserted patent, including by Autoliv. The PTAB invalidated the asserted patent, and invalidity was summarily affirmed at the Federal Circuit. When AVS moved to dismiss the case, Autoliv moved for attorney’s fees for the costs associated with the PTAB litigation. While the court ultimately denied the request here, language in the opinion appears to open the door for fees even in cases where there is no substantive litigation in the district court.

The court specifically held that if the Defendants establish that the PTAB proceedings are “exceptional,” then they “would be allowed to seek fees attributable to the work before the PTO here.” The court then walked through the rationales that various courts have relied on in awarding fees in cases involving PTAB proceedings, including: Where proceedings before the PTO were “reasonably necessary or related to the underlying patent lawsuit,” M-1 Drilling Fluids UK Ltd. v. Dynamic Air Inc., No. 14-cv-4857, 2018 WL 3104240, at *5 (D. Minn. Feb. 27, 2018) and Chaffin v. Braden, No. 6:14-0027, 2016 WL 5372540, at *2 (S.D. Tex. Sept. 26, 2016); Where “there was a stay of the related district court case, such that the PTO proceedings effectively took the place of the federal court litigation,” Deep Sky Software, Inc. v. Southwest Airlines Co., No. 10-cv-1234, 2015 WL 10844231, at *2 (S.D. Cal. Aug. 19, 2015); and where “the court determined the PTO’s decision played a central role in determining the outcome of the federal court case,” Howes v. Med. Components, Inc., 761 F.Supp. 1193, 1198 (E.D. Pa. 1990); Scott Paper Co. v. Moore Bus. Forms, Inc., 604 F.Supp. 835, 838 (D. Del. 1984).

The court ultimately agreed with the California Deep Sky decision, noting that the PTAB proceedings “took the place” of the district court litigation (Indeed, by Congressional design). Interestingly, the court also noted an N.D. Cal. case where the court did not award fees for an IPR proceeding where the district court and PTAB proceedings ran concurrently (e.g. the district court case was not stayed). Chamberlain Group, Inc. v. Techtronic Indus. Co., 315 F.Supp.3d 977, 1019-20 (N.D. Cal. 2018).

Importantly, the court denied the fees here because the Autoliv failed to establish that the case was “exceptional.” Because there was no substantive litigation at the district court, Autoliv needed to show that AVS’s conduct during the IPR proceeding was “exceptional.” The court then noted that the Board, in its three FWDs, did not fault AVS’s for its litigation positions, did not sua sponte order fees, nor did defendants request attorneys fees at the PTAB.

The takeaway here is that even if there’s no substantial district court activity, a prevailing party may still be able to seek fees based solely on PTAB litigation conduct—perhaps the more readily in stayed case. Requesting fees at the PTAB, even if unlikely to succeed before the Board (and it will be), may nevertheless serve as a marker for a later opportunity to obtain fees under 285 when returning to the district court.