“Exceptional” IPRs And § 285

By Kerry Barrett and John Evans

Inter partes review (“IPR”) proceedings often arise in the context of high-stakes patent infringement litigation, and district courts frequently stay litigation pending parallel IPRs, which may fully resolve a patent-in-suit’s validity.  Accordingly, district courts are starting to recognize deeper nuances of how IPRs impact co-pending litigation, not only with respect to substantive validity issues, but also the way parties have litigated their claims, including whether a losing party’s conduct in IPR can support an “exceptional case” finding under 35 U.S.C. § 285 to support an award of attorney fees.

In American Vehicular Sciences, LLC v. Autoliv ASP, Inc., a magistrate judge held a prevailing party can seek attorney fees under § 285, if it establishes that the losing party’s conduct in an IPR is “exceptional.”  No. 5:16-cv-11529, Dkt. 57 (E.D. Mich. Aug. 30, 2019).  Generally, courts “award[] attorneys’ fees associated with PTO proceedings either [1] 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 … or [2] where the court determined the PTO’s decision played a central role in determining the outcome of the federal court case.”  Id. at 16 (quotations omitted).  Because parallel IPR proceedings are “‘essentially substituted’ for the court’s work[],” they fall within the category of PTO proceedings coming under district court review after the stay is lifted.  Thus, according to this court, a party prevailing in an IPR may later seek attorney fees under § 285.  Id.

Nevertheless, fee awards under § 285 are not automatic.  The prevailing party must show that the case “is [] one that stands out from others with respect to [1] the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or [2] the unreasonable manner in which the case was litigated.”  Id. at 12 (quoting Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572, 554 U.S. 545 (2014)).  If the prevailing party makes that showing, the court then has discretion to award fees.  Id. at 13.

In this case, the prevailing party argued that, in the IPRs, the losing party presented “untenable, legally incorrect, and baseless theories in an attempt to avoid invalidity” and failed to “continually assess the weakness of its case.”  Id. at 8-9 (quotations omitted).  But simply presenting weak arguments is not “exceptional”; they must be “so unreasonable that no reasonable litigant would believe it would succeed” to qualify as “objectively baseless.”  Id. at 19 (quotations omitted).  The court held that this argument, as well as others unrelated to the IPRs, were insufficient to show that the losing party’s conduct rose to the level of an “exceptional case.”  See id. at 18–28.  As a result, the court declined to award fees.

This decision highlights the strategic interplay between IPRs and litigation stays.  While it is a common practice to seek a stay of patent infringement litigation pending IPR, the stay doesn’t mean that the litigation is over.  Win or lose, a party’s conduct in the IPRs may come under § 285 scrutiny by the district court after the IPRs are resolved.