Third Party IPRs Sway District Court’s Prevailing Party and Costs Rulings

by | Jan 2, 2025 | District Court, PTAB News

By Connor Scholes, Daniel Sloan, and John Marlott –

Third-party IPRs can moot previously favorable decisions and leave a previously successful party to bear its own costs. On October 16, 2024, Judge Rodney Gilstrap denied the plaintiff’s Motion to be Confirmed as the Prevailing Party under Fed. R. Civ. P. 54(d) and for Taxable Costs. Packet Intelligence L.L.C. v. Netscout Sys., Inc., No. 2:16-CV-00230, 2024 WL 4505457 (E.D. Tex. Oct. 16, 2024) (“Order”) at *4. Judge Gilstrap also granted in part the defendants’ Motion for Bill of Costs. Id. Although the court declined to grant Costs to either party, it found that Defendant was the prevailing party after the Federal Circuit affirmed the PTAB’s parallel IPR decisions finding the asserted patents invalid. Id.

Plaintiff initially prevailed in a jury trial, where the jury found that Defendants willfully infringed the patents-in-suit and did not establish that any of the asserted claims are invalid, and that Plaintiff was entitled to damages in the amount of $5.75 million as a running royalty and an additional enhancement of $2.8 million. Id at *1. The district court issued a final judgment ordering Defendants to pay damages and found Plaintiff was the prevailing party. The district court also ordered entry of a Bill of Costs. Defendant then appealed the issue of pre-suit damages. The Federal Circuit affirmed the Court’s Final Judgment in almost all respects but reversed the district court’s award of pre-suit damages and vacated enhancement of that award. Packet Intelligence LLC v. NetScout Sys., Inc., 965 F.3d 1299, 1303 (Fed. Cir. 2020). On remand, the district court issued an Amended Final Judgment similar to the previous judgment but incorporating the Federal Circuit’s guidance.

While the case was on a second appeal before the Federal Circuit challenging the district court’s Amended Final Judgment, the Federal Circuit affirmed multiple PTAB Final Written Decisions finding all asserted claims unpatentable. Thus, the district court dismissed the case as moot in June 2024. Even so, Plaintiff maintained that it was the prevailing party in view of the prior Federal Circuit appeal affirming willful infringement. Defendants countered that Plaintiff was not the prevailing party because Defendants obtained the outcome they sought, even though third parties had filed the IPRs.

The district court agreed that Plaintiff was not the prevailing party because its infringement suit failed to alter the Parties’ legal relationship. In support, Defendants cited B.E. Technology, L.L.C. v. Facebook Inc., 940 F.3d 675, 676 (Fed. Cir. 2019), where the district court stayed a case pending IPRs filed by third parties. The district court dismissed the case as moot and found the defendant was the prevailing party after the Federal Circuit affirmed a PTAB decision finding all asserted claims unpatentable. Id. Defendants had prevailed even though the IPRs were filed by others because the outcome was favorable. Id. Judge Gilstrap applied the same logic and found that Defendants were the prevailing party.

Defendants were not, however, entitled to additional costs under Federal Rule of Civil Procedure 54(d)(1). An award of costs is not a matter of right; thus, Judge Gilstrap refused to tax costs in favor of Defendants “under these particular circumstances.” Judge Gilstrap also articulated several additional reasons why he declined to award costs to Defendants. First, Defendants were “unintended beneficiaries” of the third-party challenges, rather than prevailing parties at the PTAB. Second, the burden of proof differed between the PTAB and district court proceedings, and the third parties were successful in proving unpatentability under a lower standard. Third, Plaintiff prevailed on nearly all substantive issues and the Federal Circuit upheld these findings on appeal. Finally, while Defendants were within their rights challenging the verdict, the court found that Defendants took repeated steps to extend the case while the IPRs were pending. Thus, the court held that both parties would bear their own costs; Plaintiff and Defendants had requested more than $135,000 and $141,000 in costs, respectively.

Takeaways: Third-party IPRs may impact the outcome of district court litigation and allocation of damages. Under Federal Circuit precedent, a defendant who receives a mootness dismissal may still be the “prevailing party” under Federal Rule of Civil Procedure 54. However, prevailing party status does not guarantee recovery of costs and may limit a previously victorious plaintiff from recovering costs, as costs are not a matter of right.

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John Marlott

Partner at Jones Day
John Marlott brings more than 30 years of intellectual property law experience to his role as lead counsel in IP disputes for Jones Day clients. He focuses on high-stakes district court and ITC patent litigation, post-grant patent proceedings before the PTAB, and appeals to the U.S. Court of Appeals for the Federal Circuit.