Losing an IPR: Double The Pain

Gaston Kroub

Losing stinks. Especially for patent owners who have invested money and energy in: 1) obtaining their patents, 2) making the hard decision to enforce those patents against infringers, and 3) defending the validity of those patents in IPR proceedings in the USPTO. So when those efforts are ultimately rendered fruitless by an adverse decision invalidating a patent owner’s patent, it stings. Yes, the IPR regime means that patent owners can never truly feel safe. At the same time, the verdict is a harsh one where a patent owner courageous enough to exercise their legal rights under their patents is forced to endure the indignity of seeing those rights nullified in an IPR. Indeed, such a result is a prime example of favoring the property rights of the collective (i.e. society’s desire for elimination of bad patents to conserve space for true innovation) over the rights of the erstwhile patent owner.

As powerful as IPR’s have proven in invalidating patents, it is important to remember that they are rarely filed in a vacuum. In fact, IPR’s are typically filed as part of a comprehensive defense strategy to a claim of infringement, especially where the patent owner has already filed a case in district court. Once the case is filed and a responsive IPR petition submitted, many judges are often quite happy to wait to see how an IPR proceeds before engaging with the case before them on the merits. As a result, stays are commonly issued in cases where an IPR is pending. When that happens, the battleground shifts — both in terms of the merits and the respective costs borne by the parties — from the district court to the PTAB, and eventually to the Federal Circuit if a Final Decision is ever rendered in the IPR and the losing party appeals.

Accused infringers want stays, because it helps them control their spending. Rather than having to pay for discovery, if a case is stayed then the accused infringer can focus its defense spend (e.g. attorney’s fees and case expenses) on the proceedings before the PTAB. All the while hoping that if successful, it can recoup that spending somehow. Which is not at all likely before the PTAB; leaving the district court as the best hope for recovering case costs. But while we know that district courts have become more receptive to granting attorney’s fees motion filed by winning accused infringers, the prevailing consensus has been that attorney’s fees could only be recovered for proceedings before the district court. Which would exclude the costs of the IPR.

In an interesting decision, however, Magistrate Judge John E. McDermott found that a prevailing accused infringer was entitled to recoup its fees for both an IPR proceeding and the subsequent Federal Circuit appeal. First, the Court declared the case “exceptional” with respect to the patent claim, finding that the plaintiff should have been more cognizant of the invalidity risk to its patent. Next, the Court took issue with the plaintiff’s failure to account for prior art it knew about from earlier enforcement efforts. (Decision at pgs. 8-9). Plaintiff’s failures were compounded by its “persisting in all-out litigation.” (Decision at pg. 10). At bottom, the Court found that the patent owner should have extricated itself in the face of “certain defeat” via some form of settlement. (Id.).

Having found the case exceptional, the Court then utilized a “but-for” standard to determine whether or not the IPR-related fees and costs were recoverable. They were, because the proximate cause of the IPR filing was the patent owner’s claim of infringement. (Decision at pg. 11). While the Court’s reasoning will surely be challenged on appeal, this decision raises the stakes for patent owners. No longer should patent owners assume that the only pain of losing an IPR is seeing their patent cancelled. If there is a pending companion case in court, the likelihood that a losing IPR effort could lead to a larger award of attorney’s fees must also be taken into account. Put another way, the chances of a patent owner feeling double the pain because of an IPR filing have just gone up.