Court Orders Plaintiff to Pay Defendants’ $8 Million in Attorney’s Fees in Patent Row
April 25 2016
Since the U.S. Supreme Court’s twin 2014 decisions in Highmark Inc. v. Allcare Health Management System, Inc. and Octane Fitness, LLC v. ICON Health & Fitness, Inc. attorney’s fees awards are becoming more common in patent cases. 35 U.S.C. § 285 allows attorney fees “in exceptional cases.” Before 2014, this meant a court awarded attorney’s fees only if a party’s litigation position was objectively baseless. This standard proved to be a high bar, and courts rarely awarded fees. However, the aforementioned Supreme Court cases liberalized the standards for finding a patent case to be “exceptional” and instituted an abuse-of-discretion review standard. Specifically, the Supreme Court: (1) defined an exceptional case in which reasonable attorney fees may be awarded to the prevailing party to be “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated;” (2) reduced the evidence required from clear and convincing to a preponderance of evidence; and (3) increased the deference given the trial court during appellate review of such awards from de novo to abuse of discretion.
A recent attorney’s fees award in Alzheimer’s Institute of America v. Eli Lilly & Co. et al., case number 3:10-cv-00482, in the U.S. District Court for the Northern District of California included pre-suit attorney’s fees, which illustrates the impact of the recent Supreme Court holdings. In Alzheimer’s Institute of America, the Court awarded almost $8,000,000 in attorneys’ fees, including $235,780 in pre-suit fees, to the defendants after findings that plaintiff Alzheimer’s Institute of America’s (“AI”) patent infringement lawsuit misrepresented the true owner of patents covering Alzheimer’s detection. Specifically, the court awarded defendant Eli Lilly & Co. (“Eli Lilly”) $4,445,492 and defendant Elan Pharmaceuticals Inc. (“Elan”) $3,435,130. This recent ruling concerned only the amount of attorneys’ fees the Court would award the defendants because the Court had already ruled last summer that AI’s patent infringement suit was “exceptional” under 35 U.S.C. § 285 and the recent Supreme Court precedent.
The lawsuit traces back to February 2010 when AI filed its patent infringement complaint against Eli Lilly and Elan. The complaint alleges that Eli Lilly and Elan infringe U.S. Patent Numbers 5,455,169 (the “’ 169 Patent”) and 7,538,258 (the “’258 Patent”), which involve technology related to “the Swedish mutation,” one of the known genetic causes of Alzheimer’s disease. AI filed a second patent infringement lawsuit in November 2010 in the Eastern District of Pennsylvania, alleging the University of Pennsylvania (“Penn”) and Eli Lilly subsidiary Avid Radiopharmaceuticals Inc. (“Avid”) also infringe the ’169 and ’258 Patents. AI contended that Penn and Avid had infringed the two asserted patents by relying on a protected type of transgenic mice to develop breakthrough Alzheimer’s imaging technology.
In the Eastern District of Pennsylvania action, an issue arose as to whether AI was in fact the proper owner by assignment of the two patents in suit. AI asserted it was assigned the rights to the patents by Michael Mullan, the sole listed inventor on both patents, who was employed by the University of South Florida (“USF”) at the time. Thus, there was an issue as to whether the patents were owned by USF because of Mr. Mullan’s employment status. In addition, there was an issue as to whether Mr. Mullan was actually the sole inventor, or whether his collaborator, John Hardy, had also made a substantial contribution to the innovation.
In August 2011, the Court in the Eastern District of Pennsylvania found that under Florida law the patents were owned by USF, but the issue was further complicated because there was a factual dispute as to whether USF had waived its ownership rights. The Court thus ordered a jury trial on the waiver issue. In May 2012, the jury found that USF had not in fact waived its right to the asserted patents and that Mr. Mullan was not the sole inventor of the technology covered by the two patents. The Federal Circuit later affirmed the jury verdict on appeal, and when remanded back to the Eastern District of Pennsylvania, the District Court found the case to be “exceptional” on a motion for attorney’s fees. The Court found the evidence at trial showed that AI’s principal conspired with two other individuals to misrepresent the true owner of the Swedish mutation inventions and to defraud two universities, and that this “conduct was rare and beyond common decency . . . . [and] motivated by ego and greed . . . . [and] [b]ringing this action was nothing more than a perpetuation of the conspiracy.”
In the meantime, the suit against Eli Lilly and Elan in the Northern District of California had been stayed in December 2011 pending the outcome of the jury trial in the Eastern District of Pennsylvania. In August 2012, after the jury finding that AI was not the true owner of the asserted patents, the Court dismissed the suit against Lilly and Elan, applying collateral estoppel that AI lacked standing to pursue its patent claims. Then, in June 2015, after the Federal Circuit appeal and the exceptional finding in the Eastern District of Pennsylvania action, the Court in the Northern District granted the defendants’ motions for attorneys’ fees, finding that, as in the Eastern District of Pennsylvania case, the suit was exceptional and attorneys’ fees were justified.
Therefore, the only issue outstanding was the amount of attorney’s fees to award defendants in the Northern District action. Although the Court considered many issues, including reasonableness of hourly rates, adequacy of documentation, overlapping counsel, standard fees for patent litigation, the effect of multiple litigations, and recovery for paralegal time, one issue of particular note is the Court’s awarding of pre-suit fees to defendants. In reaching its ruling, the Court noted that defendants’ billing entries reflected that it engaged counsel during its pre-suit investigation “to perform an analysis of Plaintiff’s patents and of potential damages.” Specifically, the Court noted, “Elan states that it ‘foresaw litigation’ based on a letter from [AI] indicating that ‘[AI] believes that it is now appropriate for licensing discussion with Elan to re-commence’ and that ‘it appears that a substantial portion of Elan’s drug discovery efforts for Alzheimer’s Disease are entirely reliant on the unauthorized use of [AI’s] patented technology.’” Therefore, the Court reasoned, “as Elan reasonably anticipated that this litigation would occur, its reasonable fees incurred prior to the initiation of this case are recoverable.”
This case illustrates that the courts will take strong action when faced with baseless claims, hidden or altered evidence, and misleading statements made to the court or opponents. It also serves as a strong reminder to consider your counsel carefully, and the advice that they provide, or a plaintiff may have to pay its own fees and those of the defendant, which in this case amounted to another $8 million.