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Caught in the Crossfire: En Banc Edition

The U.S. Patent and Trademark Office probably won't be allowed to collect its attorneys fees in Section 145 proceedings, judging from questioning in Federal Circuit en banc proceedings last week.

But the office sure got its money's worth from DOJ attorney Jaynie Randall Lilley, who parried hostile questions from six different judges for about a half-hour. She held her own against Irell & Manella partner Morgan Chu (pictured), who started a little slow but seemed to land the knockout punch just as time was winding down.

Quick review: If the PTO rejects a patent application, the applicant can appeal to the Federal Circuit or—as provided by Section 145 of the Patent Act—sue in district court. In 2011, the Federal Circuit expanded the scope of 145 proceedings, ruling en bancthat applicants can present new evidence that wasn't before the PTO. The Supreme Court agreed in Kappos v. Hyatt. But there's a downside. Section 145 provides: “All the expenses of the proceedings shall be paid by the applicant,” regardless of outcome.

For more than 100 years, the patent office has interpreted “expenses” as covering expert witness fees, court reporting fees and the like. But more recently it's also been seeking attorneys fees—the pro rata portion of salaries paid to its solicitors and paralegals during the proceedings. NantKwest, the immunotherapy company headed by billionaire Patrick Soon-Shiong, is challenging $78,000 in fees following an unsuccessful 145 hearing.

A three-judge panel led by Chief Judge Sharon Prost OK'd the fees last summer. The Supreme Court has said that fee-shifting can apply when a statute “clearly and explicitly” provides for it. For Prost and Judge Timothy Dyk, “all the expenses of the proceeding” is sufficiently clear and explicit. Not so for Judge Kara Stoll, who dissented, prompting the court to call an en banc hearing sua sponte.

Judges Kathleen O'Malley and Kimberly Moore kicked off last week's hearing by pointing out that the statutory language dates to 1839. “If it's so clear,” O'Malley asked, “why did it take the PTO until the last couple of years to tumble on this supposedly unambiguous reading?”

Lilley said that when the America Invents Act made the PTO fully user-funded, “the agency sensibly examined all of its user fees and its costs.” Given the Hyatt decision, Section 145 was a natural place to look.

That put Lilley directly into crossfire between Moore, who authored the Hyattdecision, and Dyk, who dissented from it.

“Do you now agree that the agency was in error for the last 170 years when it failed to seek attorneys fees?” Moore pressed.

“What difference does it make that you made a mistake earlier?” said Dyk. “We're not going to defer to your interpretation of this particular statute.”

O'Malley asked Lilley to name any other statute that lets the losing side recoup its attorneys fees. Lilley conceded it's “highly unusual.”

“When you say highly unusual, is your answer no?” O'Malley said.

Lilley pointed out that IPR petitioners pay a fee, win or lose. “Nantkwest's position is that other PTO users should pay,” she argued.

Judge Alan Lourie asked if the PTO is seeking its fees for the appeal. Lilley chose her words carefully. “The D.C. Circuit found that the language would permit expenses related to an appeal, but the PTO is not seeking those here,” she said.

That set off Moore again. “Why? You, again, don't have discretion under the statute,” she said. “If you believe those are expenses included within the statute, you 'shall' receive them. You don't have the right to waive them.”

“And that's why we're here today, your honor,” Lilley replied, “to establish the principle that PTO can recoup all of the expenses of the proceeding.”

Chu, meanwhile, emphasized that fee-shifting must be explicit, offering Section 285as an example. But he conceded that a statute doesn't have to contain the “magic words” attorneys fees.

“So tell me how you would say it to be clear without using the words 'attorneys fees,'” Prost asked. “'All of the expenses of the proceeding, including' what?”

“Including without limitation the time spent by lawyers working on the particular matter in the solicitor's office,” Chu replied.

“That's kind of an awkward statute,” Dyk shot back. “They have to draft it with that level of detail?”

But Chu finished strong, pointing to a 1930s case in which the patent office pooh-poohed the idea that it would ever claim attorneys fees in a 145 suit. The agency called it “so remote” that it “need not be seriously considered.”

That seemed to score with Judge Evan Wallach, who asked Lilley about it during rebuttal. “The government said, 'never happen,'” he told her. What changed?

“Your honor, it said it was so remote it didn't need to be considered,” Lilley said, “and here we're at that remote day.”

Newegg Finally Claims Its Fee Award

There was other news on the attorney fee front. After five hard-fought years, Newegg Inc. has obtained an attorney fee award against Acacia subsidiary AdustjaCam LLC.

AdjustaCam v. Amazon was a hot case pre-inter partes review, when fee shifting appeared to be the primary pushback mechanism against non-practicing entities. Leonard Davis, then the chief judge of the Eastern District of Texas, denied fees, but the Federal Circuit ordered reconsideration after the Supreme Court changed the fee-shifting standard with its Octane Fitness decision.

By then Davis had retired, but U.S. District Judge Rodney Gilstrap agreed with Davis' appraisal. The Federal Circuit then sent the case back again, this time explicitly finding the case exceptional and ordering “the calculation of attorneys' fees.”

On Thursday, Gilstrap began by noting that, under Federal Circuit case law, “the amount may be zero, even though the case is exceptional.” But he didn't go there. Instead, he awarded the full $564,865 sought by Newegg.

Kent Bauldauf Jr. and Daniel Brean of Pittsburgh's The Webb Law Firm signed Newegg's latest brief. But the win was probably sweetest for a new member of Webb's team—former Newegg General Counsel Lee Cheng, who recently signed on as the firm's managing counsel for the West Coast.

“Love those Webb guys! Best patent lawyers in America,” he blasted out in an email.

Also playing prominent roles were Latham & Watkins partner Rick Frenkel, who argued the previous motion to Gilstrap, and Durie Tangri's Mark Lemley, who argued Newegg's appeals to the Federal Circuit.

AdjustaCam had taken issue with Frenkel's and Lemley's billing rates. Frenkel billed between $805.50 and $832.50 an hour and Lemley between $900 and $910. Aside from briefing and arguing, the two appeared to play “a largely redundant client relationship and supervisory role.”

Gilstrap disagreed on both counts. “While the rates of Mr. Frenkel and Mr. Lemley are indeed higher than average, they are not so high as to fall outside of the realm of reason,” he wrote. “Likewise, the number of hours spent by Mr. Lemley and Mr. Frenkel on this case are not unreasonable.”

Stairway to Retrial

I promised in my previous briefing to share my thoughts on the copyright appeal over Led Zeppelin's Stairway to Heaven. Having now watched the Ninth Circuit argument, my thought is, well, all that glitters isn't gold.

Francis Malofiy of Francis Alexander represents the estate of the singer who composed a guitar riff that resembles the Stairway figure. He told the Ninth Circuit that jurors in his case should have been allowed to hear a recording of the song, called Taurus. Instead, they were limited to an expert witness' recreation based on the lead sheet deposited with the Copyright Office in 1967.

“The recording is not substantially similar, it's nearly virtually identical,” Malofiy argued. “We weren't able to play the very thing that Jimmy Page and Robert Plant had access to.“

Ninth Circuit Judge Sandra Ikuta suggested that, however unfair that may seem, that's the reality of the 1909 Copyright Act, which governs the case. Especially when it comes to a song like Taurus that was registered as an unpublished work.

But Ikuta also suggested U.S. District Judge Gary Klausner might have erred by failing to instruct the jury that unoriginal works—like the descending chromatic notes of Taurus and Stairway—can be protected if they're re-arranged in an original manner. Judge Richard Paez sounded as if he might agree, so we could be headed to a retrial and another expert recreation of Taurus.

PTAB Accepts 55 Amended Claims

Remember how notoriously stingy the Patent Trial and Appeal Board used to be with patent claim amendments during inter partes review? As in denying 112 of the first 118 motions to amend?

There was some question as to whether last summer's fractured Aqua Products v. Matal decision would change that. Here's one data point: On Tuesday, the PTAB found 55 patent claims challenged by Apple Inc. unpatentable. But the PTAB also allowed, and found patentable, 55 narrower, amended claims proposed by patent owner Realtime Data LLC. The patent covers systems and methods for more quickly booting computing devices.

Realtime Data was represented by Kayvan Noroozi of Noroozi PC and Joseph Edell and Richard Zhang of Fisch Sigler.

I've Got a Secret

This week was trade secret week. On Tuesday I wrote about two prescription benefit discounters battling it out extravagantly in New York federal court. Did a “rogue” general counsel misappropriate confidential information, or was he just escaping a “toxic corporate culture”? Then on Thursday came news of a $700 million verdict—excuse me, a $706.2 million verdict—in a Texas case between rivals in the online home appraisal business. A big score for Susman Godfrey.

Who's on the Move?

Felicitations to Silicon Valley IP litigator Steven Carlson. My ALM colleague Xiumei Dong reports that he's decamped from Kasowitz Benson Torres to join Robins Kaplan.

“Steve has built an impressive practice representing innovators in the fields of robotics, databases, software, medical diagnostics, pharmaceuticals, chemistry and telecommunications that dovetails well with the portfolio of our clients' technologies, and further enhances our capabilities in California,” Michael Geibelson, managing partner of Robins Kaplan's offices in Los Angeles and Mountain View, said in a statement.

I could add more to this briefing, but my spirit is crying for leaving. See you all next week!