Therasense and the Fight for Fees on Fees

by McDermott Will & Emery
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Therasense, Inc. v. Becton, Dickinson and Co.

In the attorneys’ fee portion of this seminal case on inequitable conduct, the U.S. Court of Appeals for the Federal Circuit has concluded that the defendants, while entitled to attorneys’ fees under 35 U.S.C. § 285, are not entitled to “fees on fees” or to prejudgment interest prior to the time the district court found the case exceptional on remand and reinstituted its fee award.  Therasense, Inc. v. Becton, Dickinson and Co., Case No. 12-1504 (Fed. Cir., Mar. 12, 2014) (Rader, C. J.) (Dyk, J., dissenting).

In 2004, Becton sued Abbott (formerly Therasense) seeking a declaratory judgment of non-infringement of its blood glucose test strip (the BD Test Strip). In response, Abbott sued Becton for patent infringement alleging that Becton’s BD Test Strip infringed its patent.

The district court granted summary judgment (SJ) of non-infringement with respect to all asserted claims of two of patents and found nearly all of the asserted claims of the third patent to be invalid.  Following a bench trial, the district court also determined that the claims of the patent that was the subject of the SJ ruling were also unenforceable for inequitable conduct.   The district court further found the case concerning the later patent to be exceptional under 35 U.S.C. § 285 and awarded Becton costs and fees of almost $6 million.  In its order, the district court stated that payment was due “following the exhaustion of all appeals . . . regarding the validity and unenforceability of the [ ] patent, if the court’s inequitable conduct judgment is upheld on appeal.”

Abbott appealed the district court’s judgments of invalidity, unenforceability and non-infringement but not the exceptional case finding or fee award.  After the Federal Circuit’s en banc decision (IP Update, Vol. 14, No. 6), altering the standard for inequitable conduct, the case was remanded to the district court.

Applying the new Therasense standard for inequitable conduct determinations, the district court again concluded that the patent was procured through inequitable conduct.  Becton then moved to supplement the original fee award with appellate and remand fees and expenses, fees spent seeking additional fees, pre-judgment interest on fees and post-judgment interest from the date the district court first found this case to be exceptional. The district court reinstated its $6 million fee award and added post-judgment interest of approximately $6400 (standardization the date of its remand decision), but denied Becton’s motion for additional fees and interest in all other respects.

Becton appealed the district court’s denial of additional fees, contending that it was entitled to appellate and remand fees because the district court’s exceptional case finding “permeated” the appeal and remand phases.  For the appeal and remand phases, Becton claimed fees of approximately $1.35 million as well as $570,000 in post-judgment interest calculated from the original “exceptional case” finding.  Becton appealed.

The Federal Circuit, noting that the district court’s $6 million fee order expressly contemplated an appeal, concluded that the district court did not err in denying Becton’s motion for additional fees predicated on the original vacated determination of inequitable conduct.

Becton also asserted that Abbott’s appeal and petition for rehearing en banc qualify independently as exceptional circumstances, characterizing Abbott’s continued pursuit of appellate review as “a deliberate and malicious attempt to prolong the litigation and to deceive the district court.”  However, the Federal Circuit noted the total absence of evidence of bad faith by Abbott in pursuing the appeals:  “Expressions of outrage and suspicion in the form of attorney argument are not evidence of bad faith. Nor does the mere act of pursuing appellate review—available as a matter of right and frequently necessary to preserve future rights of appeal—by itself suggest an abuse of the legal system.”  Rather, the Court concluded that Abbott’s appeal was not frivolous and that it “developed its appeal based on the facts and reasonable legal arguments,” noting that Abbott did “ultimately succeed on appeal in vacating the underlying judgment of inequitable conduct” (and was therefore the prevailing party in the appeal).  Thus, the Federal Circuit concluded the district court did not abuse its discretion by declining to award fees for appeal, rehearing and remand.

Finally, in seeking fees on fees, Becton argued that Abbott forced it to incur additional legal expenses on appeal and remand before paying the fees owed through trial.  On this issue, the Federal Circuit noted that “a district court may exercise broad discretion in awarding fees and setting the amounts of fees.”  Here the district court not only declined to find the appeal was frivolous, but rather concluded that there “was no litigation misconduct nor any other reason to find that Abbott’s appeal was an exceptional case warranting supplemental fees.”  Based on the district court’s “substantial discretion in fixing the amount of any award,” the Federal Circuit affirmed the decision.

Finally, the Federal Circuit agreed that the district court correctly declined to award post judgment interest calculated from the date the district court first found the case to be exceptional, since that judgment had been vacated.  Thus, any post judgment interest was properly determined based on the date of the remand judgment.  The district court therefore did not err in concluding that post judgment interest should accrue only from the date of its order reinstating the prior fee award.

Dissenting in part, Judge Dyk questioned the rational of the majority on the issue of fees for the appeal:  “the district court concluded in the remand order that it could not award appellate fees unless the appeal was independently exceptional. The majority agrees. This holding, it seems to me, is contrary to Supreme Court precedent, and will potentially cause problems in future cases. I would reverse and remand for the district court to reconsider the appellate fee requests under the correct legal standard.”

In Dyk’s view, the Supreme Court rule is that all phases of litigation, including appellate proceedings, are to be treated as a unitary whole, not parsed into discrete parts.  Dyk also takes issue with the majority ruling that Becton was not “prevailing party” in the original appeal and en banc proceedings, noting that “the Supreme Court has held that the phrase “prevailing party” applies to any party who has established his entitlement to some relief on the merits of his claims.”  Since, in the appeal, Becton prevailed on invalidity and non-infringement, in Dyk’s view it was the “prevailing party.”

In regard to the “fee for fees” issue, Judge Dyk, relying on the same U.S Court of Appeals for the Ninth Circuit precedent as the majority, arrived at a contrary conclusion, observing that since Becton was entitled to substantial fees, “[t]he district court was required to allow fees to secure those fees.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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