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Blackbird v. Health in Motion, attorney fees, and what it means for startups
A recent Federal Circuit decision about fee shifting is important to startups facing patent litigation and has broader relevance for confirming that attorney fee awards can be a tool for deterring abusive patent litigation. Startups facing extortive settlement demands for specious patent infringement claims can ask to have the plaintiff pay their attorney fees if they prevail in court. The availability of fees is valuable, because the cost of defending even a meritless patent lawsuit is expensive. But if plaintiffs who file those meritless cases may have to cover the costs of defense, it can help level the playing field, even before the parties find themselves in court.
In Blackbird Tech LLC v. Health in Motion LLC, the Federal Circuit affirmed an award of attorney fees in favor of a small company accused of infringement. A district court had ordered the plaintiff—a patent assertion entity—to pay the accused infringer’s fees. The Blackbird decision helpfully details a constellation of facts that courts consider relevant to fee awards. Parties involved in litigation might want to consider this case when developing a factual record for fees in their own cases. For example, the defendant in Blackbird identified multiple instances of frivolous arguments and unreasonable conduct by the plaintiff, sent periodic letters notifying the plaintiff that the case warranted fees, and established a pattern of activity throughout the case relevant to its fee request. On that totality of circumstances, the courts agreed fees were warranted, reimbursing the company accused of infringement for a significant expense it incurred in defending itself.
In addition, the Blackbird decision is interesting for its discussion of how courts may award fees in the interest of deterring abusive litigation conduct. That a plaintiff who otherwise bears little risk in pursuing even meritless claims can be on the hook for the cost of the defense should (hopefully) mean that parties will think twice before pursuing meritless claims or using unreasonable tactics in litigation.
A brief primer on attorney fees and § 285 of the Patent Act.
To understand the Blackbird decision, you need a bit of background on attorney fees. Generally, in the U.S., each party in a lawsuit pays its own lawyers. This opens the door to some mischief, because hiring defense lawyers can be very expensive. As such, defendants accused of infringement may feel they are better off settling even meritless cases for less than the cost of legal fees (which can still be millions of dollars).
There are exceptions to this general rule—for example, a statute or contract may dictate that the losing party pays the winning party’s fees in certain circumstances. And one such exception is 35 U.S.C. § 285, the Patent Act’s fee-shifting provision.
In patent cases, a court is authorized to award attorney fees to the prevailing party. Section 285 says that a court may award fees when the court determines that a case is “exceptional.” Put another way, a court may (but does not have to) order the losing party to pay the winning party’s fees—and a court can only make such an award if it determines the case meets the statute’s exceptionality threshold. And a recent Supreme Court decision clarified what it means to be “exceptional.” The Court has explained that an “exceptional” case is merely “one that stands out from the others with respect to the substantive strength of a party’s litigating position . . . or the unreasonable manner in which the case was litigated.” And the Court confirmed that “[d]istrict courts may determine whether a case is ‘exceptional’ in the case-by-case exercise of their discretion, considering the totality of the circumstances.”
Blackbird v. Health in Motion, facts supporting an award of fees, and the availability of fees as a mechanism to deter abusive litigation.
The plaintiff in this case, Blackbird, is a relatively well-known patent assertion entity (PAE), “whose business model,” the Federal Circuit explained, “consists of purchasing patents and monetizing them through litigation.” The defendant, Health in Motion (HIM), is a small, 30-person company that, in relevant part, designs, develops, and manufactures fitness equipment.
In October 2016, Blackbird sued HIM for alleged infringement of a patent related to exercise equipment. During the course of the case, Blackbird made a series of decreasing settlement offers: in June 2017, Blackbird asked HIM to pay $80,000 to settle; in October 2017, it proposed a $50,000 settlement; in April 2018, it proposed $15,000; and later that month it offered to settle the case for $0. After the parties filed summary judgment briefs, in May 2018, Blackbird unilaterally asked the court to dismiss its own case without first notifying HIM.
Throughout the case, HIM maintained that Blackbird’s infringement allegations lacked merit. In addition, HIM repeatedly notified Blackbird that there was a “strong likelihood” HIM would win the case and that the court would order Blackbird to pay its attorney fees.
The district court dismissed Blackbird’s case, and granted HIM’s motion for attorney fees under 35 U.S.C. § 285. The court determined that this case was exceptional, citing meritless and frivolous positions Blackbird took and instances when it litigated in an unreasonable manner. As evidence supporting that decision the district court identified flawed arguments Blackbird made throughout the case, documents it withheld, its unreasonable delays, and its unreasonable attempt at dismissing the case. The district court also decided a fee award was warranted here “to deter future abusive litigation.” Ultimately the court ordered Blackbird to pay over $350,000 of HIM’s fees and costs.
Blackbird appealed, and the Federal Circuit affirmed the district court’s fee award. Of note, the Federal Circuit cited Blackbird’s multiple settlement demands, each “far less than the anticipated cost of defense, i.e., nuisance value settlement offers,” as evidence of its unreasonable conduct. In addition, the Federal Circuit specifically acknowledged that district courts can consider the need to deter future abusive litigation when awarding fees.
The Federal Circuit also affirmed the district court’s decision to award HIM all the fees and costs it requested. Blackbird had argued that the district court should determine whether ~$350,000 was reasonable. Blackbird characterized its case as a “small claim,” and suggested it was unreasonable for HIM’s counsel to spend so many hours on the case. The Federal Circuit disagreed. While the court has, in the past, cautioned against awarding fees for “countless hours” of work, the Federal Circuit determined that spending 650 hours on a case that was about to go to trial was acceptable. Holding otherwise would put defendants in an untenable situation of choosing to settle frivolous cases or incurring legal expenses that are ultimately reimbursed only in part. So the Federal Circuit affirmed the district court’s decision, finding that this fee award was within the court’s discretion.
What Blackbird means for startups.
Fee shifting through 35 U.S.C. § 285 is one tool for correcting an inherent imbalance in patent litigation that can be (and is) exploited by bad actors and against startups. Courts only grant fee motions about 25% of the time, so in a majority of cases parties still pay their own legal fees. But the Federal Circuit’s Blackbird decision indicates what parties can do throughout a case to build a successful argument for fee shifting in exceptional cases, and this decision offers valuable confirmation that courts can award fees to deter future abusive conduct.
The specific facts and reasoning of the Blackbird decision indicate helpful tips for building a successful fees argument. Parties involved in litigation who think their cases merit fees may want to consider:
Fee awards are based on totality of the circumstances: In Blackbird, HIM and the district court identified a constellation of problems that “severely affected every stage of the litigation.” It will rarely be enough to point to one or a few things the losing party did wrong. Instead courts will probably only award fees when there is a pattern or series of behavior suggesting the case is exceptional.
Notice of intent to seek fees: In Blackbird, HIM had written to Blackbird on multiple occasions explaining that the case lacked merit and that HIM would seek fees. The court considered these letters as evidence that Blackbird proceeded with a weak case, even after it knew about flaws. Parties who intend to seek fees may want to consider similarly putting the other party on notice, and submitting that evidence.
Basis for fee request may evolve during a case: In Blackbird, the series of decreasing settlement offers influenced the court’s decision. One settlement during the course of litigation might not have been a problem, but the series and the amounts Blackbird offered suggested this case was exceptional. Other developments during a case may affect the merits, such that a case becomes exceptional after, e.g., discovery, claim construction, etc. Parties may want to consider the basis for an exceptional case periodically throughout the case.
From a broader perspective, fee shifting can help correct an imbalance in litigation and make the abusive patent litigation business less profitable. Indeed, in Blackbird, both the Federal Circuit and the district court specifically acknowledged the potential for fee awards “to deter future abusive litigation.”
In the average patent case there is less cost and risk associated with asserting a patent, but the costs of a defense are significant and the risk of losing are substantial. Especially for startups, the costs of litigation, the costs of damages, or the existential threat of an injunction can be unbearable, meaning that some companies will pay significant settlements to avoid those costs and risks. This is particularly problematic when low-quality patents are asserted and/or patents are asserted against those that do not infringe them, because startups end up paying settlements to avoid meritless accusations. Indeed, a now-familiar business model has arisen to exploit that imbalance in patent litigation. Entities, variously referred to as PAEs, non-practicing entities, or “patent trolls” can assert, or threaten to assert, low-quality patents against companies, including startups, that do not even infringe.
35 U.S.C. § 285, and the Blackbird decision specifically, are useful for startups facing abusive infringement threats. Startups who receive frivolous threats and patent demand letters can respond that they plan to seek fees and build their fees case throughout litigation. And plaintiffs who file meritless, frivolous, and/or abusive lawsuits suddenly have skin in the game, because they may have to pay fees. As such, the availability of fee shifting hopefully deters abuses.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
