Hitkansut Patent Litigation: Attorney Fees & Costs under 28 USC § 1498

1. Hitkansut Patent Litigation:Attorney Fees & Costs under 28 USC §1498 September 10, 2019

2. Timeline • Hitkansut LLC & Acceledyne Technologies, LTD v. United States. • May 2012: Hitkansut filed suit in the CFC for use of the process claimed in U.S. Patent No. 7,175,722 (‘722 Patent). • CFC ruled on SJ finding that claims 7, 8, and 14 were not directed to eligible subject matter. • CFC found claim 2 be invalid under 35 USC § 112, paragraph 4. • 2016: 14 day trial. • February 2017: CFC found claims 1, 6, and 11 infringed (Hitkansut LLC v. United States, 130 Fed. Cl. 353,395 (Fed Cl. 2017).

3. Timeline • Re damages, Hitkansut sought $5.6M in royalties based on a rate of 8% to 10% of the funding received by ORNL through R&D funding on the accused process. • CFC rejected the “royalty on research” theory. • CFC awards Hitkansut $200K (= upfront fee for a license to conduct research), plus interest. • March 2017: Both parties filed noticed to appeal to CAFC. • May 2018: CFC decision affirmed by CAFC. • October 2018: Hitkansut filed in CFC for $4.51M in attorney and other costs. • March 2019: CFC awards Hitkansut $4.38M. • May 2019: Notice of appeal to CAFC filed by DOJ. • June 2019: CFC issues FastShip, LLC opinion. • August 2019: DOJ files Principal Brief for Hitkansut.

4. 28 USC §1498(a) Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

5. 28 USC§1498(a) Fee Shifting Provision • Reasonable and entire compensation shall include • the owner’s reasonable costs, including reasonable fees for expert witnesses and attorneys, in pursuing the action if the owner is an independent inventor, a nonprofit organization, or an entity that had no more than 500 employees at any time during the 5-year period preceding the use or manufacture of the patented invention by or for the United States. • Notwithstanding the preceding sentences, unless the action has been pending for more than 10 years from the time of filing to the time that the owner applies for such costs and fees, reasonable and entire compensation shall not include such costs and fees if the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust. • Fee shifting provision added in 1996. Authority of CFC not exercised until Hitkansut decision.

6. Hitkansut Opinion Summary 1) Patent Owner does not waive recovery of costs and fees by failing to request them before judgement. 2) Patent Owner has standing even if fees incurred by legal counsel under contingency fees. 3) Pre-litigation conduct is considered when determining whether Government’s position substantially justified. 4) Costs and fees are capped by reasonableness; depends on potential value of the suit during litigation, not on the actual damages awarded. 5) Fees and costs can be requested and recovered from every phase of the litigation, including those expended to request costs and fees.

7. Hitkansut Opinion • Was the Government’s Position Substantially Justified? • Interpretation of “substantially justified” • Language added by Senate to statute in 1996; modeled after EAJA. • Language has not been interpreted in context of 28 USC §1498 by USC or CAFC. • CFC interpreted the term in a manner consistent with EAJA. • Pre-suit conduct & defining “the position of the United States” • EAJA defines this as BOTH the position taken by the U.S. in the civil action AND the action or failure to act by the agency upon which the civil action is based.

8. Hitkansut Opinion • [T]he Court finds that to evaluate whether “the position of the United States was substantially justified” requires the court to examine all facts surrounding the conduct of the United States that are material to infringement of Hitkansut’s patent, regardless of when the conduct occurred. • Pre-Litigation Conduct: Whether a reasonable person could conclude that its position during the case and beforehand was supportable.

9. Hitkansut Opinion • CFC focused on ORNL’s conduct: • Hitkansut disclosed technology to ORNL under an NDA and ORNL shifted its research to cover the patented technology. • ORNL took sole credit for process, published papers, and filed patent applications with no reference to Hitkansut’s patent. • CFC criticized the government’s invalidity position (even though four of the seven claims were invalidated) with respect to obviousness (didn’t meet the test) and ineligibility (Alice test not met).

10. Hitkansut Opinion • Reasonableness: • CFC stated no cap even though fees exceed the damages (no cap in 28 USC §1498). • CFC rejected Government’s arguments regarding reducing the fees by 95% since Hitkansut was only awarded five percent of the damages originally requested. Hitkansut prevailed on the primary issue: Infringement. • Fees recovered are not dependent on level of success (i.e. actual damages), but on potential value to the claimant.

11. Government’s Appeal • I. Whether “position of the United States” as used in 28 USC §1498(a) includes pre-litigation conduct. • II. Whether CFC erred in determining “reasonable” attorney fees that reflects plaintiff’s failure to prevail on a substantial part of their claim for royalty-based damages.

12. I. Pre-Litigation Conduct • DOJ asserts that the “position of the United States” is limited to its position in the litigation - • Statutory meaning – refers to the Government’s position (statements or acts) as to the merits of the infringement claim. • No indication that Congress intended to waive sovereign immunity by considering pre-litigation conduct as part of the “position of the United States.”

13. I. Pre-litigation Conduct DOJ’s argument: • EAJA is distinguished from 28 USC §1498. • Eminent domain – government has the legal right to take patents subject to compensation to patent owner. • Government does not take a formal position; the government simply acts, lawfully using a patent invention as permitted under statute.

14. I. Pre-litigation Conduct • EAJA defines “position of the United States” includes “in addition to the position taken by the United States in the civil action, the action or failure to act by the agency upon which the civil action is based… 28 USC §1498 does not have this definition. • Consideration of pre-litigation conduct makes no sense for 28 USC §1498 since such conduct (i.e. infringement) would invariably result in the “position of the United States” being unjustified. • Although an administrative claim procedure is available, it is not a prerequisite and thus an analysis of the Government’s position is not necessarily available.

15. I. Pre-litigation conduct • Even if pre-litigation conduct could be considered, the CFC went to far. • Filing of patent applications and issuing papers are not misconduct and are not determinative of whether a taking has occurred. • “CFC opinion is paradoxical: it awarded attorney’s fees under §1498 for doing precisely what the very same statute authorized, taking a license without the consent of the patent owner, while basing the liability for such fees on conduct not directly related to the taking of the license.” • CFC accused the government of violating a non-disclosure agreement in 2003 or 2004 – this charge was never pleaded (plus would be time barred under EAJA).

16. I. Pre-litigation Conduct • Government’s position was substantially justified: • Four claims found invalid thus challenge had merit. • Government succeeded in limiting compensation to $200K instead of $5.6M.

17. II. Reasonableness of Fee Award DOJ’s position: • Fee award should have been adjusted to account for Hitkansut’s limited success. • Focus on actual result not potential claim.

18. FastShip, LLC • FastShip, LLC v. United States, No. 12-484C (June 27, 2019). • 2012- FastShip sued US for patent infringement for a class of littoral combat ships. • CFC granted government’s motion for SJ finding some ships were not “manufactured” prior to the expiration of the patents in suit. • 2018- FastShip ultimately awarded $12.36M in damages, including delay damages. FastShip files motion for attorney fees and expenses. • 2019 – CFC awards FastShip $7.4M in attorney fees and related expenses.

19. FastShip, LLC • CFC held that Government’s position was not substantially justified based on the government’s ENTIRE CONDUCT (Hitkansut). • Pre-litigation conduct: • Navy’s contractor met with FastShip, signed a confidentiality agreement, but thereafter contractor manufactured the ships and infringed. • Navy delayed responding to FastShip’s administrative claim for two years, and responded with a two page denial.

20. FastShip, LLC • During litigation: • Government was unsuccessful on validity argument in part based on testimony from Government’s own expert. • Government’s used incorrect units in its analysis of non-infringement. • Government’s expert had “extraordinary skill” in the art and it was unreasonable to use him. • Appeal by DOJ expected.

21. What Does this Mean? • Increases the potential of patent suits against the government even where costs exceed potential damages. • Provides leverage to licensors negotiating with government and its contractors. • May encourage transfer of patent from a large company to a nonprofit or entity with no more than 500 employees.

22. What does this mean for DOE labs? • Potential need for infringement analysis prior to engaging in R&D and subcontracting; increase costs and possible delay. • Behavior of Lab employees will be scrutinized. • Potential uncertainty regarding third party collaborations as risk potentially increased regarding “conduct” and indemnity clauses. • Encourages lawsuits against DOE contractors. • Reduces R&D budgets since costs will be expended for settlements rather than attorney fees which could easily dwarf damages.

23. Questions?