Federal Circuit Rejects District Court Interpretation of ‘Prevailing Parties’ Under Section 285

On appeal from the U.S. District Court for the District of Delaware, the U.S. Court of Appeals for the Federal Circuit (CAFC) held on April 21 that the district court erred in determining that DISH Network LLC and Sirius XM Radio Inc. (collectively, DISH and SXM) were not prevailing parties for purposes of collecting attorneys’ fees under 35 U.S.C. § 285. In particular, the CAFC held that the Appellant’s were prevailing parties before the district court based on a judgment of noninfringement, although later vacated, and a holding of invalidity before the USPTO Patent Trial and Appeal Board (the Board).

District Court Proceedings

In 2013, Dragon Intellectual Property, LLC sued DISH and SXM, and eight others, in district court alleging infringement of claims of U.S. Patent No. 5,930,444, which was directed to an audiovisual recording and playback device. Subsequently, DISH filed a petition with the USPTO Patent Trial and Appeal Board (the Board) seeking inter partes review of the ’444 patent. The Board instituted review and granted SXM’s request for joinder. The district court stayed proceedings for DISH and SXM, but proceeded with claim construction as to the other eight defendants, who later stipulated to noninfringement. The district court then entered judgment of noninfringement in favor of all defendants, including DISH and SXM. In the parallel inter partes review, the Board issued a final written decision holding all of the asserted claims unpatentable. DISH and SXM then moved for attorneys’ fees under 35 U.S.C. § 285 and 28 U.S.C. § 1927. Dragon appealed both the district court’s judgment of noninfringement and the Board’s final written decision, wherein the CAFC affirmed the Board’s decision and dismissed the parallel district court appeal as moot. In response to a motion by Dragon, the district court vacated the judgment of noninfringement as moot. The district court retained jurisdiction to resolve DISH and SXM’ attorneys’ fee motions, but ultimately denied the motions for attorneys’ fees, stating that DISH and SXM were not prevailing parties “because they were not granted ‘actual relief on the merits’ and ‘success in a different forum is not a basis for attorneys’ fees  in the district court’”.

Proceedings Before the Federal Circuit

On appeal, DISH and SXM argued that the district court erred in holding that they were not prevailing parties under Section 285 based on the district court’s finding that they were not awarded “actual relief on the merits.” Citing B.E. Technology, L.L.C. v. Facebook, Inc., the CAFC noted that “a defendant can be deemed a prevailing party even if the case is dismissed on procedural grounds rather than on the merits.” In B.E. Technology, the CAFC held that even though the district court’s “mootness decision was made possible by winning a battle on the merits before the PTO”, Facebook was a prevailing party because it “rebuffed B.E.’s attempt to alter the parties’ legal relationship in an infringement suit.” The CAFC explained that this case is similar to B.E. Technology because DISH and SXM succeeded in invalidating the asserted claims before the Board and the district court subsequently vacated a judgment of noninfringement as moot. Thus, the Court reasoned, as in “B.E. Technology, Appellants successfully rebuffed Dragon’s attempt to alter the parties’ legal relationship in an infringement suit.” The CAFC further pointed out that the fact that DISH and SXM successfully obtained a judgment of noninfringement, although later vacated based on the Board’s finding of invalidity, further supports a holding that they were prevailing parties.

DISH and SXM urged the CAFC to determine if fees should also be awarded for fees incurred in the inter partes review proceedings. In response, the CAFC noted that it saw “no basis in the Patent Act for awarding fees under § 285 for work incurred in inter partes review proceedings that the Appellants voluntarily undertook”, but declined to resolve the issue and remanded to the district court for initial consideration. In summary, the CAFC held that DISH and SXM were prevailing parties and, therefore, vacated and remanded the district court’s order denying the motions for attorneys’ fees under 35 U.S.C. § 285.