Trend is patent litigation loser pays fees or costs - but not this time (courtesy Google Images)
Trend is patent litigation loser pays fees or costs – but not this time (courtesy Google Images)

The significant filing fees spent by an accused infringer on a successful American Invents Act (AIA) review are not taxable as costs in the underlying district court patent litigation, according to the January 5, 2016 decision [pdf] in Credit Acceptance Corp v. Westlake Services.

In Credit Acceptance, the district court refused to tax as costs the $73,200 in filing fees paid by the accused infringer and prevailing party Westlake to the U.S. Patent and Trademark Office in successfully challenging Credit Acceptance’s patent in an AIA review.  Although the ruling goes against the general shift of both the Courts and Congress to increasing the financial risks of bringing unsuccessful patent litigation (this in service of the underlying policy of reducing the number of frivolous patent litigations), it appears to have been correctly decided.

Credit Acceptance tracks what has become a fairly typical fact pattern.  The owner of a patent claiming a business method or a software innovation brings suit for patent infringement in federal court.  In response, the accused infringer seeks AIA review by the Patent Trial and Appeal Board (PTAB) of the validity or patentability of the claimed invention.  The court stays the litigation pending administrative review.  The PTAB sustains the challenge, compelling the party asserting patent infringement to voluntarily dismiss the lawsuit with prejudice.  As observed in Credit Acceptance, there is strong case precedent for finding that under these circumstances the accused infringer is the prevailing party.

By statute and rule, there is a strong presumption favoring recovery by the prevailing party of its costs — separate and apart from its attorney’s fees.  28 U.S.C. section 1920 (“Section 1920”) provides that “[a] judge or clerk of any court of the United States may tax as costs” the costs expressly identified in subparts (1) through (6).  28 U.S.C. § 1920. Federal Rule of Civil Procedure 54(d)(1) (“Rule 54”) provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney’s fees—should be allowed to the prevailing party.” Fed. R. Civ. P. 54(d)(1).  Most district courts, including the court in Credit Acceptance, have local rules interpreting Rule 54 that provide a non-exclusive specific items that may be taxed as costs.

The district court said that the filing fees paid to the U.S. Patent and Trademark Office did not fall within any of the enumerated recoverable costs under Section 1920 or the court’s local rules.

Through the Application, Response, and supporting documents, Defendants request $73,200.00 in filing fees associated with CBM-1 and CBM-2. (See Appl.; Response 1-2.) These filing fees were not paid to the Clerk, but rather to the USPTO. (Decl. John van Loben Sels in Supp. Appl. (“JvLS Decl.”), Ex. A at 4-5 [seeking “USPTO Filing fee[s] for Covered Business Method (CBM) Review Request[s]”].) Local Rule 54-3.1 provides that “[f]iling fees paid to the Clerk” are taxable as costs, and 28 U.S.C. section 1920(1) permits a prevailing party to recover “[f]ees of the clerk and marshal.” L.R. 54-3.1 (emphasis supplied); 28 U.S.C. § 1920(1). . . . If this is indeed an issue of first impression, as Defendants claim in their Reply, (Reply 1), Defendants have not persuaded the Court that filing fees paid to the USPTO as part of CBM petitions should be recoverable under this Court’s Local Rules, which expressly provides that “[f]iling fees paid to the Clerk,” L.R. 54-3.1.

Furthermore, the court rejected Westlake’s invitation to expand recoverable costs to include the AIA filing fees because they were “proximately caused by CAC’s improper assertion of the ‘807 Patent against Defendants.”  Moreover, the court did not accept Westlake’s argument – advanced without citation to any supporting authority — that USPTO fees should be recoverable in the district court because the AIA “was specifically promulgated to reduce unnecessary litigation regarding business method patents.”

The court’s ruling is significant because it forecloses taxing as costs AIA review filing fees that easily run in the tens of thousands of dollars, and which, in most cases, form the great bulk of the costs incurred by accused infringers in defending allegedly frivolous suits.  (In Credit Acceptance, besides the $73,200 in filing fees, the only other costs submitted by Westlake were approximately $6,000 for deposition-related costs and $5,000 for document reproductions.)  There is less deterrence of frivolous patent lawsuits if there is no risk that administrative filing fees are not taxed as costs.

The court’s ruling is nonetheless well-founded.  Recovery of statutory costs is not contingent upon proof of unreasonable conduct by the losing party.  It is intended to provide recovery of a few basic and well-understood costs of litigation, easily and efficiently awarded by the clerk of the court upon the determination of the prevailing party.  This is not a mechanism that is well-suited to implementing policy such as deterring frivolous lawsuits.  See the additional discussion of the relatively narrow scope of taxable costs in our earlier post Awarding e-Discovery Costs to Prevailing Party: Billing Descriptions Dictate What is Recoverable.

Moreover, the potential prejudice to the accused infringer who prevails in these situations is far less given the ability to recover attorney’s fees in an “exceptional case” under section 285 of the patent statute, particularly in view of the Supreme Court’s 2014 decision in Octane Fitness effectively lowering the standard for meeting the “exceptional case” standard.  In addition, courts have discretion under Rule 11 to award sanctions in the form of fees and costs for sufficiently unreasonable conduct.

Indeed, in Credit Acceptance, the court left open the possibility of taxing administrative filing fees as costs where there was an exceptional case finding (which the court expressly refused to find in this particular case).

Defendants do not argue that these provisions directly apply, but instead argue in their Response that they “are entitled to recover [their] CBM filing fees because they were proximately caused by CAC’s improper assertion of the ‘807 Patent against Defendants,” and “[u]nder 35 U.S.C. § 285, USPTO and PTAB proceeding related fees and costs are wholly recoverable when incurred as a result of the ‘exceptional’ conduct of the losing party.” (Response 1.) No other explanation or legal authority as to why such costs should be taxed was provided to the Clerk. Nor are any additional arguments in favor of taxing such costs raised in the Motion or Reply, perhaps because the Court in the Fee Order expressly found the case not to be “exceptional” within the meaning of 35 U.S.C. § 285. (See generally Fee Order.) . . . . The Court adopts the plain language of the Local Rules and finds that filing fees paid to the USPTO as part of CBM proceedings are not recoverable in this case, particularly where the instant action was not found to be “exceptional” within the meaning of 35 U.S.C. section 285.

Absent sanctionable conduct by the losing party or their counsel, or absent circumstances compelling the finding that a case is exceptional, the patent litigation loser should not be required to pay AIA review fees.