A lodestar is a star used to guide a ship's navigation
A lodestar is a star used to guide a ship’s navigation

Now that it is easier for prevailing parties in a patent litigation to recover attorney fees [see our previous post], how likely is that that fees paid under some form of non-hourly arrangement – for example flat fees, contingency, success fees  or some other alternative fee arrangement (AFA) – can be recovered?  The answer is that the court’s end-of-case determination of a reasonable hourly rate and fee, called the “lodestar,” trumps the amount paid under any AFA.

AFAs that exceed the lodestar likely cannot be recovered.  In Kilopass v Sidense (ND Cal), Judge Illston found that Kilopass engaged in litigation misconduct and made exceptionally meritless infringement claims, and, therefore, awarded Sidense attorney fees totaling $5.3 million.  (Kilopass has appealed.)

While the fees awarded to Sidense are significant, they appear to be less than half of the fees that Sidense actually paid its counsel under a contingency bonus arrangement.  Sidense’s fee arrangement called for Sidense to pay 50% of its lawyer’s hourly billing on a monthly basis, with the remaining 50% held back until the end of the case.  The payment of the holdback was tied to a performance based multiplier.  Since the court granted summary judgment in Sidense’s favor and dismissed all claims, Sidense’s counsel was entitled to the maximum multiplier of 2.5x, effectively requiring Sidense to pay 175% of its lawyers’ standard rates.  While the public record does not disclose the full amount of the contingency bonus, what can be inferred from the decision is that the fees paid by Sidense under the contingency arrangement exceeded $11 million (based on inferred standard rate fees of $6.5 million).


Continue Reading

We have entered a new era where the prevailing party in a patent litigation has much better odds of recovering their attorney fees. “Until recently, winning hasn’t felt much like winning, particularly for defendants.” (Judge Grewal in Site Update Solutions v Accor)  All this changed last year when the Supreme Court established a more flexible standard in Octane Fitness for determining when a patent case is exceptional, the precondition to awarding fees under the applicable fee shifting statute.  Now, an exceptional case is “simply one that stands out from others.”

District Courts have begun to implement the new standard and the results are noteworthy for a number or reasons, not the least of which is whether and how fees are awarded where the prevailing party has paid a flat fee to its counsel (a fixed or set amount via lump sum or installments) as opposed to hourly fees.

In one such case, Parallel Iron v NetApp, the Delaware District Court rejected the losing party’s argument that flat fees allegedly caused the winning party’s counsel to frontload unnecessary work.  The Court’s instead observed that a flat fee structure incents counsel to postpone work as opposed to doing more work sooner.  While the Court is correct, it’s reasoning does not capture the more fundamental behavior encouraged by a flat fee, which is the huge incentive to lower the cost of producing legal services.
Continue Reading