An Open Question: Can Counsel be Liable Under 285?

My RA found a non-prec case from the CAFC where the district court found a case exceptional under 285 and imposed those fees on counsel, jointly and severally with its client.  (It also imposed fees on counsel under 1927.)  The panel affirmed the exceptional case finding, but reversed the imposition on counsel, but in doing so, made it clear that it might be an open question:

In addition, we vacate the district court’s holding of joint and several liability by Phonometrics and its counsel for the aggregate award of fees and costs. Section 285 is a fee shifting statute that in exceptional cases may require the losing party to reimburse the prevailing party its attorney fees. Sheraton has provided us with no legal basis for entering a fee award against the losing party’s attorney under § 285. Section 1927, on the other hand, is limited to an award of fees against an attorney. Sheraton has provided us with no legal basis for holding the attorney’s client liable for fees under § 1927. Thus, Phonometrics is not liable for fees awarded under § 1927; it can only be liable for fees awarded under § 285. Counsel for Phonometrics is not liable for fees awarded under § 285; it can only be liable for excess fees awarded under § 1927.

Phonometrics, Inc. v. ITT Sheraton Corp., 64 Fed. Appx. 219 (Fed. Cir. June 12, 2003).

The panel read 285 in pari materia with 1927, reasoning that because one shifted fees onto counsel, the other could not. I’m not so sure that makes sense….  I know 285 came into being, in an earlier form, only in 1946….

I wonder if there is any legislative history?

Further, if the purpose of 285 is to “punish” bad patent suits, how often, back in 1946, was the client the one responsible for that?  Interesting story to unfold….

About David

Professor of Law, Mercer University School of Law. Formerly Of Counsel, Taylor English Duma, LLP and in 2012-13, judicial clerk to Chief Judge Rader.

11 thoughts on “An Open Question: Can Counsel be Liable Under 285?

  1. 2

    Shouldn’t we be distinguishing what exactly is “bad” in a bad patent suit?

    After all, the traditional view of control in any suit is that the client is in control.

    If – as that traditional notion would so hold – the client has ultimate control, it is solely the client that can be held liable.

    On the other hand, the particular “bad acts” that an attorney can be held liable for include those items that are like Rule 11 violations – those particular legal actions that a lawyer should know not to transgress (or to look at it another way, procedural no-no’s regardless of the separate types of bad acts that may be engaged and traced to that entity with ultimate control.

    (ps: your Section 1927 link is behind a paywall) One might try this: link to law.cornell.edu )

    Section 1927 is distinguishable under normal ethics rules as that section reflects strategical decisions that remain under the lawyer’s ultimate control.

    1. 2.1

      Well, your premise is wrong. A client is not in control of a lawsuit in many respects: can’t bring a frivolous claim; can’t have the lawyer help commit fraud; can’t tell the lawyer what to do on tactics; lots of stuff. So, once the premise is gone…

      Sorry about the paywall.

      1. 2.1.1

        I would distinguish (in fact, that was the point of my post) between what a client can and cannot control.

        Rather than my premise being wrong (it is not), I would ask whether or not the focus of control of even having a lawsuit is up to the client or his counsel.

        Therein lies your answer.

  2. 1

    Further, if the purpose of 285 is to “punish” bad patent suits, how often, back in 1946, was the client the one responsible for that?

    Isn’t it a long-established principle that the client is generally responsible for its agent’s conduct in the course of the representation? See, e.g., Link v. Wabash Railroad Co., 370 U.S. 626, 633-34 (1962) (quoting Smith v. Ayer, 101 U.S. 320, 326 (1879)):

    “Petitioner voluntarily chose this attorney as his representative in the action, and he cannot now avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of his lawyer-agent and is considered to have ‘notice of all facts, notice of which can be charged upon the attorney.'”

    1. 1.1

      DanH,

      I think that the principle you indicate is tied to my post through the notion of ultimate responsibility.

      I would add that “chilling” of both the relationship and of the constitutional imperative of the right to seek address in a court of law would preclude going after counsel outside of the areas that I have already indicated.

    2. 1.2

      Dan, you’re conflating two very different things.

      Yes, a client can be vicariously liable for the actions of his agent. But that’s because the agent is liable to the third party. So, even under common law reasoning, if the attorney is not liable to the third party, the client can’t be liable to the third party for the lawyer’s acts. (There’s a huge complexity there).

      But, this is a statute, so I don’t really care about the common law. Congress deliberately made this fee shifting statute to be equitable, and did not say “fees may be imposed against the losing party in favor of the prevailing party.” Could have, but didn’t.

      So, pulling this all together: the client will be liable for fee-shifting under 285 due to his lawyer’s “exceptionalness.” But that doesn’t answer the question of whether it is only the client, and not, also, his lawyer.

      As for chilling… there are tons of strict liability statutes out there that make loser pay winner’s attorneys fees, just if they lose. (This is common in contract cases where, by statute in many states, the loser pays the winner’s fees even if it’s a close case, good faith, must go to the jury.) I suppose that “chills” litigation, but I’ve never heard of a successful first amendment petitioning challenge made against one… And 285 is far more protective of litigants’ rights, so I doubt that dog will hunt.

      1. 1.2.1

        You misfire with the strict liability angle (unless one of those strict liability is geared to strict liability for the attorney of the losing side.

      2. 1.2.2

        But, this is a statute, so I don’t really care about the common law. </I.

        Interesting. The common law doesn't have anything to say about how to interpret a statute's silence on a particular subject?

        Congress deliberately made this fee shifting statute to be equitable, and did not say “fees may be imposed against the losing party in favor of the prevailing party.” Could have, but didn’t.

        Right. Congress also did not say “fees may be imposed against the losing party’s counsel, in favor of the prevailing party,” as it did in S. 1927. Nor did it say “fees may be imposed against the losing party or its counsel, in favor of the prevailing party.” Could have, but didn’t. I’m afraid that I don’t understand the relevance of this begin “equitable” – does equity suggest that we must look to allocate blame between a party and its agent?

        The world has changed a lot since 1946 – it’s hard to imagine that the Congress that passed S. 285 contemplated that it would become widespread practice for attorneys to be financing and controlling patent litigation through asset-less, judgment-proof, shell companies. Maybe they were that prescient, but I doubt it. It seems more likely that it assumed that the nominal parties were generally the real actors, and the ones that should be liable. But I’m looking forward to your evidence to the contrary, as I personally would prefer the more flexible interpretation.

        1. 1.2.2.1

          widespread practice for attorneys to be financing and controlling patent litigation through asset-less, judgment-proof, shell companies.

          That’s not a patent law problem, and patents are not the only weapon for shell companies.

          That’s a corporations and tax problem.

        2. 1.2.2.2

          No, I don’t care much about the common law with this statute’s purported silence. First, while statutes have to be read in light of the common law, that principle has nothing to do with whether a statute that says “winner in exceptional cases gets fees back” means “winner in exceptional cases gets his fees back but only from the opposing party.” It just doesn’t say that. There is no “silence” but instead a broad, open statute.

          Second, reading 1927 in pari materia with 285 doesn’t make any sense at all. They are not part of the same statute which is the only time you use that doctrine. (I also honestly don’t know when 1927 was adopted; if it was adopted after 285, that might suggest that 1927 was drafted to limit liability to only attorneys, while 285 is broad and to both, but I think this is diversionary.)

          Third, unfortunately your last point about Congress in 1946 predicting the future is what statutory interpretation often comes down to. Given the plain text, its purpose, and its legislative history, what would Congress want? Plain text: very broad with no limitation that imposition has to be on the client. Purpose: equity and compensation, which would be frustrated with awards against asset-less shell companies and, further, would permit the bad guy to go free (the lawyer with assets who made the frivolous arguments in my hypo). Legislative intent — no indication Congress intended to let lawyers get off the hook; no indication they meant this to be read in light of 1927 (or Rule 11, or inherent power, or…), instead: equitable compensation. (If you want to have real fun lessons on the problem with applying old statutes to new stuff, read case law applying the ECPA to email, text, twitter, etc. It’s fun.)

          Finally, I’ll bet a dollar that, within 2 years, my interpretation is found to be “correct.” (Granted, I’m relying on two things: the current political climate about “trolls” and the arguments above.)

          Well, no I won’t bet a dollar. But you read it here first!

          1. 1.2.2.2.1

            Granted, I’m relying on two things: the current political climate about ‘trolls’

            Swallowing that much koolaid has its dangers….

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