Keith Manufacturing Co. v. Larry D. Butterfield (Fed. Cir. 2020)
This is another prevailing-party case following a settlement.
Butterfield is a former employee of Keith Mfg. After leaving the company, Butterfield filed a patent application that eventually resulted in US9126520. The patent covers a mechanism for unloading trailers — which also happens to be the focus of Keith’s business. The lawsuit alleges various causes of actions, including trade secret misappropriation, breach of contract, invalidity, inventorship correction, etct.
Butterfield issued a covenant-not-to-sue Keith on the patent; and the parties then settled the case. The lawsuit officially ended with the filing a stipulation of dismissal with prejudice pursuant to Rule 41(a)(1)(A)(ii) (voluntary dismissal without court order based upon agreement of the parties).
The stipulated dismissal did not mention costs or attorney fees, and Butterfield subsequently moved for attorney fees under the Patent Laws (section 285) as well as FRCP 54(d) and Oregon state statute.
The district court rejected the request for fees — holding that a stipulation-of-dismissal without a court order does not count as a “judgment” and that R.54(d) implicitly requires a “judgment” as a prerequisite to awarding fees. No judgment; no attorney fees. In particular, the rule states that the motion for attorney fees must be filed within “14 days after the entry of judgment” and must also “specify the judgment.”
On appeal, the Federal Circuit has reversed — explaining that the use of “judgment” in R.54(d) has the “prudential purpose” of avoiding R.54(d) requests of attorney fees all throughout the litigation and the subsequent piecemeal appellate litigation. Rather, in this case, “judgment” in the provision should be seen as including “dismissal.” Thus, on remand the district court may now consider the attorney fee motion.
Note – the Federal Circuit outcome here is the same as that reached by the 10th Circuit in Xlear, Inc. v. Focus Nutrition, LLC, 893 F.3d 1227 (10th Cir. 2018) (Lanham Act case).
This is a stupid, loophole decision that favors efficient infringers–not surprising when the majority of law clerks at the court come from the big firms that defend them.
Just ensure that the dismissal order and settlement agreement includes that each party bears their own attorneys’ fees, expenses, and costs. Otherwise don’t settle!
This decision does not decide which party, if anyone, can recover attorney fees in this case. [Given the number of different asserted issues that were mooted by this settlement that would seem difficult?] It seems to just decide that the D.C. can consider such motions on remand because this decision is sufficiently final.
A key part of this decision seems to be: “..the concerns
that animated the Supreme Court’s Microsoft decision are
not present here. First, treating a voluntary stipulation
with prejudice as a judgment for purposes of attorney’s fees
under Rule 54 will not invite parties to engage in piecemeal
appellate litigation. The joint stipulation [here] means that, except under rare circumstances, there will not be an appeal
on the merits; only the attorney’s fees issue remains. Second, because this case is not a class action, it will not undermine class action procedure. And because both parties can move for attorney’s fees, permitting a Rule 54(d) motion for attorney’s fees after a stipulated dismissal will not affect the overall balance of litigation.”
Nevertheless, is this decision significant? My understanding is that more than 90% of patent suits end with settlements that result in stipulated dismissals with prejudice. Can patent owners now recover their attorney fees incurred by a baseless defense prior to settlement? Can many defendants now recover their attorney fees incurred by a defense against an IPR invalided patent? Or will only a few attorneys who failed to include attorney fee waiver agreements in patent suit settlements be affected [by potential insurance claims]?
Had the same thoughts and concerns Paul.
One big can of legal worms for sure.
This really highlights the importance of the settlement language and that there are no simple agreements!
This is right. And you also need to figure out whether you need a consent decree from the Judge.
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