In 1991, however, the Supreme Court decided West Virginia University Hospitals, Inc. v. Casey, 499 U.S. 83 (1991), where it interpreted a provision for awarding attorney fees under 42 U.S.C. § 1988. The Court distinguished expert fees from attorney fees and concluded that attorney fees under 42 U.S.C. § 1988 do not include expert witness fees. Casey, 499 U.S. at 90, 97 ("Such [expert witness] fees are referred to in addition to attorney's fees when a shift is intended."). The Court unequivocally held that, absent express statutory authority, expert fees may not be shifted to the nonprevailing party. While experts may be reimbursed for their appearances at trial, these fees are only recoverable to the extent permitted by 28 U.S.C. §§ 1821 and 1920. "Fees and disbursements for printing and witnesses" are recoverable as taxable costs under 28 U.S.C. § 1920, but 28 U.S.C. § 1821(b) limits the amount of recoverable witness attendance fees up to $40 per day. Because the statute at issue did not explicitly provide for expert witness fees, expert fees were not recoverable in excess of the limit established by 28 U.S.C. § 1821.
The Federal Circuit applied Casey to patent cases in Amsted Industries Inc. v. Buckeye Steel Castings Co., 23 F.3d 374 (Fed. Cir. 1994). The court reversed an award of expert witness fees, because the district court erred in awarding the fees under 35 U.S.C. § 285 in excess of the limit under 28 U.S.C. § 1821(b). The Federal Circuit, however, recognized that district courts have inherent equitable power to impose sanctions including an award of expert fees. The court held that expert fees may be awarded as part of the court's inherent power, but "a finding of fraud or abuse of the judicial process [is required] before a trial court can invoke its inherent sanctioning power to impose expert witness fees in excess of the section 1821(b) cap." Amsted, 23 F.3d at 378. This finding suggested such awards were more difficult to obtain than attorney fees in most cases. Since Amsted, fraud or abuse of the judicial process, "whereby the very temple of justice has been defiled," is the standard for an award of expert witness fees in patent cases. Id. (internal quotation marks omitted).
More Recent Cases Suggest a Relaxation of the Standard for Awarding Expert Fees
After Amsted, the issue of the standard for obtaining expert witness fees was not taken up by the Federal Circuit for another 14 years. In 2008, the Federal Circuit decided Takeda Chemical Industries, Ltd. v. Mylan Laboratories, Inc., 549 F.3d 1381 (Fed. Cir. 2008). In Takeda, the Federal Circuit affirmed an award of attorney fees, expert fees, and other costs, in the amount of $16.8 million. The Federal Circuit cited Amsted's requirement that a court must find "fraud or abuse of the judicial process" in order to invoke its inherent power to award expert fees. However, the court held, "[w]hile it is true that the appellants' conduct did not amount to fraud, courts may use sanctions in cases involving bad faith that cannot be otherwise reached by rules or statutes." Takeda, 549 F.3d at 1391 (emphasis added). Because the district court made "numerous articulations of appellants' bad faith and vexatious litigation conduct," it was not an abuse of discretion to award expert fees under the court's inherent powers. Id.
More recently, in iLOR, LLC v. Google, Inc., 631 F.3d 1372 (Fed. Cir. 2011), the Federal Circuit reversed the district court's exceptional case finding and award of attorney fees. The court also reversed the award of expert witness fees, which the district court awarded under 35 U.S.C. § 285. The Federal Circuit again held that the district court erred in awarding expert fees under section 285 because expert fees cannot be awarded under section 285. The Federal Circuit noted that while courts may invoke their inherent powers to award expert fees in exceptional cases, a finding of bad faith is required. Expert fees were not appropriate because there was no finding of bad faith. While iLOR involved a denial of expert witness fees, the Federal Circuit's focus was on bad faith rather than "fraud or abuse," as required by Amsted.
In MarcTec, LLC v. Johnson & Johnson, 664 F.3d 907 (Fed. Cir. 2012), the Federal Circuit reviewed a district court's award of expert witness fees in the amount of $809,788.02. The district court had awarded the defendant expert fees based on its finding that "(1) [e]xpert fees are recoverable in patent cases where, as here, there was bad faith, such as the filing of a frivolous action; and (2) [b]ecause of MarcTec's bad faith in bringing and pressing this suit when it had no basis for asserting infringement." Id. at 921 (internal quotation marks omitted). MarcTec appealed and argued that the district court abused its discretion in awarding expert witness fees, as MarcTec "was not even accused of committing or attempting fraud on the court or abusing the judicial process, or otherwise defiling the judicial system." Id. Further, MarcTec argued that the district court did not make a finding that section 285 was insufficient to remedy any alleged misconduct. The Federal Circuit held that, while the district court should have separately analyzed expert fees and explained why an award of attorney fees under section 285 is inadequate, the district court did not abuse its discretion. "MarcTec's vexatious conduct and bad faith increased the cost of litigation in ways that are not compensated under § 285." Id. at 921–22.
These Federal Circuit decisions after Amsted appear to reflect a shift away from the stringent requirement that district courts make a finding of "fraud or abuse of the judicial process" before they can invoke their inherent powers to award expert witness fees. The Federal Circuit has suggested that something less than fraud is sufficient. For example, if the district court finds that a party has litigated in bad faith and increased costs in ways that are not compensated under section 285, an award of expert fees may be appropriate.
Despite the Federal Circuit's shifting focus on bad faith rather than "fraud or abuse of the judicial process," however, Amsted remains the law and is often cited by district courts when denying expert fee awards. See, e.g., Homeland Housewares, LLC v. Sorensen Research & Development Trust, No. 2:11-cv-03720, 2013 U.S. Dist. LEXIS 189078, at *24 (C.D. Cal. June 27, 2013); Brilliant Instruments, Inc. v. GuideTech, Inc., No. C 09-5517, 2012 U.S. Dist. LEXIS 140781, at *16–17 (N.D. Cal. Sept. 28, 2012). Prior panel decisions are precedential and binding on later panels, unless overruled by an en banc panel or the Supreme Court. Deckers Corp. v. United States, 752 F.3d 949, 964 (Fed. Cir. 2014). Thus, while the Federal Circuit's Takeda, iLOR, and MarcTec decisions may suggest a relaxation of the standard for recovery of expert fees, Amsted remains controlling on the issue.
Is the Amsted StandardToo Rigid in Light of Octane?
In Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2012), the Supreme Court reviewed and modified the Federal Circuit's standard for awarding attorney fees under 35 U.S.C. § 285. The Court noted that, historically, the Federal Circuit, like the regional circuit courts, had "instructed district courts to consider the totality of the circumstances when making fee determinations under § 285." Octane, 134 S. Ct. at 1754.
The Court further noted, however, that in 2005 the Federal Circuit decided Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005), where it departed from its "holistic, equitable approach in favor of a more rigid and mechanical formulation." Octane, 134 S. Ct. at 1754. Specifically, the Federal Circuit held that a case is only "exceptional" under section 285 to warrant attorney fees "when there has been some material inappropriate conduct related to the matter in litigation, such as willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates Fed. R. Civ. P. 11, or like infractions." Brooks Furniture, 393 F.3d at 1381.According to the Federal Circuit, absent this misconduct, attorney fees previously could only be awarded if the litigation was both brought in subjective bad faith and objectively baseless. Id.
The Supreme Court's Octane decision overruled the Federal Circuit's "unduly rigid" standard for determining when a case is "exceptional" under section 285. Octane, 134 S. Ct. at 1755. Rather than follow a rigid formulation as in Brooks Furniture, district courts are to revert back to the prior approach to exercise their discretion and consider the totality of the circumstances when determining whether a case is "exceptional." Octane, 134 S. Ct. at 1756.
Although Octane does not address expert fees, should its rationale be analyzed in the context of expert fees? The Federal Circuit's Amsted decision regarding the standard for awarding expert fees parallels its now-overruled Brooks Furniture decision. Like Brooks Furniture, the Federal Circuit in Amsted conditioned an award of expert fees upon a finding of "fraud" or like conduct. Amsted, 23 F.3d at 378. To this extent, the Octane decision might suggest that the Federal Circuit may have created a similarly "unduly rigid" standard for recovery of expert witness fees that should be relaxed.
However, important distinctions remain. The attorney fee award is statutory, whereas the expert fee award is derived from the court's inherent authority. A change in statutory interpretation of the standard for attorney fee awards does not necessarily imply that a change to the expert fee award standard under the court's inherent power is necessary or appropriate.
Consistent with maintaining this distinction, the Supreme Court held that attorney fees may be awarded where a party's conduct is so unreasonable, "while not necessarily independently sanctionable," to justify an award of fees. Octane, 134 S. Ct. at 1757. The Court recognized that "something less than bad faith" may be sufficient to make a case exceptional. Id. (quoting Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521, 526 (D.C. Cir. 1985). The Supreme Court also held that attorney fees may be warranted where a party brought the litigation in subjective bad faith or the claims were objectively baseless. The Supreme Court thus made it clear that bad faith was not a per se requirement for an attorney fee award under the statute. This analysis gives no reason to revisit the standard for expert fee awards under the court's inherent power.
Maintaining different standards for attorney fee and expert fee awards, post-Octane, district courts have awarded attorney fees under the lowered Octane standard, but have continued to deny requests for expert witness fees under the Amsted standard. See, e.g., Icon Health & Fitness, Inc. v. Octane Fitness, LLC, No. 09-319, 2015 U.S. Dist. LEXIS 116090, at *9–10 (D. Minn. Sept. 1, 2015) ("Icon did not commit fraud on the Court or engage in other conduct that warrants a remedy beyond that provided in § 285."); Kilopass Tech., Inc. v. Sidense Corp., 82 F. Supp. 3d 1154, 1163–64, 1174 (N.D. Cal. 2015) ("In the absence of fraud or abuse, a court may not award expert fees above the 28 U.S.C. § 1821 statutory cap."); Chi. Bd. Options Exch., Inc. v. Int'l Sec. Exch., LLC, No. 07 C 623, 2014 U.S. Dist. LEXIS 170651, at *21–22 (N.D. Ill. Dec. 10, 2014) ("Use of this [inherent] authority is reserved for cases where the court finds fraud or bad faith whereby the 'very temple of justice has been defiled." (internal quotation marks omitted)).
Should the Standard for Recovering Expert Fees and Attorney Fees Be the Same?
In response to the Supreme Court's Casey decision requiring express statutory authority for an award of expert witness fees under 42 U.S.C. § 1988, Congress enacted the Civil Rights Act of 1991 to expressly provide that an award of attorney fees under 42 U.S.C. § 1988 may include expert witness fees. Landgraf v. USI Film Prods., 511 U.S. 244, 251 (1994); see also 42 U.S.C. § 1988(c) ("[T]the court, in its discretion, may include expert fees as part of the attorney's fee."). This might suggest that the Supreme Court misinterpreted Congress's intent in narrowly construing the attorney fees statute at issue in Casey as inapplicable to expert fees. After all, if it is found that a prevailing party should recover its attorney fees to make it whole from the litigation, why wouldn't an award of that party's out-of-pocket expert fees be just as appropriate? The question is now moot for 42 U.S.C. § 1988 in view of Congress's amendment of that statute.
However the question is not moot for 25 U.S.C. § 285. Congress has not amended that statute to expressly apply to expert fees as well as attorney fees. So the anomaly still exists for patent cases: A prevailing party may show it is entitled to be made whole for its attorney fees under section 285, but in reality it will not be made whole, because it cannot recover expert fees under that same new Octane standard. Should this anomaly be addressed?
It is unlikely the Supreme Court would revisit its holding in Casey to address this discrepancy. The court noted other federal statutes expressly awarded expert fees, unlike section 1988 at the time Casey was decided. It would likely find that Congress's relatively quick amendment of 42 U.S.C. § 1988 was vindication that it interpreted the statute properly and Congress could (and did) act to amend the statute if it wanted expert witness fees to be recoverable. Nothing about this history would give the Supreme Court any reason to construe 35 U.S.C. § 285 as implicitly awarding expert fees.
Alternatively, Congress may follow its own lead from 42 U.S.C. § 1988 and amend 35 U.S.C. § 285 to provide for expert witness fees as part of an attorney fee award in exceptional cases. See Daniel W. McDonald & Matthew A. Doscotch, "Why Aren't Expert Fees Recoverable in Patent Cases? Correcting an Anomaly in the Patent Fee Statutes," 84 J. Pat. & Trademark Off. Soc'y 255 (2002) (proposing that Congress amend 35 U.S.C. § 285 to allow recovery of expert fees in exceptional cases); see also 42 U.S.C. § 1988(c). Modifications to the fee-shifting provisions of the Patent Act are being considered as part of proposed legislative reform efforts intended to address frivolous patent litigation. See, e.g., Protecting American Talent and Entrepreneurship (PATENT) Act of 2015, S. 1137, 114th Cong. (2015) (proposing a revision the attorney fees statute to provide for attorney fees to the prevailing party if the position or conduct of nonprevailing party is "not objectively reasonable").
To date, these proposed congressional reforms have met opposition as upsetting the balance between discouraging baseless litigation and deterring meritorious efforts to assert one's legal rights. However, an amendment that simply follows similar amendments outside of patent law (specifically 42 U.S.C. § 1988), which allow expert fee recovery when attorney fees may be recovered, would appear to strike the right balance sought by Congress. The basic principle makes common sense: If a party has proven the case is exceptional enough to warrant an award of attorney fees, the case is exceptional enough to warrant an award of expert fees as well, to make that party truly whole.
Conclusion
The standard for recovering expert fees in patent litigation remains more difficult than the standard for recovering attorney fees, because it is based on the court's equitable power rather than the fee award statute, 35 U.S.C. § 285. The Octane decision addressing fee awards indicates courts were too restrictive in awarding attorney fees, but does not appear to give any particular reason to change the standard for awarding expert fees, because it addressed the statutory basis for the award rather than the inherent ground used for expert fees.
Nevertheless, a congressional amendment to the fee statute to also allow recovery of expert fees seems logical. Congress has enacted amendments to fee statutes in other contexts to expressly allow expert fee awards as well as attorney fees. As Congress debates difficult fee-shifting issues as part of patent reform efforts, common ground may be easier to find for such an amendment of the Patent Act, at least to ensure that parties who are to be made whole in "exceptional cases" are truly made whole as intended.
Keywords: litigation, intellectual property, patents, expert witness fees, attorney fees, exceptional cases, Octane Fitness, cost-shifting