Summary:

In B.E. Technology, L.L.C. vs. Facebook, Inc., No. 2018-2356 (Fed. Cir. October 9, 2019) [hereinafter “B.E. Tech”], the Federal Circuit ruled that a defendant in a patent infringement lawsuit dismissed for mootness due to the claims-at-suit being found unpatentable in a concurrent inter partes review is a “prevailing party” entitled to costs under Federal Rule of Civil Procedure 54(d).  In particular, the Federal Circuit affirmed the district court’s award of costs to defendant-appellee Facebook, Inc. (hereinafter “Facebook”) as the prevailing party when a patent infringement suit between Facebook and plaintiff-appellant B.E. Technology, L.L.C. (hereinafter “B.E.”) was dismissed due to B.E.’s asserted patent claims being found unpatentable in an inter partes review.  B.E. Tech., slip op. at 3-8.  Facebook was a prevailing party despite the suit being dismissed as moot, rather than on the merits.  Id.

Content:

In 2012, B.E. filed suit in the Western District of Tennessee alleging infringement by Facebook of claims 11, 12, 13, 15, 18, and 20 of U.S. Patent 6,628,314 (“the ’314 patent”).  Id., slip op. at 2. Approximately one year later, Facebook, as well as Microsoft and Google (who had also been accused of infringement), each filed separate petitions for inter partes review of the asserted claims.  Id.  The district court stayed its proceedings in the case pending the outcome of the review by the Patent Trial and Appeal Board (“PTAB”).  Id.  In response to the petitions for inter partes review, the PTAB instituted review of the ’314 patent.  Id. The PTAB held the claims unpatentable in three final written decisions.  Id.

B.E. appealed the outcomes of the inter partes reviews to the Federal Circuit.  Id. The Federal Circuit affirmed the PTAB’s decision with respect to the IPR instituted by Microsoft and dismissed the remaining appeals as moot.  Id., slip op. at 2-3 (citing B.E. Tech., LLC v. Google, Inc., Nos. 2015-1827, 2015-1828, 2015-1829, 2015-1879, 2016 WL 6803057, at *1 (Fed. Cir. Nov. 17, 2016)).  Following affirmation of the PTAB decisions by the Federal Circuit, Facebook moved in the district court for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) seeking dismissal with prejudice and costs under Rule 54(d).  Id.

B.E. conceded that dismissal was appropriate but argued that the claims should be dismissed for mootness, rather than with prejudice.  Id., slip op. at 3.  The district court agreed with B.E., issuing an order holding that, “‘[i]n light of the cancellation of claims 11–22 of the ’314 patent, B.E. no longer ha[d] a basis for the instant lawsuit’ and that its patent infringement ‘claims [were] moot.’” Id. (quoting Joint Appendix at 37, B.E. Tech.).

Despite holding that B.E.’s claims against Facebook were moot, the district court ultimately awarded costs of $4,424.20 under Rule 54(d).  Id.  In particular, the district court found that Facebook “obtained the outcome it sought: rebuffing B.E.’s attempt to alter the parties’ legal relationship,” and therefore was a “prevailing party” under Rule 54(d). B.E. Tech., L.L.C. vs. Facebook, Inc., 2018 WL 3825226, at *2 (W.D. Tenn. Aug. 10, 2018) (citing CRST Van Expedited, Inc. v. E.E.O.C., 136 S. Ct. 1642 (2016)).  B.E. appealed this award of costs to the Federal Circuit under 28 U.S.C. § 1295(a).  B.E. Tech, slip op. at 3.

Federal Rule of Civil Procedure 54(d)(1) states 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.”  Thus, the district court’s award of costs to Facebook would be proper only if Facebook was the “prevailing party” in the dismissed lawsuit.

On appeal to the Federal Circuit, B.E. argued that Facebook was not a “prevailing party” at the district court because the case was dismissed as moot based on the PTAB’s decision, rather than being dismissed with prejudice. Id., slip op. at 4.  Specifically, B.E. argued that once the asserted claims were cancelled, the district court action lacked a live case or controversy, and therefore was incapable of rendering Facebook the prevailing party.  Id. (citations omitted).

Facebook countered that the district court correctly found Facebook to be the prevailing party because Facebook successfully rebuffed B.E.’s claims.  Id.  In particular, Facebook argued that the district court’s dismissal of the case was sufficient to render Facebook the prevailing party even though the case was not dismissed specifically on the merits.  Id.

The Federal Circuit affirmed the district court’s decision to award costs to Facebook as the prevailing party.  Id.  In reaching this decision, the Federal Circuit first reviewed the decision of the United States Supreme Court in Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598 (2001).  Id., slip op. at 4-5.  Specifically, the Federal Circuit summarized the issue in Buckhannon as “whether a party has prevailed when it ‘failed to secure a judgment on the merits or a court-ordered consent decree, but has nonetheless achieved the desired result because the lawsuit brought about a voluntary change in the defendant’s conduct.’” Id. (quoting Buckhannon, 532 U.S. at 600).  The Federal Circuit recognized that the Buckhannon Court “established that some manner of judicial relief is required for a party to prevail.” Id. (citing Buckhannon, 532 U.S. at 601-02).

Next, the Federal Circuit considered the CRST case relied upon by the district court.  Id., slip op. at 5-6.  In CRST, the Supreme Court considered, in the context of Title VII of the Civil Rights Act of 1964, which provides for attorney’s fees to the “prevailing party,” whether a defendant could be declared the prevailing party absent a judgment on the merits. 136 S. Ct. 1642, 1651.  Specifically, CRST had obtained a dismissal of all of the claims against it, including 67 claims that were dismissed for failure to meet pre-suit obligations.  Id.  The Supreme Court held that a decision on the merits is not a prerequisite to a finding of prevailing party status, explaining that “defendant has . . . fulfilled its primary objective whenever the plaintiff’s challenge is rebuffed, irrespective of the precise reason for the court’s decision,” and that a “defendant may prevail even if the court’s final judgment rejects the plaintiff’s claim for a nonmerits reason.” Id.

In view of these precedents, the Federal Circuit held that the district court correctly found Facebook to be the prevailing party under Rule 54(d). B.E. Tech., slip op. at 7-8.  Specifically, because “Facebook obtained the outcome it sought via the mootness dismissal; it rebuffed B.E.’s attempt to alter the parties’ legal relationship in an infringement suit.” Id., slip op. at 7.  B.E. argued that mootness has no preclusive effect and could not alter the parties’ legal relationship.  Id.  The Federal Circuit stated such argument places form over substance and conflicts with the common-sense approach that a defendant can prevail by rebuffing plaintiff’s claim, irrespective of the reason for the court’s decision.  Id.  Likewise, “[t]hat the merits of the decision cancelling the claims occurred in the PTO rather than the district court does not change the fact that the district court dismissed the claims it had before it, albeit for mootness.” Id.

Thus, the Federal Circuit’s decision in B.E. Tech. affirms that a patent infringement defendant who prevails in inter partes review is a prevailing party and may recover costs associated with the corresponding infringement litigation under Rule 54(d).

Takeaway:

When a patent infringement suit is dismissed as moot due to the underlying patent claims being found unpatentable in an inter partes review, the defendant in the patent infringement suit is a “prevailing party” and may be entitled to costs under Federal Rule of Civil Procedure 54(d).  Although such costs do not include attorneys’ fees, practitioners representing alleged patent infringers should remember to account for this potential recovery as a possible offset against the costs of pursuing a litigation strategy that involves the filing of one or more inter partes reviews.

Notably, however, the court in B.E. Tech. did not answer the question of whether recovery of costs under Rule 54(d) would apply in instances where the defendant prevails in inter partes review as to only some, but not all, of the asserted patent claims.