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District Court Adopts Recommendation of Special Master Awarding Reasonable Attorney’s Fees Based on Flat Fee Agreement

Following Straight Path IP Group’s, the patent owner’s, unsuccessful appeal, Apple and Cisco moved for reasonable attorney’s fees. Although the district court reaffirmed the exceptionality of the patent owner’s prosecution of the case, the district court found that defendants’ fee requests were too high and directed the parties to submit their billing requests to a special master. The order cautioned the defendants to “take care to submit only for time and expenses that truly deserve compensation and at billing rates that truly deserve to be compensated,” stating that the district court might treble the deductions for requests the special master found unreasonable.

After briefing and a hearing, the special master recommended that Apple should receive nearly all it requested, with some minor deductions taken for “certain ambiguous or duplicative time entries.” On the other hand, the Special Master recommended that Cisco should receive only half because its billing records never conformed to the district court’s direction. As part of the reasoning, the special master explained that Cisco did not pay counsel by the hour, rather it paid a flat-monthly fee. As explained by the district court, “[t]he special master found Cisco’s original billing submission deficient and asked Cisco to resubmit. Cisco did so, but the special master found the records remained deficient for an ordinary lodestar review. To be sure, the special master found this alternative billing method compensable under § 285, but the records did not paint a clear picture of counsel’s billable activities or clearly delineate between this case and other, non-compensable work for Cisco. Thus, the special master concluded a 50% reduction would ensure patent owner did not overpay, yet still compensate Cisco for fees actually paid. Finally, the special master declined to treble the deduction, finding Cisco’s noncompliance a product of the alternate billing arrangement and not of bad faith.”

The patent owner subsequently objected that the special master’s awards of fees was too high.

After accepting the recommendation with respect to Apple’s fees, the district court turned to the objection to Cisco’s fee award. First, the district court determined that “Section 285 does not foreclose reimbursement of Cisco’s alternative billing method. Quoting that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party,” 35 U.S.C. § 285, the district court noted that the “requirement of reasonableness specifies the outcome, not the mechanism. The text mandates no specific calculation method and does not foreclose reimbursement of an alternate billing scheme like Cisco’s. Nor does precedent mandate that result. True, the lodestar method (hours times a reasonable rate) generally guides fee shifting. And the Supreme Court has “established a ‘strong presumption’ that the lodestar represents the ‘reasonable’ fee.” City of Burlington v. Dague, 505 U.S. 557, 562 (1992). But the lodestar’s place as the preferred method does not make it the only method. Even the Supreme Court acknowledges this.”

Second, the district court noted that “[i]n asking this order to exclude a flat-fee arrangement from reimbursement for reasonable attorney’s fees, patent owner essentially argues that such arrangement is presumptively unreasonable. This order declines to so hold. Several of the considerations leading to the adoption of the lodestar method still apply to the flat-fee method. Consider, first, that both methods look to the market. That is, they look to what practitioners actually charge in the market for legal representation. … And, second, the flat-billing rate remains what clients actually pay for legal services. Recall, § 285 fees compensate what was actually and reasonably spent. See Mathis, 857 F.2d at 753. Last, as noted, the lodestar was never meant to determine the precise value of an attorney’s services. It merely provides “rough approximation of general billing practices.” Given adequate records delineating separate matters, flat-rate billing may prove just as effective an approximation of general billing practices. Indeed, as courts and counsel become accustomed to the method, the method may well become as “readily administrable” as the lodestar method. Despite patent owner’s protest, this order agrees with the special master that § 285 does not categorically bar reimbursement of Cisco’s alternate-fee arrangement.”

Accordingly, the district court adopted the recommendation of the special master to award Cisco reasonable attorney’s fees based on the flat fee agreement.

Straight Path IP Group, Inc. v. CISCO Systems, Inc., Case No. C 16-03463 WHA (N.D. Cal. May 19, 2020)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or