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IP Alert: Stipulated Dismissal Might Still Warrant Attorney's Fees

April 7, 2020

Today, in Keith Manufacturing Co. v. Butterfield, the Federal Circuit held that a litigant might be entitled to attorney’s fees under Rule 54 of the Federal Rules of Civil Procedure even after both parties filed a stipulation to dismiss and where the court never entered a final judgment. This case provides yet another trap for the unwary patent litigant and indeed for any litigant seeking to settle a civil suit.

Larry Butterfield, a former Keith employee, filed a patent application. Keith then sued Mr. Butterfield, seeking to add Keith employees as inventors. Keith also brought state law claims for breach of contract, misappropriation of trade secrets, and for a declaration of noninfringement and invalidity of the Butterfield patent.

In May 2016, Mr. Butterfield sent Keith a covenant not to sue, and then filed a motion to dismiss all but the correction of inventorship claims. The district court dismissed the declaratory judgment claims, but allowed the state court claims to proceed. Subsequently, as a result of settlement, the parties filed a stipulation of dismissal with prejudice. This stipulation was silent on cost and attorney’s fees.

Twelve days after filing this stipulation, Mr. Butterfield moved for attorney’s fees under Rule 54(d) and on other grounds. The district court denied Mr. Butterfield’s Rule 54 motion, holding that Rule 54 requires that the court have entered judgment before awarding fees. An earlier Supreme Court decision, Microsoft Corp. v. Baker, held that a voluntary dismissal with prejudice is “not a judgment” as required by Rule 54(d). Mr. Butterfield appealed, and the Federal Circuit reversed.

The court first observed that the underlying issue was procedural and not a matter of Federal Circuit law, such that that court applied regional law—that of the Ninth Circuit—in its review. The court then distinguished Microsoft on the grounds that that case had involved a class action, and the Supreme Court’s holding involved policy considerations not present in a two-party dispute. The Court in Microsoft was concerned that, in the procedural context of a class action lawsuit, use of a voluntary dismissal could allow for gamesmanship and could circumvent a rule against piecemeal appeals, and that same would contravene the “careful calibration” of the rules for class actions.

Next, the court observed that Rule 54(a) states that judgment “includes . . . any order from which an appeal lies.” The rule does not state that a judgment is any order from which an appeal lies. From the language of the rule, the court reasoned that “(t)his inclusive language reveals that Rule 54 ‘judgment’ includes more than just appealable orders.” The court then determined that the class action concerns present in Microsoft were not present in this instance. Also, because both parties can move for attorney’s fees after a stipulated dismissal, the possibility of moving for fees “will not affect the overall balance of litigation.”

Finally, the court observed that the Tenth Circuit had reached a similar conclusion in a case in 2018. The court therefore vacated and remanded the case to the district court for consideration of whether Mr. Butterfield should in fact be awarded fees.

The Keith case is interesting in its own right, but more significantly, the case provides guidance for parties seeking to settle a civil action. In most cases, settling parties will expect that the settlement agreement has ended the lawsuit, and will not expect a motion for attorney’s fees from their erstwhile opponent. Litigants seeking such finality should include appropriate provisions in the settlement agreement and/or the stipulation of dismissal. Had the stipulation of dismissal in this case included a provision that each side would pay its own attorney’s fees, the outcome likely would have been different.

For more information, please contact Fitch Even partner Allen E. Hoover, author of this alert.

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