The US Court of Appeals for the Federal Circuit vacated a district court’s denial of attorney’s fees, finding that voluntary dismissal with prejudice constituted a final judgment for the purposes of FRCP Rule 54(d) under Ninth Circuit law. Keith Mfg., Co. v. Butterfield, Case No. 19-1136 (Fed. Cir. Apr. 7, 2020) (Hughes, J.).
In 2015, Keith Mfg., a company specializing in loading and unloading trailers, sued a former employee, Mr. Butterfield, in district court. The lawsuit accused Butterfield of patent infringement and alleged that he had improperly obtained a patent application based on inventions made during his employment. Butterfield’s patent covered a device for unloading trailers. Butterfield sent Keith Mfg. a covenant not to sue on the patent 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. In 2017, the parties reached a settlement and entered into a joint stipulation to dismiss the lawsuit with prejudice pursuant to FRCP Rule 41(a)(1)(A)(ii), which permits voluntary dismissals absent a court order. The parties’ stipulation, however, was silent on the issue of attorney’s fees and costs.
Shortly after the settlement, Butterfield moved for attorney’s fees under FRCP Rule 54(d), the Patent Laws (35 U.S.C. § 285) and Oregon state statute. The district court denied the motion for attorney’s fees, holding that the parties’ stipulation to dismiss with prejudice did not satisfy Rule 54(d)’s judgment requirement because under the US Supreme Court’s 2017 Microsoft decision, a voluntary dismissal with prejudice is not an appealable order as required for attorney’s fees under FRCP Rule 54(d).
Butterfield appealed. The sole issue on appeal was whether the stipulated dismissal with prejudice constituted a final judgment for the purposes of FRCP Rule 54(d) under Ninth Circuit law. The Federal Circuit vacated the district court’s judgment, holding that treating the voluntary stipulation of dismissal as a judgment “does not raise the same concerns about finality and piecemeal litigation that animated the Supreme Court’s opinion in Microsoft.”
The Federal Circuit opined that the district court had gone “too far” in relying on Microsoft and distinguished it on the grounds that Microsoft involved a class action, and the Supreme Court was concerned that allowing a class-action plaintiff to manufacture finality using a voluntary dismissal with prejudice would allow for gamesmanship and permit the parties to engage in piecemeal appellate litigation. The Court concluded that treating a voluntary stipulation with prejudice as a judgment for purposes of a Rule 54(d) motion for attorney’s fees would not pose the same procedural concerns raised in Microsoft because this case was not a class action and did not involve a “final decision” under 28 U.S.C. § 1291. Moreover, given that both parties can move for attorney’s fees after a stipulated dismissal with prejudice, the Court held that the possibility of moving for fees would “not affect the overall balance of litigation.” The Court remanded the case back to the district court for consideration of whether Butterfield was entitled to attorney’s fees.
Practice Note: To increase the likelihood that a settlement agreement will end a civil lawsuit, patent litigants should consider including language addressing attorney’s fees and costs when drafting a voluntary stipulation of dismissal and/or a settlement agreement.