A federal district court recently awarded more than $12.4 million in attorneys’ fees to the defendants as “prevailing parties” based on its finding that the plaintiffs had pursued objectively baseless patent and trade secret misappropriation claims in bad faith. [See Gabriel Technologies Corp. v. Qualcomm Inc., No. 08 CV 1992, 2013 U.S. Dist. LEXIS 14105 (S.D. Cal. Feb. 1, 2013)] As part of the award, the court awarded $2,829,349.10 in fees “attributable to computer-assisted, algorithm-driven document review” developed and employed by H5, which is an e-discovery vendor that obtained a patent last year on certain aspects of its technology-assisted review process. The court found that the method of document review used in the case reduced the overall fees and attorney hours incurred by the defendants and, therefore, found the requested amount of fees to be reasonable.

In Gabriel Technologies, the plaintiffs brought suit in 2008 against Qualcomm Inc. and an individual defendant asserting ownership rights in numerous Qualcomm patents related to GPS technologies. The suit arose out of events related to technology licenses and joint ventures between the plaintiffs, and their predecessor in interest, and the defendants dating back to 1998. The plaintiffs initially asserted 11 claims for relief, including breaches of a 1999 license agreement and a 2006 license agreement, fraud, tortious interference with contract, correction of patent inventorship, declaration of patent ownership, equitable patent infringement, trade secret misappropriation, conversion, unfair competition and unjust enrichment, and sought more than $1 billion in damages. Most of the plaintiffs’ claims were dismissed early in the litigation.

After obtaining summary judgment on the plaintiffs’ three remaining claims, the defendants filed a motion for attorneys’ fees against the plaintiffs and their counsel. The plaintiffs’ lead counsel in the case separately settled with the defendants. The court then granted the motion as against the plaintiffs and their local counsel.

The court first ruled that the defendants were entitled to attorneys’ fees pursuant to 35 U.S.C. § 285, which permits a court in “exceptional cases” to award “reasonable attorney fees to the prevailing party” in a patent case. The court found by clear and convincing evidence that the case was “exceptional” because the plaintiffs’ claims were objectively baseless and brought in subjective bad faith. Here, the court noted among other things that emails between the plaintiffs’ former employees suggested that they knew they had no case but pursued the claims anyway, the plaintiffs did not know and could not prove the identity of inventors allegedly omitted from the defendants’ patents, and the plaintiffs pursued the case even after the court required them to post an $800,000 bond pursuant to Cal. Civ. Proc. Code § 1030 to proceed with the case.

The court next ruled that the defendants were entitled to attorneys’ fees pursuant to Section 3426.4 of California’s Uniform Trade Secret Act, which permits a court to award reasonable attorneys’ fees to the prevailing party if “a claim of misappropriation is made in bad faith.” Cal Civ. Code § 3426.4. The court found that the plaintiffs’ trade secret misappropriation claims were objectively specious and maintained in subjective bad faith. Here, the court noted that the plaintiffs made the decision to pursue their claims “despite their inability to sufficiently articulate the alleged trade secrets or overcome Defendants’ statute of limitations argument.”

Having found that the defendants were entitled to an award of attorneys’ fees, the court awarded $10,244,053 in attorneys’ fees attributable to the work performed by defendants’ lead counsel and $391,928.91 in attorneys’ fees attributable to the document review performed by a third-party vendor, Black Letter Discovery.

In addition to these fees, the defendants also sought fees for “document review performed” by a “complex computer algorithm” generated by H5. The defendants supported their request by stating that over the course of the litigation they had collected almost 12 million records, mostly in the form of electronically stored information (ESI). The parties agreed to a set of search terms and the defendants applied those search terms to the ESI that was collected to create a data set of potentially responsive documents. Rather than manually review this entire data set, the defendants paid H5 to use its proprietary technology to sort the data set into responsive and non-responsive documents, thereby reducing by more than 1 million documents the number of documents that had to be reviewed by attorney reviewers. H5 charged $2,829,349.10 for “developing and employing a first-level document review algorithm.” The defendants argued they were entitled to recover H5’s charges from the plaintiffs because the defendants would have incurred additional time and money if they had employed attorneys to review those documents instead of using H5’s technology.

The court agreed with the defendants, stating:

After [H5’s] algorithm determined whether documents were responsive or unresponsive to discovery requests, Black Letter attorneys reviewed the responsive documents for confidentiality, privilege, and relevance issues. (Id. at 26, n. 11.) For this reason, the review performed by H5 and Black Letter accomplished different objectives with the H5 electronic process minimizing the overall work for Black Letter. Again, the Court finds [the] decision to undertake a more efficient and less time-consuming method of document review to be reasonable under the circumstances. In this case, the nature of Plaintiffs’ claims resulted in significant discovery and document production, and [Defendant’s counsel] seemingly reduced the overall fees and attorney hours required by performing electronic document review at the outset. Thus, the Court finds the requested amount of $2,829,349.10 to be reasonable.

Interestingly, in ruling on the defendants’ motion for the plaintiffs to post a bond earlier in the case, the court had ruled that other e-discovery costs related to “collecting, searching, identifying, managing and producing electronic documents in response to [the plaintiffs’] discovery demands” were not recoverable as taxable costs pursuant to 28 U.S.C. § 1920(4). There, the court reasoned that the fee to engage a consultant to assist with e-discovery productions is not recoverable as costs under § 1920(4) because the Ninth Circuit Court of Appeals “has limited recoverable exemplification fees to those for the physical preparation and duplication of documents, not the intellectual effort involved in their production.” [See Gabriel Technologies Corp. v. Qualcomm Inc., No. 08cv1992 (S.D. Cal. Sept. 20, 2010)]