Fee Shifting in Patent-Based Lawsuits – Rekindled Interest from Legislation and Judiciary
Posted on April 30th, 2014 by Legal Fee Advisors
Over the past decades, with the rise of the tech industry and entrepreneurship, so have risen the trolls from under their bridges. It is now time to set things right. In order to protect intellectual property, Congress enacted laws which gives inventors and assignees exclusivity rights for a limited amount of time and scope. The four main categories of rights are copyrights, patents, trademarks and trade secrets. As a consequence of the expansion of intellectual property rights, and the use of these protections, what is now called patent trolls arose. Patent trolls, also called Patent Assertion Entities, are companies which acquire patents in order to sue suppliers of goods and services for infringing their patents, without themselves producing goods or services based on these same patents.
Over the past decade, due to patent trolling, we have observed increased costs of production, and thus reduced efficiency and deadweight loss in the market. In essence, patent trolls, by suing companies which use their patents, earn licensing fees on the goods and services sold, thereby increasing the supply costs of companies. This being contrary to legislative intent, Congress and the judiciary have been considering strategies for curbing perceived abuses of the system.
Though the fee-shifting provision has existed since the 1952 patent statute [1], Congress has only recently been considering changing the statute in order to broaden its scope. The Innovation Act (H.R. 3309) would for example make the standard that the losing party has to pay, unless “the court finds that the position and conduct of the non-prevailing party or parties were reasonably justified in law and fact or that special circumstances […] make an award unjust.”[2] By broadening the scope by which losing parties pay for the legal fees of both parties, frivolous law suits would in theory be reduced, and patent trolling would be curbed.
Under the current jurisprudence, to shift attorneys’ fees to a losing party under § 285, a district court must determine (1) that the case is “exceptional”[3] or in the absence of such “exceptional” conduct, (2) “(i) litigation is brought in subjective bad faith, and (ii) the litigation is objectively baseless.”[4] Since then however, the Federal Circuit court [5], as well as the US Supreme Court[6], have been considering cases challenging aspects of the test.
What this means for legal fees
In the near future, through judicial decisions and legislative amendments, the scope of the fee shifting provision broadens. Though the ultimate results are unclear, as judicial interpretation is always a variable factor, the intent, and likely result, is to reduce the volume of patent infringement cases by increasing the risk and cost of such cases. One unwanted consequence of such legislation however may be that companies accused of infringing patents will purposefully rack up hefty legal bills in patent cases as a punitive deterrent for patent trolls. We must therefore remain ever vigilant of unreasonable legal bills.
B. Bierwirth
[1] 35 U.S.C. § 285: “The court in exceptional cases may award reasonable attorney fees to the prevailing party”
[2] Innovation Act, H.R. 3309, 113th Cong. § 3(b)(1) 2013
[3] “Material inappropriate conduct” such as “willful infringement, fraud or inequitable conduct in procuring the patent, misconduct during litigation, vexatious or unjustified litigation, conduct that violates [Federal Rule of Civil Procedure] 11, or like infractions”
[4] See generally Serio-US Indus. V. Plastic Recovery Techs. Corp., 459 F.3d 1311, 1321-22 (Fed. Cir. 2006)
[5] Kilopass Tech. Inc. v. Sidense Corp., No. C 10-02066 SI (N.D. Cal. Dec. 18, 2012)
[6] Octane Fitness, LLC v. Icon Health & Fitness, Inc., 496 F. App’x57 (Fed. Cir. 2012), cert. granted, 134 S.Ct.49 (U.S. Oct. 1, 2013)(No. 12-1184); Highmark Inc. v. Allcare Health Management Systems, Inc., 687 F.3d 1300 (Fed. Cir. 2012, cert. granted, 134 S.Ct. 48 (U.S. Oct. 1, 2013) (No. 12-1163).