A closer look at patent troll legislation (pt. 2): Fee shifting

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Last week we began examining the “Innovation Act” introduced in late October by Rep. Bob Goodlatte (R-Va.), which targets “patent troll” behavior through a variety of changes to the procedures and rules governing patent litigation. Last week, the Goodlatte bill sailed through the House Judiciary Committee, winning approval by a 33-5 margin.

Apart from the bill’s modifications to the pleading requirements, which we considered in the previous post, the Goodlatte legislation would also make it easier for the party that prevails in a patent lawsuit to collect its attorney’s fees from the losing side.

Under current statutes and regulations, legal fees are awarded to prevailing parties in federal courts only under extraordinary circumstances, such as a truly frivolous filing made in bad faith by the losing party. This arrangement distinguishes the American judicial system from the “loser pays” norm prevalent in Europe and other developed countries.

In his remarks at AEI, Goodlatte himself labeled the current “exceptional case” standard “antiquated, unclear and restrictive,” vowing to fundamentally reshape it.

And so, his Innovation Act would effectively turn this notion on its head, dictating that:

The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position of the nonprevailing party or parties was substantially justified or that special circumstances make an award unjust.

Imposing attorney’s fees would thus be the new default under the Goodlatte bill, which the losing party could overcome only by showing that its filing was “substantially justified” or that other “special circumstances” should inhibit the award of fees.

Goodlatte, who observes that “the patent system was never intended to be a playground for litigation extortion and frivolous claims,” apparently hopes that by sharpening the consequences of an unsuccessful lawsuit, the justice system can deter non-serious claims.

Thwarting bad cases is a laudable goal. But the Innovation Act’s fee provision goes too far in this regard.

First, by shifting the burden of proof onto the losing party, it will require courts to examine the justification of each and every case. Currently, it’s somewhat rare for the prevailing party to actually seek fees. But if they are awarded automatically unless the losing party can demonstrate substantial justification or special circumstances, those losers – facing penalties sometimes well into seven figures – will always file motions trying to do just that.

Second, this stringent provision may backfire, as it won’t be just patent trolls who pay but, at times, the legitimate companies who occasionally are found to infringe PAE patents. In those instances, the defendants will be the losing parties, and unless they can show substantial justification or special circumstances, they will be the ones on the hook for millions in fees.

Third, our unique justice system, dedicated as it is to allowing every American person and company its “day in court,” would be immutably changed in the area of patent litigation. We’d be one step closer to adopting the loser-pays model prevalent abroad, which, in my view, would be a true shame.

I would instead suggest that the fees provision of the Goodlatte bill be modified to soften the “exceptional circumstances” required under current law to award fees to something more like a “substantially unjustified” standard. This would deter frivolous claims without fundamentally altering the day-in-court system so critical to the American notion of fairness and justice, in patent law and elsewhere.

In the next installment, I will examine the proposed changes to discovery rules.

 

 

 

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