In April 2014, the United States Supreme Court addressed the issue of awarding attorney’s fees under 35 U.S.C. § 285 to successful litigants in a patent infringement proceeding. The decision in Octane Fitness, LLC v. ICON Health & Fitness, Inc., was the primary decision simply because that case was treated first by the Court and formed the basis of the Court’s decision in Highmark, Inc. v. Allcare Health Management System, Inc. Essentially, the Supreme Court in these two cases ruled that an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s § 285 determination. Those familiar with the abuse-of-discretion standard know that it is a difficult standard of review, which should mean that district courts will have far more latitude to handle attorney’s fee awards without meddling from the Federal Circuit.
After these decisions by the Supreme Court, patent reform died in the Senate after lopsided passage in the House. Politically, and procedurally, the problem for patent reform in 2014 wound up being that the Supreme Court mooted one of the leading drivers of this round of reform — fee-shifting. But that hasn’t stopped patent reform advocates from once again pushing the Innovation Act in 2015, which is identical to the Innovation Act from 2014 that died in the Senate.
The philosophy behind fee-shifting is that a “loser pays” system will cause a plaintiff to think twice before filing a lawsuit and possibly chill any potential litigation that may be unnecessary. Potentially open-ended liability influences behavior, and that is the specific desire of the fee-shifting provisions. In the United States, however, we historically do not want the fear of seeking redress to influence behavior. While a fee-shifting rule may make those with weak cases think twice, it will also make those with very strong cases think twice, which has not been acceptable from a philosophical standpoint in the U.S.
The ‘loser pays” provisions of the Innovation Act set up more than a possibility of fee-shifting. The Innovation Act sets up a presumption that the loser of a patent infringement litigation would have to pay the attorney’s fees of the winner unless the loser’s positions were objectively reasonable. This is a deviation in the burden of paying for litigation that is extraordinarily rare within the U.S. legal system. The most alarming thing about this fee-shifting provision is that there has been little or no discussion about whether it is a good idea. It was decided entering into this rushed process that fee-shifting was a good idea and the only relevant question for discussion was how it was going to be implemented.
The reality in the industry is that many large tech companies gladly pay to settle the nuisance cases, which are those brought alleging infringement of weak, low quality patents, or those where there is no plausible claim of patent infringement. But while they settle the bad cases, they choose to fight cases against true innovators with strong patents. They fight the war of attrition, and they frequently lose at the end, which recently happened when Apple lost over $500 million. Still, the victorious patent owner in that case has been vilified as a troll despite the fact that Apple has been found infringe.
But wouldn’t it be ironic if the war of attrition model wound up with those demanding fee shifting having to pay extraordinary attorney’s fees to both their attorneys and the attorneys of the innovators they seem to enjoy pushing around with their own brand of abusive patent litigation tactics? While no one really knows how the fee-shifting provisions will play out, it would be ironic indeed if it wound up backfiring against tech companies who say they are inundated by extortion-like requests.
Tags: Congress, fee-shifting, fees, Innovation Act, patent, Patent Reform, patents
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