Patent Reform Needs Fee Shifting Provisions, Because Judges Almost Never Award Attorneys' Fees

from the necessary-reform dept

One of the key parts of the attempts to reform the patent system is the fee shifting provision, which would make it so patent trolls who bring bogus lawsuits will be required to pay the attorneys' fees of those they sued. Some patent system defenders, including the chief judge of CAFC, the appeals court who hears all patent appeals, say that this isn't needed because courts already have the power to award attorney fees. However, as we've pointed out, the law on that notes that this power can only be used in "exceptional cases."

New data from Lex Machina -- an awesome startup that is compiling all sorts of legal data -- shows that courts almost never award attorneys fees, and the rate at which they're doing so continues to go down, even as the number of patent lawsuits has gone up. From 2010 through 2012, 997 patent judgments were contested -- and only six had attorneys fees granted. Yes, less than 1%. So, for those arguing that fee shifting is already allowed under the law... it's simply not happening. Patent reform needs a strong fee shifting component to ward off so many bogus lawsuits.

Update: There's been some discussion in the comments about the data, which require some further clarification. The six awards are the cases where attorneys fees were granted based on "litigation misconduct or frivolous, bad-faith litigation." Some have pointed out that fees have been awarded in some other cases, but those were for default, willful infringement or inequitable conduct -- which are issues unrelated to the point being made here. It's the frivolous, bad-faith litigation that's the problem, which happens all the time, and attorneys' fees are almost never granted in such cases, leading trolls to file frivolous cases all too frequently. Separately, some have argued that the 997 is inappropriate because defendants in many of those cases did not seek attorneys' fees, but that actually supports the point, rather than takes away from it. Given how rare and unlikely it is for a court to award attorneys' fees, most defendants don't see any value in wasting even more legal effort in trying to get those fees, knowing they're almost certainly not going to come.


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  1.  
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    Anonymous Coward, Jan 27th, 2014 @ 8:03pm

    As usual

    "Some patent system defenders, including the chief judge of CAFC, the appeals court who hears all patent appeals, say that this isn't needed because courts already have the power to award attorney fees."

    It's disappointing to see so many judges riding to the defense of the patent trolls.

     

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  2.  
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    Just Sayin', Jan 27th, 2014 @ 8:30pm

    The reason...

    The reason judge's don't tend to award lawyers fees is that it is the sort of remedy that should only be held for truly egregious cases where the plantiffs have flat out lied. Patents are often "he said, she said" sort of deals, and stacking the deck with a "loser pays" lawyer system would only encourage people to encroach more and more on patent holders knowing many would not take the risk of defending their hard earned patent.

    Basically, you are trying to undermine the system by putting the burden on the rights holder, which is shameful. If they aren't doing anything wrong, why should they be punished twice for trying to defend their work?

     

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  3.  
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    John William Nelson (profile), Jan 27th, 2014 @ 8:36pm

    Attorney's Fees are a double-edged sword

    Trying to get attorney's fees awarded more often is a double-edged sword. The default approach is to allow fees to be awarded to the prevailing party. This is, in fact, the English approach.

    In the U.S. we take a different tack. Attorney's fees are awarded more rarely because of the public policy of encouraging Plaintiffs who may not otherwise have resources to press their claims.

    In other words, do we want to discourage Joe Random Inventor from bringing a claim against, say, Ford because Joe will be going against a well-funded opponent and, if not successful, may end up owing substantial amounts in attorney's fees to the other side (plus, potentially, his own)? In the U.S. court system, the answer is no.

    The Answer I think is to look at some of the more consumer-oriented statutes which allow the award of attorney's fees. One good example is the FDCPA. However, in the patent context you may want to flip the typical script.

    In the FDCPA both sides may be awarded attorney's fees. Consumers, if successful, can basically get reasonable attorney's fees right out. (There are limits, but it is far more common than in typical state or federal cases.) Defendant Debt Collectors, however, can only recover if they can show the claim was brought in bad faith.

    Perhaps shifting the burden to where a counterclaim can be brought in a patent case. If that counterclaim is successful, then statutory attorney's fees can be awarded per the FDCPA and some other statutes. If not, then the other side can only recover attorney's fees with a showing that the actions of the counter-claimant were brought in bad faith (or whatever the standard is for the FDCPA and other similar-style causes of action).

    Perhaps this counterclaim might be for patent troll-like behavior. In other words, the patent is not in use by the owner (other than through licensing) and the company is simply a patent-holding entity. This counter claim may be extended to declaratory actions when given a reasonable threat of litigation, with the same fee-shifting approach.

    The problem is you must be careful with new causes of action. Think of what the Prendas of the legal world and the Paul Duffys might do. While patent trolls are a problem, they are enabled by lawyers who in many ways act as legal trolls. Such a cause of action may enable legal trolling behavior to too great an extent.

    Another approach is to not create a cause of action, but to simply shift burdens statutorily in patent cases. The key is to avoid equivalency on behalf of the plaintiff and defendant. You want to not destroy the incentives for small players with valid claims to be able to press those claims against larger, perhaps even monopolistic, entities. So creating a new burden which allows attorney's fees recovery may be the ideal.

    For example, in a patent lawsuit, both sides follow the American rule of each side paying for their own legal fees. However, upon notice in the Answer by the Defendant, this burden can be shifted. Once notice is given of the intent to go after attorney's fees, then the Defendant is then given the burden of pro-actively showing the other side it case has little-to-no merit.

    This pro-active approach can be begun at any time up to and until the Answer stage of a lawsuit. Therefore, if a demand letter is sent, and the defending company responds with a notice of the intent to pursue attorney's fees, and then lays out in detail the reasons why the case has little-to-no merit, then that works just as well as if it was after suit.

    Once this showing has been made, then if the Defendant wins then the Defendant must be awarded reasonable attorney's fees absent a showing by the Plaintiff, and accepted by the court, as to why some other conduct by Defendant which negates this.

    Even this approach is fraught with procedural peril, however. The system might be gamed too much. Responses may lose their value as they become more standardized. It may end up resulting in inhibiting the bringing of valid claims by small players against larger players.

    Ultimately, the CAFC (which I loathe, greatly) is correct that judges have the power to fee-shift already in these cases. It is a power they rarely choose to act upon, in large part for the basic policy reason stated at the beginning of this comment. (Said policy reason holding true to all types of lawsuits, not just patent ones—not inhibiting plaintiffs from bringing valid claims against well-funded adversaries with the risk of a double-whammy of attorney's fees.)

    Perhaps the easiest route is to find a way to change the Federal Rules of Civil Procedure on this, or develop precedent in each circuit which more clearly outlines ways in which judges can and should implement their fee shifting powers in these types of cases. (Each circuit, and each state, is different on when and how they fee shift.)

    There is no easy answer. There are tradeoffs for each approach, and each approach can create new issues on top of some which may be unforeseen.

    In short, fee shifting sounds great in theory, but it can be difficult in practice.

     

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  4.  
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    Robert, Jan 27th, 2014 @ 8:48pm

    What you do legislate loser pays and enable pro bono with a maximum legal percentage. Thus a legal firm can assess the claim and evidence and invest in the case for the little person against the firm with deep pockets and win the case. Should the legal form loses it comes out of their pocket.

     

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  5.  
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    pixelation, Jan 27th, 2014 @ 10:20pm

    Re: Attorney's Fees are a double-edged sword

    Sure seems simpler to eliminate patents all together. I'm not for it but it sure would be a better alternative.

     

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  6.  
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    Anonymous Coward, Jan 28th, 2014 @ 12:37am

    Re: Attorney's Fees are a double-edged sword

    Right now it certains seems to swing more on the side of lawsuits being abused against small companies because they can't even afford to fight. At least if they knew they were in the right, they could take their chances with the lawsuit. But now they just settle and pay the extortion fee.

    So between small businesses suffering because of lawsuit abuses and independent inventors suffering because they can't "assert" their patents against other companies, I'd much rather side with the small businesses that get attacked either by trolls or big corporations.

     

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  7.  
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    Donglebert the Needlessly Obtuse, Jan 28th, 2014 @ 4:23am

    Re: Attorney's Fees are a double-edged sword

    I think you're over complicating the matter.

    In the UK, the judge also has the (more often used) discretion to not award fees.

    Further, there's legal aid from the government, and "no win, no fee" solicitors, for people who can't afford the risks of litigation. But then, most people here think living in a less litigious society to be a good thing.

     

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  8.  
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    Bengie, Jan 28th, 2014 @ 5:15am

    Re: Attorney's Fees are a double-edged sword

    "In other words, do we want to discourage Joe Random Inventor from bringing a claim against, say, Ford because Joe will be going against a well-funded opponent"

    Sounds like with patent cases, fee-shifting should only apply in the cases where the lawyer is not representing the original party that created the patent or does not directly make use of the patent in creating items that are currently available on the market..

     

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  9.  
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    Pixelation, Jan 28th, 2014 @ 8:05am

    Perhaps judges can be given greater leeway in awarding attorneys fees.

     

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  10.  
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    Anonymous Coward, Jan 28th, 2014 @ 9:12am

    Something that should be standard in all courts...

    I always thought, even as a small child when I first learned of the abuses of companies vs individuals, if you are an entity with significantly more money than the other person court fees should be awarded to the 'weaker party' automatically IF the 'weaker party' wins.

    Should reduce lawsuits in general that are just used to bully smaller entities that can't afford to defend themselves against a larger entity that could drown the opposing entity in money.

     

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  11.  
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    John Fenderson (profile), Jan 28th, 2014 @ 9:50am

    Re: Attorney's Fees are a double-edged sword

    In other words, do we want to discourage Joe Random Inventor from bringing a claim against, say, Ford because Joe will be going against a well-funded opponent and, if not successful, may end up owing substantial amounts in attorney's fees to the other side (plus, potentially, his own)? In the U.S. court system, the answer is no.


    But nonwealthy people face the exact same problem when attorney's fees aren't awarded, so I'm not sure how this approach actually addresses the issue.

    Right now, it's not that uncommon for a well-funded party to file a bogus lawsuit and just drag it out until the defendant goes broke trying to defend themselves. Having some assurance that attorney's fees will be awarded might help prevent that abuse of the court system.

    This problem (which applies whether you're suing or being sued) is one of the big reasons why the justice system is actually pretty sparing in terms of being able to deliver actual justice.

     

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  12.  
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    Steph Kennedy, IPTT (profile), Jan 28th, 2014 @ 10:48am

    It won't matter...

    The problem with fee shifting is that it won't matter. You can't get blood out of a turnip. If a patent troll loses a suit, all they have to do is hide their money in another shell company and all of a sudden, there's no money to pay the fee.

    The problem of litigation cost recovery is a real one, and I agree with this guy:

    "This problem (which applies whether you're suing or being sued) is one of the big reasons why the justice system is actually pretty sparing in terms of being able to deliver actual justice."

    It does seem that the golden rule applies: He who has the gold makes the rules. But straight up shifting to a "loser pays" isn't going to help, in my opinion, because in the case of patent trolls they'll cry bankruptcy and you'll never see a dime.

    Just sayin',

    IPTT

     

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  13.  
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    DB, Jan 28th, 2014 @ 11:54am

    Attorneys Fees a Naive Solution

    A defendant will have to invest millions to try to win, and then win, to recover fees based on fee shifting. Only the giants will be able to take advantage of this. What would really work would be to put a limit on damages to make cases unprofitable for trolls. Instead of letting them claim, for example, 1% or 2% of total company sales from a retailer, limit them to a percentage based on wholesale/supplier level prices. Instead of letting them claim, for example, 1% or 2% of total product sales from a manufacturer, when the infringement is burned into a chip bought from a chip manufacturer, limit them to a percentage based on the price of the chip.

     

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  14.  
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    Anonymous Coward, Jan 28th, 2014 @ 3:25pm

    Re: The reason...

    Yeah, how dare they shift the onus onto the accuser.

    What ever happened to the good old "guilty till proven innocent"

     

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  15.  
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    Just Sayin', Jan 28th, 2014 @ 6:11pm

    Re: Re: The reason...

    The onus of proof is upon the accuser, but that doesn't mean that they should have to also weigh the risks of paying for the defense as well... that would severely limit the rights of patent holders, who would have to consider the costs of ANY case failure, even if it's due to judicial error or perhaps even a paperwork issue.

    That would have a chilling effect on the rights of patent holders, which I think is the intent here. Just like the Republican party trying to defund "Obamacare", what is being proposed is to dilute patent law and the rights of patent holders until it is not longer able to be enforced. Most people know they won't ever make significant changes to patent law to that extent, so they try to back door it and just make it a useless piece of code.

    It's a pretty dishonest way to get things done.

     

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  16.  
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    Anonymous Coward, Jan 28th, 2014 @ 11:03pm

    Re: The reason...

    "many would not take the risk of defending their hard earned patent."

    Patents are not about giving people something some random person like you arbitrarily thinks they somehow 'earned'. Patents should only be about serving the public interest.

     

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  17.  
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    btrussell (profile), Jan 29th, 2014 @ 1:04am

    When a judges discretion swings from "life sentence without parole" for a poor 14 year old kid, who punched someone who then later died, to "Ten years probation" for the rich 16 year old kid, who killed four people while on a crime spree, I think we need clear guidelines.

     

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  18.  
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    JNG (profile), Jan 30th, 2014 @ 4:55am

    The geniuses at Lex Machina are off quite a bit:

    https://www.docketnavigator.com/browse/results/7047157b-4bdc-0d48-bdfd-5cf37351b5d2

    21 cases, not 6

    also, the fact that there are 997 cases doesn't mean there were 997 requests for attorneys fees; in many cases defendant knows there is no chance of getting, doesn't file

    until they confirm 976 "denials" of fees, I would not be so quick to accept their data - it could be 200 cases, in which case finding 10% "exceptional" is consistent with the useage of that term in ordinary parlance

     

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  19.  
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    Michael Risch, Jan 30th, 2014 @ 7:00am

    Fee awards

    It's not really 21 cases - some of those 21 were plaintiff awards. The real number is about 15 give or take. They may not all be reflected in judgments, and if Lex Machina is counting judgments, then it would miss some. You also can't count plaintiff/def't, since at least one fee award went to a declaratory judgment relief plaintiff.

    The number of denied fee motions is 114 according to Docket Navigator, for both plaintiff and defendant.

    This is one reason why you have to take every report you see with a grain of salt, and why it is so important for people to independently run numbers.

    Then again 6/114 v. 15/114 v. 15/997 is not huge from a policy point of view, but consider how many of those 997 judgments would have resulted in a plaintiff win and fees from the defendant.

     

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  20.  
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    JNG (profile), Jan 30th, 2014 @ 7:05am

    Re: Fee awards

    so what you're telling me is that the 114 represents both defendants AND plaintiffs, which is kind of hilarious given the squawking from accused infringers that they are the only ones being victimized

    the truth is, the term "exceptional" means just that; MENSA says "exceptional" is 2%

    so if you use the term in its normal sense, 21 out of 135 denials is hardly... "exceptional"

     

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  21.  
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    Michael Risch, Jan 30th, 2014 @ 7:31am

    I think the folks who want reform are complaining that "exceptional" doesn't shift fees enough to change behavior, not that judges are misreading the statute. As the OP notes "for those who say shifting is allowed by law..."

     

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  22.  
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    JNG (profile), Jan 30th, 2014 @ 8:03am

    Re:

    the folks who "want reform" are defendants who argue that they've been mistreated, and they've been publishing fake numbers suggesting results like "we only got 6 out of 997 decisions in our favor"

    The 997 number is bogus as I suggested some time back; that's number of cases, not number of fee decisions; but that real fact takes a back seat to the nice hyperbolic "6 out of 997" headline

    and now of course it turns out the numerator of that ratio is wrong too

    if serial infringers want "fee shifting" to alter behavior, they should let contingency fee plaintiffs collect back their 40% they paid to their attorneys to bring the lawsuit

    but that never happens either, so the argument is again just an illusory premise that purports to be "fair" to both sides

     

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    guest2013 (profile), Jan 30th, 2014 @ 9:17am

    A study just came out using LexMachina that states the percentage is 6% of cases ending in judgment from 2003 to 2013, or 208 out of 3400 cases

    http://www.vjolt.net/vol18/issue1/v18i1_2-LiangBerliner.pdf

     

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  24.  
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    JNG (profile), Jan 30th, 2014 @ 10:19am

    Re:

    this "study" uses the same flawed methodology

    it starts from the premise that the "denominator" (3400) is the number of patent cases; it is NOT

    the number of ACTUAL decisions where fees were requested is a fraction of that figure, so dividing actual favorable opinions (208) by the number of cases instead of number of actual fee requests (unknown) is just plain irresponsible if not fraud

     

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  25.  
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    Mike Masnick (profile), Jan 31st, 2014 @ 12:34pm

    Update

    We've added an update to the post that further explains the numbers, given the comments that some have raised questioning them.

     

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  26.  
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    Michael Risch, Feb 1st, 2014 @ 5:35am

    I get the 6, though it's unclear to me why you wouldn't count litigation misconduct as part of the "bad acts" attributed to trolls.

    I still think the 997 is too high - not because I disagree with the theory, but because it assumes that the defendant won each of those case, which it did not. If you're trying to make a point about how trolls would be curbed if only more fees were granted, shouldn't we count the number of defendant wins that went uncompensated, rather than ALL the cases that went uncompensated?

    Plaintiffs almost never win "bad faith defense" fees - so many of the fee awards to plaintiffs would not be in the 6 counted - which means you have skew- counting only defendant fee wins, but not defendant case wins.

    Is it really your argument that the system would work better if defendants had to pay even if they were wrong about their defense for reasonable reasons? I'm OK with that system, but I'm not convinced you would be, nor am I convinced that that's a troll issue.

     

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  27.  
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    Anonymous Coward, Feb 27th, 2014 @ 9:49pm

    Re: Re: Re: The reason...

    If they had a case what the fuck would they need to be scared about? That they don't have one?

    Right, we all know you hate it when due process is enforced.

     

    reply to this | link to this | view in thread ]


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