Contingent Fee Patent Litigation

Review by Dennis Crouch

Dave Schwartz is a law professor these days. However, before joining Chicago-Kent he was litigator for more than a decade. Schwartz's most recent article is interesting study of the practice of contingent fee patent litigation. And, the article is appropriately named "Contingent Fee Patent Litigation." [Download the Article from SSRN] The meat of the article is based on Schwartz's interviews with a set of forty litigators who work on contingency fee basis and a privately collected set of contingency fee agreements.

From the abstract:

Drawing upon several sources of data, including in-depth interviews with over forty lawyers involved in contingent representation in patent litigation and examination of over forty contingent fee agreements, this Article provides the first comprehensive analysis of the rapid evolution of contingent representation in patent law. The development of contingent representation includes top-tier litigation firms recently transitioning to taking on high value contingent cases, small entrants representing plaintiffs in lower value cases, and numerous general practice firms experimenting with contingent patent litigation. These diverse players each select and litigate cases using varied methods, resulting in different levels of risk and reward. The Article uses the study of these players to discuss how and why attorney-client contingent relationships established in the nascent marketplace of patent contingent litigation differ from other types of contingent litigation, and what patent law can teach about contingent representation in general.

Schwartz particularly rejects the conclusions drawn by Texas Professors Ronen Avraham and John Golden that former medical malpractice and mass tort lawyers have moved into the contingency fee patent law arena. Rather, Schwartz concludes that "most lawyers whose practice consists of substantially all patent contingent litigation are primarily and historically patent litigators. They are not former medical malpractice, personal injury, or other tort lawyers."

I might quibble a bit with Schwartz's prognostication that the America Invents Act (AIA) is likely to reduce the filing of weak patent claims where the patentees are hoping to settle for the cost of defense. The basis for this is the AIA's new anti-joinder rule that "joining multiple defendants in many circumstances." Schwartz correctly writes that "this means that the practice of suing multiple unrelated defendants in one cause of action is prohibited going forward." However, in my own experience filing patent complaints, it is not much more difficult to file 20 separate actions as it is to file one action against 20 defendants. The primary difference is the $350 federal court filing fee and perhaps a need for a slightly better system of managing multiple cases. However, those fees are still small when compared with settlement figures.

One topic fascinating to me that is only lightly discussed by Schwartz is financing for the lawyers themselves and the rise of Wall Street hedge fund and bank financed patent litigation. Those underlying financing issues almost certainly drive elements of contingent fee patent litigation.

Download the Article from SSRN

26 thoughts on “Contingent Fee Patent Litigation

  1. Paul, with 102 (f)  repealed, there is no substantive basis for either the patent office or a defendant in an infringement case to challenge inventorship.

    The issue of who invented the claimed invention no longer is an issue at all. You can actually take a look at the provisions where correction of inventorship is really allowed in court but in no case can incorrect inventorship lead to invalidity of the patent. So why in the world but any defendant challenge inventorship?

    Fraud under patent office? How? –g iven that patentability is not the dependent at all on naming the correct inventors.

    The only possible basis for a challenge of inventorship in the future might be in challenging standing.  Given that ownership still follows the inventor, there might be a possibility then do indirectly challenge the inventorship here.
     
     

  2. You’re a poser who’s never worked in Big Law, huh?

    If you knew anything about the politics and agreements, and how hard they are to alter or deviate from, then you wouldnt’ make such an ignorant statement.

  3. Paul F. Morgan mouths the following “The AIA still requires inventor oaths or declarations under penalty of purjury by the actual inventors in all cases where they are available

    WRONG.

    This is just more shilling from Morgan’s Fantasies.

    What the AIA actually says:

    (d) SUBSTITUTE STATEMENT.—
    (1) IN GENERAL.—In lieu of executing an oath or declaration under subsection (a), the applicant for patent may provide a substitute statement under the circumstances described in paragraph (2) and such additional circumstances that the Director may specify by regulation.
    (2) PERMITTED CIRCUMSTANCES.—A substitute statement under paragraph (1) is permitted with respect to any individual who—

    (B) is under an obligation to assign the invention but has refused to make the oath or declaration required under subsection (a).

    CLEARLY, Big-Corp can provide a substitute oath swearing (without penalty to itself) that Big-Corp believes JoeBlow Inventor Employee (with a standard duty to assign amployeement agreement) was the inventor even though Joe knows he was not and thus refused to sign.

    Big-Corp is safe from any charge of wrongdoing with a mere “Well, I thought he was the inventor” because the perjury clause applies to the individual, not Big-Corp. (b)(2) does not reach Big-Corp. (b)(1) is standard employment duty to assign language.

    Note that there is no “without deceptive intent” clause anymore.

    Q: Why pray tell was that clause stripped out completely?

    A: $$$$$$

    This game is rigged.

  4. Where did the AIA eliminate the existing invalidity defense of incorrect inventorship?
    The AIA made inventorship correction easier [now even if the original designation was fraudulent] but it still has to be corrected, and it still changes patent ownership if the corrections add anyone not having an assignment agreement with the original owner.
    Also, consider the impression on a jury of a patent in which the originally named inventors oaths are shown to have been purjured.

  5. Paul, OK.  So, the only remedy is criminal.  Fat chance that such a remedy will ever be enforced.   Cold day in Hades, and all that.
     
    Ned

  6. Ned, we’ve had the latter discussion before. The AIA still requires inventor oaths or declarations under penalty of purjury by the actual inventors in all cases where they are available, and 102(f) has rarely been effective as a patent-defeating defense.
    AIA Section 115: “Except as otherwise provided in this section, each individual who is the inventor or a joint inventor of a claimed invention in an application for patent shall execute an oath or declaration in connection with the application.
    (b) Required Statements- An oath or declaration under subsection (a) shall contain statements that–
    (1) the application was made or was authorized to be made by the affiant or declarant; and
    (2) such individual believes himself or herself to be the original inventor or an original joint inventor of a claimed invention in the application.”

  7. Risk is tied to being able to get away with it.

    Big firms are more capable of this, thus their risk basis is reduced.

    Thank you for proving my point.

  8. Paul, this is only going to get worse for the inventors post Sept. 16. With the demise of 102(f), patents are no longer invalid for failing to name the right inventors. Thus we really are in the brave new world of “work for hire” that prevails outside the US. The is nothing anyone can do, not even the PTO, to prevent even the likes of MS from naming the CEO as the sole inventor on every application. Nothing at all.

  9. I agree. The DJ standard is killing the licensing business. The only licenses done now are in the context of getting out of a suit…… half way through discovery.

  10. Don’t provide the recovery to the inventors? When has Google/IBM/MICROSFOT provided the recovery to its inventors? Is that maybe because they BOUGHT the patent rights in their employment agreements (i.e., paid cash up front)?

  11. No, it’s because big firms are more risk adverse and therefore more likely to properly evaluate a case before taking it on.

  12. usually do not have to provide any of the suit recovery to the inventors or to those who paid for the R&D for the invention.

    That price was factored into the purchase price.

    Unless you have a thing against alienability of property, please leave your bias at the door.

  13. BTW, in reading the subject paper, there are two other distinctions between patent litigation and other tort litigation the author should have discussed. First, patents are presumed valid, and an additional burden of “clear and convincing evidence” is on the defendants for almost all issues in patent litigation other than infringement, and that is by a simple preponderance. Secondly, in a normal tort suit the injured party gets most of the recovery, whereas in patent litigation by plaintiffs who bought the patent [as is the case with most troll suits] usually do not have to provide any of the suit recovery to the inventors or to those who paid for the R&D for the invention.

  14. I think Professor Schwartz underestimates how much contingency fee patent litigation there was in the early 1990s. I started my contingency fee patent litigation practice in 1995, and I got the idea from a 1994 Wall Street Journal article that discussed how this sort of practice was becoming more common.

    Still, this is a great article, professor.

  15. article sucks. the only thing GOOD about it was it was about a topic not written about.

    and the author couldnt find much to write about, so he chose to write about the entirely irrelevant “tiering” of P-side firms. who cares? potential law students look for jobs?

    whatever. the most relevant thing would’ve been who’s financing the experts, i.e. hedge funds. 5 min google search pops out dozens of fin. insts with skin in the game.

  16. Great article. The landscape has gotten more interesting: (i) contingent fee litigators; (ii) litigators that partner with IP owners (and also cover the COSTS of the enforcement activities); (iii) NPEs, (iv) aggregators, etc.

    I think the court needs to take another look at the standard for DJ actions. “Sue first, negotiate later” is no way to run our legal system but that’s what many are doing with the current standard.

  17. Nice try at unfounded ad hominums rather than substance, but I am entirely pro bono, not beholden to anyone, and regularly criticise the way large companies handle patents and litigation. In fact, that was the very first point in my note.
    Even your apparent implication that mere licensing offers trigger lots of DJ actions is not supported by statistics. Also, most of the recent “forum battles” are due to patent owners bringing suits in forums that are not logical, convenient or relevant to either party.

  18. “Furthermore, many patent troll contingent fee attorneys do not even bother to make license offers before suing”

    Why would anyone make a license offer before suing just to be subject (exposed) to a DJ action in an unfavorable district?

    “Also, even after eBay the equivalent of a product injuction can still be had against the very many U.S. companies that now import their products, because eBay has not been applied to the grant of ITC import exclusion orders. ”

    ebay case, no, but ITC actions still have the domestic industry requirement, and IIRC, licensing alone doesn’t cut it so NPE’s can’t really bring cases in the ITC.

  19. many patent troll contingent fee attorneys do not even bother to make license offers before suing

    Paul is a known stooge of Big-Corp. Power corrupts and more power, bigger size, corrupts more. His trolling with the term Troll itself is suspicious enough. The ploy to make this an anti-lawyer position is another reason for suspicion. You want to know why a license offer is made less often before suing? Look at case law and see the forum battle. Then be honest about it and stop using purposefully derogative terms.

  20. One thing is for sure, that big firms are unlikely to file frivolous lawsuits.

    Unfounded and speculative conjecture at best, and at worst a paid shilling to obfuscate the truth.

    On what imaginable basis does this rest? That somehow big firms are more ethical? If anything, the reverse is more likely. Power corrupts and more power, bigger size, corrupts more.

  21. It’s possible to conjecture that the danger of one’s products being enjoined might have lead to more pre-suit license settlements before eBay. But I have not seen any such statistics, and here are some other factors I think are more important. First, the reluctance of many companies to shell out previously unbudgeted cash unless they have to, and the “have to” comes quickly only with facing the high costs of attorney fees and discovery costs to defend a patent suit. Furthermore, many patent troll contingent fee attorneys do not even bother to make license offers before suing. They get their contigent fees faster that way, as well as the initial choice of forum. As noted by the article author, lawsuits are dirt cheap and simple to file in the U.S. [and we taxpayers pay all the costs of running the judicial system for their benefit].
    Also, even after eBay the equivalent of a product injuction can still be had against the very many U.S. companies that now import their products, because eBay has not been applied to the grant of ITC import exclusion orders.

  22. One thing is for sure, that big firms are unlikely to file frivolous lawsuits.

    In another thread, someone argued that eBay allows companies to sit idly by and do nothing in the face of a license offer from the likes of IV, because, in the end, they will simply be paying a RR. Why settle, or settle easily? Hard line intrangigence seems in vogue.

    Thus, eBay, perversely, probably is leading to more lawsuits as patent owners cannot settle at all without litigating. It is not suprising that contingency fee litigation is growing.

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