Fee Shifting

By Dennis Crouch

Others have pointed this out in the past, but today’s NYTimes editorial on fee shifting is fairly low in truthiness.

Today’s major debate in the Senate is whether judges should be given discretion in the choice of whether to award attorney fees at the conclusion of patent litigation. The basic idea is that the threat of fee shifting will discourage a party from filing a claim or defense that has only a low chance of winning. That idea makes sense, but it turns out that the actual impact of fee shifting is not well understood – especially if it is balanced (awarded to prevailing party, regardless of whether that is plaintiff or defendant) and if done on a case-by-case (entire lawsuit) basis rather than claim-by-claim.

In essence, the fee shifting substantially increases the litigation-stakes – in the end, this may well favor plaintiffs so long as they can engineer a financing structure to manage the risk and essentially take advantage of typical risk adversity of accused infringers.

25 thoughts on “Fee Shifting

  1. I have no idea what purpose this fee-shifting reform is supposed to accomplish. It will not deter the real trolls bringing bad-faith litigation every day; they are judgment proof. It will not deter borderline cases brought by practicing entities when their life is on the line; they have nothing to lose. It might deter borderline cases brought by companies who could tolerate some level of profit lost to infringers. But are those the plaintiffs we want to deter?

    1. Mr. dummy, it will have the effect however of getting patent holders a huge windfall if big companies continue to litigate as they normally have by piling on the defense costs in order to delay and to obtain better settlement. If they want to settle, they’re going to have to pony up quite a bit more in the form of patent owner’s increased litigation costs otherwise the patent owner is simply going to proceed to trial, win its case, and collect not only is royalties, but it’s litigation expenses.

    2. It will not deter borderline cases brought by practicing entities when their life is on the line; they have nothing to lose.

      Pierce the veil and take all the assets of the owners. That’s justice, friend.

      Pretty sure after that happens a couple times there will be some second thoughts about slinging your junky patent around because “you have nothing to lose.”

      Of course we’ll hear endless complaints from the rich entitled classes who suddenly feel the face slap. Most of the patent teabaggers, of course, are the same folks who are out there cheering on police to seize the vehicles and destroy the lives of poor people who were caught with a pot pipe in their car. But that’s totally different, right? I mean, those people deserve it. After all, they’re poor.

      It will not deter the real trolls bringing bad-faith litigation every day; they are judgment proof.

      We’ll see.

      It might deter borderline cases brought by companies who could tolerate some level of profit lost to infringers. But are those the plaintiffs we want to deter?

      Yes, of course. Why would anyone want to encourage borderline patent suits brought by companies who don’t need to sue?

      1. Wretched deflection and completely baseless insertion of class politics shows Malcolm to have NO class.

        Yes I know – shockers.

  2. A little over-eager in the pruning there Prof. Crouch, as my post on statutory response is directly on point and should deflate the rubbish Malcolm insists on posting.

    C’est la vie.

  3. Discretion based on what?

    And discretion goes both ways. Won’t this just continue to encourage plaintiffs with weak cases to file in district courts that will never invoke such discretion? (I say “weak plaintiffs,” because those with strong infringement cases will presumably want to file in district courts where they themselves will have a higher chance of recovering their attorney fees.)

    1. An unintended consequence of discretion is the gamesmanship of forum shopping.

      Recently one regular poster went so far as to claim that forum shopping was never a real issue.

      Unbelievable.

      Those that do not care to be bothered with understanding history are indeed doomed to repeat it.

      1. anon, no, the real issue was obviousness. Many jurisdictions were just like MM and found very few patents valid. The perception was that this was caused by the Supreme Court that apparently, in the eyes of many, was not following the 103. It was intended to get all patent cases into the CCPA where the court as a whole was patent friendly, and one in particular saw 103 the way the patent bar did.

        Now, you put attorneys fees in the hands judges to award as they please, and, as you say, forum shopping will about, and by judge. Cases will be filed. If an unfriendly judge is assigned, case dismissed to be filed elsewhere.

          1. I’m sorry, anon, but it was not forum shopping that was the problem. It was the symptom of the problem.

            The CEO of 3M founded the IPO in the ’72 because he was concerned that the Supreme Court and many Circuits were patent unfriendly because they held so many patents invalid as obvious. This organization led the fight, along with the IP organizations, to get one patent court as the solution to the problem — not of forum shopping but of obviousness. The reason of course was the presence on the CCPA of Rich and other patent friendly judges. Pauline Newman (IPO Director, and Don Dunner, AIPLA president) were on Carter’s commission that recommended the formation of the Federal Circuit. Newman is credited with overcoming the ABA’s opposition.

            They sold congress based on the forum shopping argument, but again, that was just a pretext. The real problem was the perceived weakness of a US patent caused by too high a threshold on obviousness.

            One of the first cases of the new court was a case that dealt on the issue of obviousness. It was penned by Markey. It ushered in what we now know as the TSM test in order to eliminate hindsight, etc. This alone helped shore up validity of patents because the district courts could no longer use hindsight, or their personal opinions (common sense) as a substitute for evidence.

            Note, that the bar had been unsuccessful in persuading the Supreme Court from abandoning its old ways in Anderson’s Black Rock and Sakaraida v. Ag Pro. That more than anything else convinced them they needed the Rich-lead court to essentially overrule the Supreme Court.

            And, note this from an article written by J. Duffy, link: link to michiganlawreview.org

            “Long before KSR, a notorious divergence between the obviousness precedents of the Supreme Court and the Federal Circuit had been widely recognized by patent attorneys and scholars. The divergence was easy to
            see. While the regional circuits had cited the Supreme Court’s most recent decision on obviousness, Sakraida v. Ag Pro, Inc., about ten times per year prior to the centralization of patent appeals in 1982, the Federal Circuit cited Sakraida only four times in the twenty-four years between 1982 and the grant of certiorari in KSR. What’s more, in three of the four cases, the court
            had cited Sakraida only to disparage it.

            In 2002, three significant events occurred, essentially guaranteeing that the Supreme Court would soon review the Federal Circuit’s obviousness case law. First, the Federal Circuit itself acknowledged in Engineering Corp. v. Bartell Industries, Inc. that its obviousness precedents were significantly different from regional circuit precedent applied prior to the creation of the Federal Circuit. That overt acknowledgment of a “circuit split” made
            it much easier for a party to petition successfully for certiorari.”

            Duffy closes with his conclusion that the creation of the Federal Circuit was a mistake. See, pp. 37-38.

            “The continual process of intercourt
            debate and incremental conflict so essential to the health of the common law has thereby been sacrificed on the altar of uniformity. In the absence of structural reform that would spread patent jurisdiction to a few additional circuits, as Craig A. Nard and I propose in our forthcoming Northwestern Law Review article, Rethinking Patent Law’s Uniformity Principle, the centuries-old arc of judicial development of patent law, of which KSR is merely the most recent part, may not survive long into this new century.”

            All I can say is that I have been saying this for years. The Federal Circuit has been a mistake for any number of reasons, primarily because it has eliminated the debate between the circuits that is necessary to develop patent law properly. Instead, we get edicts from one court, broad pronouncements on narrow facts, that are binding thereafter. Such is not a wise way to develop law, and is instead antithetical to its wise development.

            1. antithetical to its wise development

              We are aware of your adoration of the common law evolution tool.

              Unfortunately for you, our Founding Fathers explicitly did not go that route.

              Unfortunately for everyone else, you seem to be insistent on your purposeful ignorance.

            2. anon, when and if the SC comes down hard on the Federal Circuit this term for defying its decisions, particularly Benson, Mayo and Bilski regarding 101, and United Carbon and others such regarding definiteness, it will be abundantly clear that the Federal Circuit is a dysfunctional court that needs to be broken up.

              Those who will be calling for reform will be people whose have had enough of this court as an experiment. It has failed and will continue to fail. There is simply nothing that can be done to save it.

            3. Ned,

              The current state of failure is directly attributable to the interference and brow-beating coming down from ‘on high.’

              I notice that you now chose to ignore the power of Congress as EG shared with you the power of Congress (as then recognized by the Court itself) to set up specific lower courts to be final arbiters of law.

              As I have posted previously, the Court needs to respect the separation of powers as the Constitution provides.

              And this is not to say that the Court cannot review the special court set up for patents, only that such review is not to be geared to writing patent law (implicitly, explicitly, or otherwise), nor to interpreting patent law directly, but merely on matters touching the Constitution itself. And for those matters, the option to re-write the law is not an option provided to the Court – expressly because the Constitution explicitly sets that power outside of the Court’s dominion.

              Your love of the common law evolution tool must bow to the higher law of the constitution.

  4. it turns out that the actual impact of fee shifting is not well understood – especially if it is balanced (awarded to prevailing party, regardless of whether that is plaintiff or defendant) and if done on a case-by-case (entire lawsuit) basis rather than claim-by-claim.

    So we’ll have another data point to increase our understanding. If the fee-shifting rules turn out to be having an undesired effect, they can be tweaked.

    Bottom line: concerns about patent abuse aren’t going to go away anytime soon. There’s good reasons to be concerned. Thousands of them, in fact, and more of them are flowing out of the USPTO every Tuesday. Those of us who disgusted by the current state of affairs are going to be trying all kinds of different approaches to rein in the bottom-feeders and grifters.

    You haven’t noticed?

  5. Hmmm, “in the end, this may well favor plaintiffs

    Does this not call out the nature of an ends-based certain (legally accepted) party-determinative based aim of the legislation? Punishing one side for who they are while the issue involved in any actual suit is party-neutral (there is no use requirement in patent law) indicates a serious underlying problem.

    Surely, there are less intrusive ways to achieve what ever justice is being aimed for.

    1. Punishing one side for who they are

      Nobody’s being “punished” for “who” they are.

      Talk about “truthiness.”

      1. When you make the outcome of a “what” dependent on the “who,” you are punishing for the “who.”

        Wake up.

        1. None of the statutes identify any person by an innate characteristic. It’s not a question of “who.” It’s a question of “what is the entity doing (or not doing)” and how can we, as a society, direct the behavior of these entities in a manner that is more beneficial for the patent system (and society) as a whole.

          In short, it’s not all about you. Get used to that idea.

          In addition, there is no “sham of aiming for an artificial class distinction” (whatever that’s supposed to mean).

          There are all kinds of genuine distinctions that can be made between different entities for different purposes and they are made all the time in all areas of the law, including patent law.

          1. None of the statutes identify any person by an innate characteristic

            Deceptively misleading.

            First, it is not just a person, it is the entity as owner of the patent right.

            Second, there is no “use” requirement in patent law, thus there is no viable way to create a substantive regulation on the property right as it pertains to “use” or lack of “use.”

            Third, a class is being attempted to be created based on “use” – see the second point. If no legitimate legal basis exists for the creation of the class distinction, then no law disproportionately (and negatively) affecting that one class can be sustained under constitutional due process principles.

            Put bluntly, patent law is meant to be blind as to who owns the patent. That is part and parcel of the Founding Fathers intent to make patents a form of property – a form that critically was meant to be fully and freely alienable.

            The sham is apparent given any objective understanding of patent law basics. That you want this not to be a sham and that you want an ends (to match your philosophy) does not justify the means of ignoring what basic patent law was built around to get there.

            In short, it’s not all about you.

            A truly asinine comment as I have never indicated at all that it is “about me.”

            1. Deceptively misleading.

              There’s nothing “deceptive” about my statement. It’s just a fact.

              The “deception” is your use of the word “who.” The statute does not target people based on their innate characteristics, and “entity’s”, of course, have only the characteristics ascribed to them by their controllers.

              there is no “use” requirement in patent law

              That’s a nice strawman. We’re not discussing whether there was or is a use requirement. We’re discussing this proposed statute. And you seem to be forgetting again that the patentees own use of the patented method/product is a consideration in certain contexts — a very reasonable consideration, in fact.

              patent law is meant to be blind as to who owns the patent. That is part and parcel of the Founding Fathers intent

              Blah blah blah blah blah blah. All that’s in the Constitution is that Congress can set up a system to promote the useful arts if they want to. Invoking “the Founders” in this context just makes you sound like some Fed Society twit.

              Congress is acting now to limit patent rights because that’s what the public wants them to do. And the reason that the public wants them to do this should be obvious to you since you’ve been here whining for the many years that I’ve been shoving those reasons under your nose. Fyi, a bunch more reasons just showed up at 12 am this morning.

              ignoring what basic patent law was built around

              Says the guy who never saw a junk patent he couldn’t fluff.

Comments are closed.