The WSJ on NPEs

Dennis over on the main page has an analysis of the WSJ op-ed which blames most of the patent system’s woes on NPEs.  Five years ago, I was asked to write on the legal ethics of NPE counsel, and wrote this article “Being on the Receiving End.”  This is from the intro:

The symposium invited me to speak on the legal ethical issues that face counsel who represent non-practicing entities (“NPEs”) in patent litigation as plaintiff patentees. My first reaction was that, although obviously the same common law, statutes, ethical rules, and procedural rules apply to such counsel as any other, owing to the tremendous costs of patent litigation, that counsel who represented such a “troll” necessarily would have enhanced obligations to court and opposing counsel to ensure that the suit was not brought in bad faith, nor so conducted.

Upon analysis, however, I came to the somewhat counterintuitive conclusion that, although the NPE’s counsel owes somewhat heightened duties, it is in fact the lawyer for the defendant, the accused infringer, whose duties are most implicated by the presence of an NPE in a patent suit. I arrived at that those twin conclusions based upon the following analysis and with some surprise.

Remember, I wrote that five years (probably six — published five) ago.

4 thoughts on “The WSJ on NPEs

  1. I don’t get it. Can you give us your elevatory pitch for why defense counsel have heightened duties in a case brought by an NPE? or perhaps by a true troll? as opposed to the same case brought be a practicing entity?

    I love the suggestion that “It is good practice for [defense] counsel to analyze infringement early on….” Might it really be common practice to avoid this until later? Might it really be less important for the NPE to analyze infringement early on? I mean, I am pretty sure they do, and if they are a legit NPE they proceed with confidence that the accused device infringes, and if they are a true troll the proceed with confidence that they won’t be sanctioned before they extract a settlement. But is it acceptable for either side, in an NPE or PE suit, to forget to read the claims early in the litigation?

    I love the suggestion that “the only actor in the suit that has the responsibility and power to stop abuse… is defense counsel.” Don’t you think that plaintiff’s counsel, who realizes that the accused device does not meet the claims, have some responsibility? Don’t you think the judge might have an obligation to avoid letting his courtroom be used for a shakedown?

    I recall two cases where defense counsel avoided an early dispositive motion in order to bill more than necessary. In one, plaintiff’s counsel clearly understood that there was no infringement, but moved for SJ of infringement just before trial. In response, the judge granted SJ of NON-infringement sua sponte. I would suggest that plaintiff’s counsel had an obligation to forego suit altogether, and defense counsel should have brought SJ before discovery started. Surely, defense counsel was not the only one that had an obligation to avoid abuse, or the only one with the ability to stop abuse.

    By the way, I do endorse early action, and I don’t think it is a new idea. Though I defend only about one case per year, I have been known to file a summary judgment motion with the answer. In each case, though, it was clearly the plaintiff’s obligation to avoid filing suit altogether. Yeah, sanctions are available, but not practical (how an I going to prove that a guy with an engineering degree from UCLA and a law degree from Yale KNEW that my thing was a cube, and a cube is not the same as a sphere, and his claims cover a sphere, to a judge with a political science degree from Yale?), and the cost of seeking sanctions is often on par with what we billed to dispose of the case in the first case.

    1. Davy Crocket:

      Sorry I covered the basics and emphasized the point that plaintiff’s counsel does not, typically when representing an NPE, have any monetary incentive to drag out the case; their interests are in the opposite.

      Lighten up man!

      1. Sometimes I tease.
        But for more insight, when I deal with trollish activity (NPE or not) I see that plaintiff’s counsel has every incentive to drag the case out, because they know they cannot win on the merits, and they know the only tool they have for extraction is protraction. (It’s like I am reading their minds.)
        How do plaintiff’s attorneys get paid? If they are getting paid hourly (the ones I have dealt with), they have the same incentives as defense counsel. If they are getting paid on contingency, the prospect of a higher extraction can be an incentive to drag things out. Do we know which NPE attorneys are getting paid hourly, and which are on contingency?

  2. David, how interesting. Just the other day I recommended that among the reforms we are now considering we make mandatory a requirement by anyone seeking to recover their attorneys fees in an action that they bring a summary judgment motion soon after claim construction on all issues in contention, but particularly infringement and validity.

    It seems that you are way ahead of me on this – wherein you advise that a defense counsel seek to limit costs by use of summary judgments and bifurcations. You note that defense counsel have a conflict of interest of course because they are paid to litigate, not paid to settle and reduce costs.

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