By Dennis Crouch
In a recent NYTimes op-ed, Chief Judge Randall Rader joined professors David Hricik and Colleen Chien in calling for judicial action in awarding attorney fees under Section 285 of the Patent Act as well as Rule 11 of the Federal Rules of Civil Procedure. See “Make Patent Trolls Pay in Court.” The Op-Ed’s focus is on the problem of nuisance suits brought by patent licensing companies against a large number of entities – many of which include small companies.
In addition to being more aggressive in awarding attorney fees under the rules, the authors suggest particular factors that may lead to awards against patent trolls:
One sign of potential abuse is when a single patent holder sues hundreds or thousands of users of a technology (who know little about the patent) rather than those who make it — or when a patent holder sues a slew of companies with a demand for a quick settlement at a fraction of the cost of defense, or refuses to stop pursuing settlements from product users even after a court has ruled against the patentee.
Other indications of potential bullying include litigants who assert a patent claim when the rights to it have already been granted through license, or distort a patent claim far beyond its plain meaning and precedent for the apparent purpose of raising the legal costs of the defense.
One of the bases for the article is that the patent trolls face very low risk in filing lawsuits since they can’t be countersued for infringement (they don’t make anything) and, unlike a university, they typically have no ancillary reputation that can be tarnished by the suit. Moreover, the cost of discovery for trolls is typically very low and they typically work through contingency fee litigators. The result here is “trolls can afford to file patent-infringement lawsuits that have just a slim chance of success. When they lose a case, after all they are typically out little more than their own court-filing fees.”
It is often true that the marginal cost of filing a thirty first lawsuit on the same patent can be quite small – especially when the new defendant is using the invention in the same way that other defendants are using the invention. However, the Op-Ed fails to mention the great risk of preclusion associated with each lawsuit. Under the law, each and every defendant has the opportunity to fully challenge the patent before either a judge or jury and, if the patent is ever found invalid then that ruling will preclude the patentee from ever enforcing the same patent rights again against any party. Even apart from preclusion, the organization of a patent enforcement campaign is not a simple endeavor, but rather an expensive process that involves extensive analysis of potential patent rights, an exhaustive search for financial backing and litigation counsel, and a one-business-at-a-time analysis to ensure that the patentee has a reasonable basis to believe that any accused infringers actually is infringing. In a typical case, the would-be troll follows thousands of dead leads and failed negotiations before ever filing a single infringement lawsuit. The point here is one that every patent litigator understands – enforcing patents is an expensive proposition and the notion that a patentee only risks $350 to file a lawsuit is ridiculous. Now, we can debate whether all this expense is a waste of resources that should be avoided as a matter of public policy. On that point I will only note the reality that the rise of patent enforcement and patent licensing companies has revived the market for buying and selling of patents from small companies and individuals in a way that allows those entities to actually monetize their innovations.
All this is a bit of an aside because I agree completely that courts should exercise their discretion to deal harshly with litigation misconduct both through Rule 11 and Section 285.