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Ray Niro Discusses Fee Shifting in Patent Litigation


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: July 18, 2014 @ 10:00 am
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Ray Niro

Recently I interviewed Ray Niro. Our wide ranging discussion touched on all things patent, we first discussed the announcement that Niro, Haller & Niro is now doing patent infringement defense on a flat fee basis. We wrap up our discussion of this new defense business model for the patent litigation industry below. We then transition into a discussion about fee shifting in patent litigation, first discussing the recently failed patent reform and then moving into a discussion of the Supreme Court fee shifting cases from the October 2013 term.

To begin reading the interview from the start please see A Conversation with Patent Defense Litigator Ray Niro.

QUINN: How many lawyers do you have at your firm currently?

NIRO: 28. Between 28 and 31 most of the time. We are in the process of adding a few, so we’re I think 28 now; we’ll probably be 31 in the fall.

QUINN: Okay. And the reason that I ask that is because I suspect that as this word gets out that you’re doing this that you’re probably going to see a lot of interest. And how do you envision things developing? Are you going to be able to grow? Are you going to try and choose cases, which cases you can get involved with? What’s the mechanical process?

NIRO: Well, we’re going to be selective. If we have the good fortune on the defense side that we’ve had on the plaintiff side we take about one in six cases that are brought to us or come to us. So we have the privilege of being selective. That gives us the ability to really carefully analyze cases and try to pick only the best. The best in the sense of the ones that have the greatest probability of success and the biggest potential recovery. I think on the defense side we’re going to have to adopt a similar model. Now I ran this by a big corporate in-house guy. And he said, well, the first thought I have is how do we know if you go over budget, that is your time exceeds what you’ve budgeted that you’re not going to start cutting corners? And I think that’s a legitimate question. The short answer is you’re paid to win. And you’re paid to be efficient. And that’s the same question you could ask on the other side, on the contingent fee. Well, how do I know you’re not going to start cutting corners if it becomes a complex case and you’re way past what we could possibly get you as a fee based upon the recovery? And the answer is I do enough of these and I have enough integrity that I’m going to do what’s right whether we get one dollar or $100 million.

QUINN: I could see that being a concern with some firms maybe and particularly if you’re just coming to this new and you don’t know what you’re doing. But it strikes me that you and your firm have made your reputation as winners.

NIRO: Correct, we have.

QUINN: And that winning reputation is so easy to lose. It’s like with good will, it takes forever to create it and a split second to lose.

NIRO: Exactly. I mean it’s like credibility. Judges will tell you, you spend a career creating credibility and you could lose it in a minute.   Credibility is the single most important ingredient in success before judges and before juries. You have to be believed. You have to be credible. And you can’t pretend to be credible. You have to be credible based on performance. And I think over time we’ve developed credibility in terms of what we do. Doesn’t mean everybody that might do this kind of thing is going to have that credibility. One of the things I think that’s happened that creates all this patent troll mania is that a lot of people copied our model on the plaintiff side. And a lot of them were running from tort reform and you had a lot of PI type lawyers getting into the patent space. And now you have a lot of people bringing lawsuits that aren’t very good. The cases haven’t been properly vetted. And that’s created this huge backlash against NPEs and trolls and so forth. So the success we had in doing things right has resulted in a lot of people copying the model and doing things wrong.

QUINN: Yes, whether in industry or in private life, it is always the small group that creates the problem that tars the entirety of the industry or the group that’s doing it right.

NIRO: Exactly right. That’s exactly what happens.

QUINN: And this may be a good segue to get into some of that type of conversation, too. Because we’ve seen some interesting decisions and we saw the end of patent reform it seems for this year. It’ll be back because the people who seem interested in destroying the patent system seem to have endless amounts of money to do that and they will just keep coming back for more. But what are your thoughts on current developments? Let’s start with the defeat of patent reform and then move on to some of the Supreme Court decisions.

NIRO: Well, I’m happy that the fee shifting provision was challenged; it was the thing that, I think, broke the back of the reformers. Fee shifting is a game changer. And the reason it’s a game changer is it is aimed at eliminating the little guy. Which it will do. I mean think about life this way. Taking Apple as an example. It has $150 billion in cash. Invested at 5%, that’s what, $7.5 billion a year or something like that? And I’ve done the math so I may be off here. But it’s about $20 million a day that they earn in interest. Now, if they’re hit with a $10 million award of fees in a case that goes south, it’s noise, it’s not important. I mean it’s important, but it’s not gonna break the bank. It’s a half a day’s interest, right? But if you’re an individual or a small company, $10 million runs you out of business. You’re gone. So it’s not fair to say, oh, well, the fee shifting applies to everyone. It may apply to everyone, but its consequences are most devastating to the little guy. It’s the reason that we have the American rule, everybody’s entitled to their day in court whether they’re big, small, rich or poor. And the problem is the special interests are targeting the poor and the small. And they’re systematically going to be eliminated. So I think there was enough pushback, and I’m not an expert in this because I don’t have a pipeline to what goes on in the Senate, but I think there was enough pushback on that provision that the bill got tabled. They couldn’t get a consensus. But you’re right, it’s coming back. And what the special interests want in the name of patent reform, what they really want to do, is eliminate the little guy.

QUINN: Yes I think that that’s exactly right. And I think that what it really did was it fundamentally misunderstood the incentive structure. You only get actors to risk it all in an environment where it is conducive to them seeing that as being a valid risk. And the law continues to change and evolve and these attempts to reform the law, which is not even honest to call it reform, but as changes keep presenting themselves that really fundamentally strikes at the incentive based system that we’ve had for so many years.

NIRO: It does. And what you’re saying is that this incentive you now have people who are unable to find lawyers to pursue claims. And you have a hugely aggressive defendant group that are saying why do I worry? I mean think about the consequences. There’s not going to be an injunction. The Supreme Court took care of that. So if it’s an individual or small entity there’s no risk to the defendant of an injunction. Treble damages and willful infringement, that’s pretty much dead too. The Federal Circuit killed that. So now you don’t have a risk of increased damages, you don’t have a risk of an injunction, and, when you look at what’s happened in the damages arena with apportionment and the smallest saleable unit, the worst that can happen to an infringer if it loses is it pays what it would have paid if it had negotiated a license. That creates exactly the incentive to just run the little guy over. And that’s what’s happening.

QUINN: Well, I think that’s exactly right. And this whole fee shifting didn’t take into account the reality that when you have a patent and you’re a little guy and you’re trying to get somebody who’s infringing to take a look at what you’re doing to see if they want a license, most of these large companies just ignore you. They circular file your letters in the trash can and they won’t talk to you unless you sue them. So they’re forcing exactly what it is that they have been complaining about.

NIRO: And every case becomes a frivolous case. Any case that’s lost by the plaintiff-patentee is frivolous. So what you have is, if you have a meritorious case or a good-faith basis to proceed and you lose, you’re going to face a fee motion for a substantial sum of money because it’s going to be treated as a frivolous case. I was at a conference talking on this subject and an in-house lawyer with a very big company said, you know, we had to defend these troll cases and we spent $30 million defending five cases that were frivolous. And I said, well, why did you spend $30 million if they were frivolous? You should have spent $5,000 each to dispose of those cases summarily. What that tells me is the case became frivolous because the plaintiff lost. And now the plaintiff is going to face the consequences of a fee motion. That’s wrong. And it’s not just a fee request against the client, it’s a fee request against the lawyers. Because these big guys are determined to run both the little guys and their lawyers out of business.

QUINN: Yes, it’s becoming a lot like defending a patent troll. A patent troll is anybody who sues me.

NIRO: Right. And how do you define a frivolous case? A frivolous case is any case that my opponent has.

QUINN: Right. And I know in the past when we’ve talked about this, I’ve been really worried about the way that the system is heading and the culture and the climate and everything that goes along with that. And I think one of the last times we talked on the record I asked you if you were worried and you said that patent law is like a pendulum. Which is true. I just continue to worry that the pendulum is not going to swing back. What are your thoughts on that today?

NIRO: The pendulum swinging back?

QUINN: Yes.

NIRO: I think it will. But it’s going to be a long time and it will take the disaster mode to do it. I think, as the economy tanks, there is less innovation and, as the big companies start to get bitten by these adverse decisions (maybe in the Apple/Samsung wars), you’re going to see the pendulum swing back. When you wreck the patent system and you create a disincentive, now you have big company A suing big company B they’re gonna get—one of them is going to be unhappy. And it’s probably going to be the plaintiff that is unhappy. Well, as they see their portfolios eroded because of split infringement, because of Section 112 definiteness, because of patent eligibility, because of the minuscule damages that they can recover, you’re going to see a backlash at some point and an adjustment. But I think it’s going to take a long time, Gene. I don’t think it’s a matter of months. I think it’s many years before people wake up. I just hope that we haven’t wrecked the country in the process.

QUINN: I agree with you unfortunately. The only hope that I am holding out that this may seem quicker than what you might otherwise think is because it seems to me with the Alice decision if that is going to be interpreted as method claims are abstract ideas and systems claims are abstract ideas because the method claims are, then what you seem to have in that space is really no way to save the claims in the patents that have been issued that were written with specifications supporting method and systems claims, not to mention the applications that are pending. And I can see enormous portions of the portfolios owned by Google, Apple, Microsoft and many others just gone.

NIRO: Right.

QUINN: Because I don’t see a way forward with specifications written to satisfy what the courts had been saying they wanted to see. Those patents and applications seem to me to be written to a different standard, which has now shifted rather dramatically. I realize there are others that are reading that decision more narrowly, but the way I work through it in my head is I say to myself, is this decision going to make it more or less likely for the PTAB to invalidate claims? I mean they’re already invalidating practically everything they see. So this just gives them more rationale to do what they have already been doing.

NIRO: Right.

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Posted in: Gene Quinn, Guest Contributors, Interviews & Conversations, IP News, IPWatchdog.com Articles, Patent Litigation, Patent Reform, Patents, Raymond Niro

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

2 comments
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  1. Gene,

    A large part of the problem is that there isn’t much (any) press on the abusive litigation behavior of defendants and their counsels in patent infringement cases. Certainly, there is a coming tsunami of exceptional case motions that will be filed by patent defendants (particularly, in light of the anti-patent hysteria and the recent SCOTUS decisions on 285). It would be nice if plaintiffs/patent-holders started similarly filing those types of motions against defendants and their counsels when the other side has engaged in abusive litigation tactics.

    Unfortunately, its been my experience that patent holders are more interested in vindicating their property rights than in engaging in this type of fee-shifting/sanctions gamesmanship so I don’t expect we’ll see any corresponding increase in exceptional case motions being filed by plaintiffs.

    Bemused

  2. Hi: I have a comment for follow-up: if the client is on a fixed fee for defense of the case, and the fee is less than Plaintiff’settlement offer, why would the client ever settle? Won’t the incentive be to make the attorney try and then appeal it to the very end?