If New Congress Picks Up Patent Reform, Let’s Hope It Drops Loser Pays

As the Managing Principal of a patent advisory firm that services nearly every segment of the patent industry, I am often asked what keeps me awake at night. Obviously, for anyone engaged in the patent business as of late, there is no shortage of material. But with a newly minted Congress expected to get moving on patent reform, there is one clear winner: presumptive fee shifting.

The most recent patent reform bill to pass the House, which is now expected to receive Senate backing as well, is the Goodlatte Innovation Act (H.R. 3309). Included within the various provisions of H.R. 3309 is the presumption of fee shifting for the losing party in a patent case. Put simply, this means the loser in a patent case pays the winning side’s attorney fees. In the context of a patent case, such costs often total in the millions.

But as someone who operates at the center of the patent market, and is certainly sympathetic to the dangers of frivolous patent litigation, I can only hope that if additional patent reform does pass, the presumptive fee shifting provisions are nowhere to be seen. Although seen by those unfamiliar with the nuances of patents as a way to curtail abuses in the patent system, a presumptive fee shifting provision is not only unnecessary, but also likely to cause of host of unintended consequences.

Here’s why Congress should drop the issue:

We Don’t Need Presumptive Fee Shifting Because Current Patent Reform is Already Working

Although fee shifting provisions continue to dominate Congressional attempts at patent reform, it is surprising this is so considering how “well” current patent reforms — both legislatively and judicially driven—are working. Between the America Invents Act, which introduced the post-grant proceeding known as Inter Partes Review (a patent killer), and slew of recent Supreme Court decisions in the last year — which have substantially eroded patent rights and values —patent infringement is now a very risky proposition from the standpoint of a plaintiff.

The reality, in light of these developments, is now this: even if you think your patent is being infringed, if you assert it in litigation there is a very good chance that you will lose and/or that your patent will be invalidated. And because patent holders, non-practicing entities (NPEs) and law firms aren’t in the business of losing money and/or having their patents invalidated, they are going to stop filing patent cases on all but the best patents. The enlightening statistics of Lex Machina already prove as much, as patent infringement filings are down 40%.

And let’s not forget that fee shifting reforms in particular aren’t needed because the Supreme Court, in its recent Octane Fitness decision, already made it easier for prevailing parties in a patent litigation to recover attorneys’ fees. In lowering the standard for recovering such fees, the Supreme Court emphasized the need to give district court judges increased discretion when considering such issues. The very same logic should carry the day here. Put simply, the federal judiciary is best positioned to determine, on a case-by-case, basis, whether attorneys’ fees are justifiable. This is particularly so where, as here, the proposed legislation, if mechanistically applied, has the potential to cause severe, unintended consequences. So let’s leave the issue with our federal judiciary.

Presumptive Fee Shifting Will Require Innovators To Unfairly Risk Financial Ruin As A Prerequisite to Enforcing Their Patent Rights

In a recent article on the ironies of patent reform, I noted a point that is worth repeating here: presumptive fee-shifting provisions will require many innovators to risk financial ruin as a prerequisite to enforcing their intellectual property rights. That is the definition of a broken patent system.

Indeed, we must remember that a large proportion of innovation in America comes not from Google, but from individual inventors, start-ups, and micro to mid-cap technology companies. These entities churn out innovation, and in turn, depend on strong patent rights to not only protect their technologies, but to foster discussions with the technology giants that can bring their innovation to the masses.

Now let’s consider a few scenarios common to those who counsel technology companies. The first is the all too common story of a start-up in discussions with a technology giant interested in the start-up’s technology. The story often goes like this: start-up enters into discussions with the giant, who appears very interested in the technology. Although things seemed promising at first, the giant decides to pass on the opportunity. Then, months or years later, giant introduces a technology remarkably similar to the start-up’s patented technology.

The second scenario is the familiar experience of any technology company whose patents appear to be infringed, to the tunes of many millions of dollars, by an industry giant. The resulting licensing discussions often go something like this:

Innovator: Dear Industry Giant, It appears you may be practicing our patented technology. We don’t want to sue or litigate, as that would be a waste of everyone’s resources, but would like to discuss a reasonable license agreement to the benefit of all.

Industry Giant (knowing all too well the leverage they now possess in light of recent reforms): Dear Innovator, Thanks so much for contacting us. Unfortunately, due to the number of demand letters we receive each week, it is company policy not to enter into licensing discussions unless we are sued.

In either scenario, the passage of a presumptive fee-shifting provision creates an impossible situation for the innovator. Either a) unwilling to accept the risk of losing and paying the other side’s fees, innovator lets the infringement continue and, with no chance of competing or receiving licensing revenues, continues on a downward trajectory toward irrelevance, or b) innovator, in a world where many companies will not negotiate unless sued, pursues what is generally its only option — patent litigation — and risks complete financial ruin as a prerequisite to doing so.

Obviously this is not much of a choice at all. And in a presumptive fee shifting world, we can expect companies to infringe others’ patents with greater impunity than ever. Why? Because these companies know that to all but the mega-financed, the risks of pursuing an infringer will be just too great. The result: continued disincentives for innovators to innovate, or at the very least, share their technology with partners capable of bringing it to the masses. Why would an “Innovation” Act encourage such a result?

Presumptive Fee Shifting Won’t Accomplish Congress’s Goal of Eliminating NPEs; It Will Only Further Legitimize The Need For NPEs

Although the ironies and unintended consequences of patent reform have been discussed at length in various prior articles, including one of my own, presumptive fee shifting is primed to be yet another notch in the belt of unintended consequences. For instance, instead of disrupting the NPE business model, fee shifting is set to drive NPE business and revenue even further.

Again, perhaps this is not intuitive to lawmakers, but it must be understood. The passage of a fee shifting provision will without doubt deter all but the best-financed innovators from protecting their intellectual property rights. Whether a big or small company, very little licensing is done on friendly terms. It is, and always has been, an adversarial process driven by litigation or the threat of litigation. With the passage of a fee shifting provision, however, this leverage is gone for all but the most well financed innovators. The risk of financial ruin in the event of a loss is just too great.

Instead, such innovators must turn to well-financed NPEs to assist them with licensing their patents. NPEs will be the best game in town and will no doubt raise the terms of their deals to reflect that. And not only will fee shifting provisions drive business towards NPEs, it will further legitimize the NPE business model. Because without question, fee shifting will create tremendous market need for NPEs, as NPEs will be the absolute only hope for innovators intent on protecting their IP. And again, the ironies are apparent. Although this author does not frown on the legitimate practices of NPEs, Congress seems to. Yet, Congress’s attempt to thwart NPEs via fee shifting legislation will go further than ever toward the legitimizing the market need for NPEs.

Presumptive Fee Shifting Will Encourage Nuisance Settlement Demands

In a final irony, although a pointed goal of patent reform is to end nuisance settlement demands, presumptive fee shifting legislation is geared to increase them. First, patent holders too fearful to file a patent suit will likely avoid district court altogether, instead resorting to the types of letter writing campaigns that have become infamous as of late. Second, many patent holders who do file infringement suits will have every incentive to avoid a final court determination, which could go against them, thus triggering the award of fees. Obviously, the easiest way to accomplish this is to offer to settle for an amount low enough to deter a defendant from fighting all the way toward a decision of the court. Again, the potential is for the reform to cause the harm it was meant to remedy in the first place.

So in the end, we can only hope that before voting on further patent reform, Congress asks whether it’s wise to pass a provision of an “Innovation Act” that is not only unneeded, but likely to create the alleged harms the reform is meant to redress in the first place. The answer is obvious. Let’s hope Congress sees it that way as well.

Michael Gulliford Michael Gulliford has more than two decades of experience in the intellectual property arena as an investor, advisor, dealmaker and former law firm partner. Currently, Michael is a Co-Founder & [...see more]

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com.

Join the Discussion

32 comments so far.

Rich
November 17, 2014 02:46 pm
Inventor – If your comment is directed to me, I am not pushing anyone’s message but my own, nor am I being paid or impliedly compensated to do so by anyone. Your posting stands as a good example of individual inventor bias. Thank you for succinctly illustrating my point for the others.
Inventor
November 17, 2014 02:38 pm
Anon – Since those pushing the legislation have so much money to spend, perhaps they are investing in individuals who can push their message. In this case, I think they are paying by the paragraph.
Rich
November 17, 2014 01:26 pm
Curious & Anon – I have represented (and continue to represent) plaintiffs and accused infringers in litigation and in obtaining patents, and have done so for many, many years. Hopefully, my efforts have always been for “good” (recognizing that, in the heat of litigation where both sides believe the other is dead wrong, “good” may be largely measured by which side you are on).

And Curious, as to contingency fee firms, their practices are a routine topic of conversation among my network of colleagues (some of whom have even worked for one or more in the past) and from those discussions, it is more often the case (but I will concede not exclusively) that the “deep dive” they do is to find a good “story” and/or arguments and positions that might be facially attractive to a judge or jury and help them get past summary judgment. Little emphasis is placed on the objective true merits of the case relative to the product they will accuse in terms of infringement — they look for vague claims or facially plausible claim reads (ignoring the specification, prosecution history and/or distinguished applied art). Most do “volume” work, not unlike personal injury lawyers in that regard.

In drafting and procuring patents for clients, I try to do my best to make sure that we cover the fullest scope of protection for the inventor’s invention allowed by the prior art without regard to whether the client is an independent inventor or an employee of a mega-corporation. Indeed, I spend far more time doing so with individual inventors than I would, or could ever hope to, bill them for during the process. Moreover, I do my best to take into account the very issues that I have observed in my litigation practice as being problematic or resulting in the kind of litigation over-reaching that has led to the state of affairs we now have. I am far from perfect in my work, but I do recognize that I have a dual allegiance to both the system and my clients.

To the best of my specific knowledge, I have done well for my individual inventor clients in that regard, one patent application I drafted and prosecuted for an inventor (who had his own company) was asserted against a well-heeled competitor and the patent was found infringed and not invalid at trial (in the face of every defense imaginable) and both findings were appealed and upheld by the CAFC. Another patent I obtained for an individual inventor was asserted against a big-company who was infringing and the company settled for a very significant sum because we convincingly demonstrated in pre-suit negotiations that the defenses they raised would likely not hold up to serious scrutiny. Likewise, I have no problem telling a client (plaintiff OR defendant, irrespective of size) to settle if there are no meaningful defenses to be asserted or if evidence that comes to light during litigation means that their case has turned to cr@p and that they should consider settling as a result. Nor have I hesitated to refuse to assert a patent (of even a well heeled client) in a circumstance where it stretches the claims and disclosure well beyond what was truly invented (even legitimately allowing for infringement by after-developed technology).

What you perceive as a favorable bias towards “infringers rights” (thank you Anon for the complement about being articulate), comes from my actual experience and the hundreds of patents that I have actually had to review, from both the plaintiff and defense perspective, and from discussions with several dozens of prospective individual inventor clients seeking to assert their patents in ways, or against “stuff”, that the patent just wouldn’t allow for, despite their protestations to the contrary.

I would assert that Curious, Anon and Nancy could likewise be perceived as “biased” to the extent their comments imply that all patent assertions by independent inventors are legitimate and that 100% of the time they think their patents are infringed, it is conclusively so. As with any legal matter, shouldn’t an accused be entitled to assert the most vigorous defense they can in the face of an accusation? Just because someone says that a product infringes a patent does not necessarily make it so for a whole host of reasons. Shouldn’t the infringement accusations be put to the test? Then, if they hold up, the patent owner SHOULD be justly compensated in whatever manner appropriate for the particular case. However, if they don’t, the patent owner should not resort to attacking the system because they didn’t get the result they wanted. If any reader is intellectually honest, irrespective of “bias”, I would hope that they would agree in that regard. The fact that some defendants can investigate and exhaust every defense and others can’t or won’t (as a business decision) does not change that.

In truth, I do not have ANY bias in favor of “infringers” or against individual inventors. I do have a strong belief and bias in favor of the patent system as a whole. I also realistically recognize that there are problems with it in its present state and that it is subject to abuse by plaintiffs and defendants alike (irrespective of size). Unfortunately, the patent system has never been a playground for those without significant funds, so individual inventors have been and will always be at a major disadvantage in that regard and there is no way to correct that in a free system like we have. Loser pays won’t do it, the European system won’t do it, I can’t conceive of a system that would to a high degree of accuracy and fairness. Thus, to use an oft-worn adage, “you gotta play the cards you’re dealt or fold.” It may not be right, or fair. Bear in mind, the system was designed for a single purpose — to foster innovation — it was not designed to be fair or to prevent any party form having a significant advantage over any other, procedurally or on the merits.

From the individual inventor perspective, I am far more concerned that current changes to the law (abandoning first to invent), the anti-patent PTAB, and recent case decisions by the Supreme Court that are (to anyone with any meaningful technical knowledge or training) utter nonsense, are all antithetical to that purpose and have done real damage to the system (particularly for independent inventors) under the (purported) guise of helping them. That is plainly wrong. But (in my view) it has been triggered as a backlash against (or to offset) a combination of bad actors asserting bad patent cases against those with the funds to influence the changes, and/or an unholy alliance of those with sufficient funds (who want to avoid endlessly being patent defendants) yet are concurrently filing for lots of patents — e.g. Microsoft, Google, Apple, Samsung, etc.) with entities (e.g., the open source movement) who do not like patents at all because they prevent the entit(y/ies) from doing what they want, unfettered.

I do appreciate the various opinions and the high quality of meaningful discussion on the topic Anon, Curious, Nancy & Paul – Thank you!
Anon
November 15, 2014 09:54 am
I do not “buy” any of what Rich posts. It sounds too much like a pre-prepared can speech, from the Infringers’ Rights camp.

There may be kernels of truth sprinkled throughout, but as they say, the most effective lies are those that sound true, that have kernels of truth.

Except for that, Rich is probably the most articulate Infringers’ Rights advocate I have come across, and that should be recognized.
Curious
November 14, 2014 11:29 pm
If the case is really close, (in my experience) judges do not grant summary judgment, they err on the side of having the case go to trial.
Even if the case is close, it can (and still should) be decided on summary judgment if the only issues being contended are issues of law that get decided on behalf of the defendant.

As to the firms I know whose primary focus is contingent patent litigation, I know that they generally don’t begin to undertake that pre-suit effort.
Then you haven’t talked to many — I have (and very recently). They comb over every detail of your case looking for any weaknesses. The ones I’ve talked to are extremely selective (there are few attorneys taking contingency cases and a lot of demand) and all have talked about “doing a deep dive” prior to filing suit. Contingency fee law firms will not survive (unless by dumb luck) by taking any case that walks through the door.

I would bet that if one took all the patents that issued in any given week, more than 50% of the patents issuing from certain art units could be invalidated as not novel (forget about obviousness) by a professional searcher with less than 2 hours of searching.
That’s a pretty strong statement — with no real proof to back you up.

Very often the patents are written like crap (either just garbage or obfuscating language), or have claims that are far, far too broad relative to what was invented (as described).
Sounds like a defendants lawyer to me — never met a claim that wasn’t indefinite and too broad.

If I can find knock out prior art in a half hour, in that limited manner, in my view the patent should never have been asserted and the litigation attorney is at fault and should be hammered for doing so.
Not everybody have the super patent searching skills you do. Do you use your super power for good or evil?
Nancy Tedeschi
November 14, 2014 05:33 pm
As an successful mindependent inventor and a skeptic of our legal system I say loser pays all fees. I also think there should be a panel to review a case before it moves into the court system. Sould be a panel of 5 expert judges to hear the merits of the case. Oral agrument before a case. Majority says if the case moves forward. Our system and our judges are so dysfunctional. I have been in 11 lawsuits and never lost one and should have been in none. Anyone can sue anyone and the more money you have to more people try to sue you. I love the way they practice patent law in Germany, no BS. Our system is very broken and needs a total overhaul.
Rich
November 14, 2014 04:25 pm
I will repeat, I am not a fan or advocate of loser pays per se. I also agree that close cases can be lost on summary judgment based upon a particular claim construction or newly discovered prior art, but that is a rarity. If the case is really close, (in my experience) judges do not grant summary judgment, they err on the side of having the case go to trial. I have often felt that judges hold litigants to a higher burden of proof on summary judgment then is required under the law.

My suggestion regarding holding litigation counsel jointly liable had preconditions of: 1) the case had to be a contingency fee case (which had to be disclosed in the complaint), 2) requiring as part of the complaint ITC-type detailed claim reads and claim constructions fro each asserted claim that the plaintiff will be bound by from the outset and cannot change, they can only defend it [their claim construction should be based upon information known to them at the time of suit and should not change because new information (i.e. prior art and/or details about the accused product(s)) becomes known to them], and 3) a loss on summary judgment.

I can tell you that, for many reputable firms and clients, pre-suit investigations always involve some measure of “wearing the other guy’s hat”, which may involve attacking each patent that would be asserted on the basis of the claim construction they would use, the art of record, a supplemental “knock out” search, review of documents surrounding the work that led to the patent, the point being to know your weaknesses BEFORE engaging the defendant. As to the firms I know whose primary focus is contingent patent litigation, I know that they generally don’t begin to undertake that pre-suit effort. Moreover, if pressed post-suit for claim charts, if the claim calls for “a widget, coupled to a bell crank supported by an inverted elbow” their claim charts merely parrot the claim language with preceding clauses of “The [accused product] has” and they delay providing any construction of any term until the last possible minute and then, some of those term constructions will transmogrify if prior art comes to light that jeopardizes the claim under that construction or they learn that the accused product does not have something or operates differently than they thought and their claim construction results in non-infringement.

You give the Patent Office too much credit. I would bet that if one took all the patents that issued in any given week, more than 50% of the patents issuing from certain art units could be invalidated as not novel (forget about obviousness) by a professional searcher with less than 2 hours of searching. I get a report every day of every patent suit filed the previous day. When I see certain firms are the lawyers, I routinely look at some of the patents that are asserted and their claims. Very often the patents are written like crap (either just garbage or obfuscating language), or have claims that are far, far too broad relative to what was invented (as described). In a large number of those cases, I immediately scratch my head as to how the heck that case got allowed and, as an exercise to hone my skills, I give myself a half hour of time to search only Google patents, the PTO and WIPO for invalidating prior art. In far too many cases, I find dead-on anticipatory prior art (or prior art that is so trivially similar) that was not considered by the Patent Office. If I can find knock out prior art in a half hour, in that limited manner, in my view the patent should never have been asserted and the litigation attorney is at fault and should be hammered for doing so.
Curious
November 14, 2014 03:22 pm
You may have misunderstood my comment or I may have misled you with the reference, the “counsel” I was referring to is not the counsel who helped the inventor obtain the patent, it is the lawyer who is representing the inventor in asserting the patent
No. I did not misunderstand your comment. I assumed counsel meant litigation counsel.

Regardless, my point is that the “evidence” that is supposedly presented by defendants to support invalidating the claims was (presumably) not found by the USPTO. There is a difference between asserting claims against a defendant in which under no reasonable claim construction the defendant’s product would infringe, and asserting claims that are invalidated by new prior art. In the first instance, the attorney should know, going into the litigation, that their claim construction was a stretch. In the second instance, the attorney wouldn’t have known, going into the litigation, of the potentially invalidating prior art — not surprising since the USPTO (who is the expert in finding prior art) didn’t find it either. Borrowing a concept from criminal law, there is an entirely different level of mens rea involved.

Moreover, a good many patent cases hinge upon how the claims are construed. From my experience, one can only guess how any court will construe claim language. Even if one loses on summary judgment but the decision on a particular claim construction, I don’t think that necessarily warrants attorney expenses. If the claim construction was manifestly unreasonable, then yes, but what if they lost on a 50-50 decision. What about if they lost on a 70-30 decision or a 90-10 decision (in their favor). Unless the case is an absolute slam dunk win for the plaintiff, why would an attorney even want to represent a small client. What attorney would even want to represent a client that had a 50-50 shot of winning?

I previously mentioned the second and third order consequences of loser pays, perhaps you may want to ponder them.
Rich
November 14, 2014 10:22 am
Curious –
You may have misunderstood my comment or I may have misled you with the reference, the “counsel” I was referring to is not the counsel who helped the inventor obtain the patent, it is the lawyer who is representing the inventor in asserting the patent. The Patent Office is far from infallible but, on balance and as a whole, tries to do a good job. That is the reason for the “presumption of validity” that attaches. However, what lay people don’t understand is that the presumption merely establishes who has the burden of proving otherwise, it is not a conclusion. The presumption means that, if you get a patent and assert it against me, you don’t have to do anything to prove validity or negate my evidence of invalidity if you don’t want to and you can still win if my evidence is insufficient to meet the “clear and convincing evidence” standard. But if I meet that burden (on summary judgment or at trial), you lose. Summary judgment means that there are no disputed issues of material fact that would prevent the court from deciding the case immediately, without the need for a trial. In other words, invalidity or non-infringement is so clear cut that it would be a waste of time and limited judicial resources to allow the case to go any further.
Paul Morinville
November 14, 2014 10:00 am
Rich, Read some of B. Zorina Khan’s work. She’s probably the most highly regarded economic historian of the patent system alive today. You’ll see that it was very similar back then, both in how it operated and how each side argued it.

As we’ve already discussed, Back then the anti-patent crowd even used a fictitious character (patent shark) to malign inventors. And like today, they used misinformation – read the quote and see that the first inventor was really not considered the inventor. Instead he claims that the the person commercializing the invention is considered the true inventor.
Rich
November 14, 2014 09:31 am
Paul,
Thanks for the quote. On its face, it seems similar, but I would have to see more details of the actual approach. Often, the characterization is a function of which side you are on. I have never been in a litigation where each sides did not think the other was the bad one and that they were the virtuous one.

I am glad that the firms you have worked with do not comport with my experience. I can tell you that a prior firm of mine did do a few contingency cases for individual inventors and, because it was not our bread and butter, we conducted ourselves like we would with any litigation client as far as analysis, assertion, litigation and negotiation went, so maybe your experience was with firms like that. I have had experience litigating against and/or negotiating with about a dozen predominantly contingency-based patent assertion firms (most are pretty prominent and have well known reputations within the patent attorney community) and have second-hand experience from prospective clients/clients who have used them or sought to use them, so I would agree that my sample size may be a bit small for accurate generalization (although, I have had numerous conversations with colleagues about their experiences in this regard and they largely match up with mine, so anecdotally the sample size is even larger). Without violating any client confidences or protective orders, I could give you some specific examples in a private conversation of how the bad ones I refer to operated to illustrate the point. In most cases, the inventor was an innocent bystander who was convinced they had been wronged and that the defendant was pure evil and had not done their “clearance” homework when, in fact, they had AND any objective analysis of the inventor’s patent by a disinterested competent patent attorney would have told them that they had virtually no chance of getting past summary judgment.

I agree, failure of a good case does not make the case bad. The PTO is not perfect and neither are the courts. I am talking about illegitimate assertions of bad patents in largely inapt applications with an eye towards getting a buck based upon fear of litigation cost or the risk that an ignorant judge and jury will be swayed by a sympathetic inventor without regard for the facts.

I have done work for dozens of large companies including Fortune 100 companies. I have never known them to completely fail to clear new products but, nevertheless, the cost of a comprehensive clearance is so high (and one can ALWAYS find a patent that may cover some aspect of the new product) that the only companies that even consider doing so are Pharma companies who sell drugs that, individually, may bring in $100Million/year, so the cost is justifiable.
Inventor0875
November 13, 2014 11:11 pm
The legislation fails to address the underlying causes of assertion against end users which is:

The failure to respect & clear patents earlier in the product cycle (before infringement occurs); by cross-licensing, licensing, purchasing, or invalidating.

When mega-corps refuse to diligently clear patents for the very uses they are marketing & advertising,
users end up purchasing a patent infringement action.

With earlier clearing of patents, there would be no infringed patents available for assertion against end-users.

The FTC, Attorneys-General(s) and end-users should take legal action against the mega-corps for negligently subjecting end-users to patent infringement actions.
Class action lawsuits should be filed against mega-corps for selling the end-user, a legally defective product (an infringement lawsuit).

To protect end-users:
Patents by small entities must no longer be ignored.
Mega-corps should actually cross-license & stop assuming a static mutually defensive non-assertion of their patents.

With earlier clearing of patents:
Creators will be rewarded sooner for their inventions and receive a larger percentage of their created value (instead of being wasted on patent litigation following infringement).
Small/disadvantaged patent-holders will no longer need to sell their patents for specialized patent-assertion, after infringement has occurred.
and End-users are protected.
Paul Morinville
November 13, 2014 10:14 pm
Rich, I don’t know which contingency firms you have analyzed, but those who I have worked with are, to say the least, quite a bit different than your description.

They don’t get paid unless they win and they actually paid. This means the could be contributing a lot of hours just to earn nothing. They risk being stuck with the case as a court does not have to allow a release. You can’t take a bad deal very many times and still be in business.

Because of this, all the firms I met with were very critical of my infringement analysis, claims, prosecution history, ownership and all other matters many of which I had no idea even existed. I’ve gotten to know dozens of firms over the last 15 years and I have not found one as you describe.

This much I’ll give you in comparison to VCs… they do look at a lot of deals like VCs do. And like VCs, they tend to know certain areas of technology better than others and tend to take more deals in the areas they know. They do take cases and expect that at least some will fail. Failure of a patent case is does not mean that they took a bad case. Just look at the PTAB kill rate to know that even good patents die an unjust death. I think the comparison stops there.
Paul Morinville
November 13, 2014 09:54 pm
Rich, Here’s a quote that describes “patent sharks.”

“[A]mong a host of dormant patents, some will be found which contain some new principle… which the inventor, however, had failed to render of any use in his own invention. And some other inventor, ignorant that such a principle had been discovered… had the genius to render it of great practical value … when, lo! the patent-sharks among the legal profession, always on the watch for such cases, go to the first patentee and, for a song, procure an assignment of his useless patent, and at once proceed to levy black-mail upon the inventor of the valuable patent.”- Senator Issac Christiancy, (R – Michigan) 1878.

It’s not much different.
Curious
November 13, 2014 05:01 pm
if a patent is invalidated or found not infringed on summary judgment, the plaintiff AND their counsel will be jointly and severally liable (on a comparative fault basis) for the attorney’s fees
Where is the fairness in this proposal? The patent was already vetted by the USPTO — shouldn’t the patent owner and/or counsel by able to rely upon this? If someone is to blame for the assertion of an invalid patent, then lay that at the doors of the USPTO.

I don’t see the fairness for penalizing the plaintiff and their counsel for not knowing something (e.g., the existence of invalidating prior art) that the USPTO itself did not find.
Rich
November 13, 2014 04:57 pm
Paul –
I am not sure that the “patent sharks” of yore are quite the same as the current crop of NPEs, and patents, the law, and the courts were also very different at the time. Most patents had a single claim similar in form to – “I claim the invention as shown and described herein” so there was much more variability in that regard and there were far fewer patents. In addition, every circuit had its reputation as far as patents go. In some, no patent was ever upheld as valid, and in others, no patent was ever not infringed. Forum shopping had more to do with who prevailed then the law. Finally, the Supreme Court rarely waded into the realm of patent law, and when it did, it exercised the utmost of restraint, and when it got things wrong, he patent bar and affected businesses coalesced and got congress to change the statute to overrule the Supreme Court.

I have not checked every reported case since eBay to find one where an injunction may have been granted, but am prepared to accept that this is the case for purposes of discussion. The fact that eBay made it more difficult for an inventor to obtain an injunction (which I agree is the case) does not mean that nobody can get one in the future. I personally agree that injunctions should be easier to obtain then at present (i.e. post-eBay) if infringement is proven, but also believe that they should not be automatic. There may be very good reasons for not granting one despite the circumstances. For example, I know of a medical device case where infringement was proven and the facts objectively would have clearly supported an injunction EXCEPT that the infringing devices were the only ones on the market that were FDA approved and could handle a particular life-threatening condition. If they were enjoined, it was a medical certainty that more than 1000 people would die that year alone from that condition. Granted, that is an extreme case, but it is a real one with real impact. There has to be a balance.

I agree with you that the choice of remedies should primarily be the patent owner’s decision (subject to the law), but you would agree that, in most cases, the patent owner suing an infringer primarily wants money. It would be a rare case indeed, where an individual inventor patent owner would go to the trouble and expense of a patent infringement litigation and ONLY seek an injunction.

I do not believe that loser pays should EVER become the per se rule in the US for any litigation matter. Again, (as an attorney who has seen abuses chargeable to the patent owner’s lawyer(s), not the inventor/owner who does not have a clue as to the law) what I would like to see is lawyers who handle patent cases on full or partial contingency have “skin in the game” beyond merely the risk of not winning. If you know how they work, they use the venture capital-like model (invest in many because if even one hits, it will likely cover all the rest and then some) so they take on lots of marginal/dubious cases, raise the inventor/owner’s expectations higher than is realistic and misleading them as to the law and/or the scope of their patent, hire very junior associates to do very little real work preparing the case – merely doing the minimum necessary to try and get the case to trial – where they then step in and hope to bamboozle the jury and get an award or a settlement from the defendant to avoid the risk of losing. If they lose, it only cost the attorneys’ time (the plaintiffs almost always are on the hook for expenses) and they move on to the next case, leaving the unhappy inventor-owner in their wake as a casualty of war so to speak. That is more wrong in MY eyes than the big company vigorously defending itself, even against the individual inventor.

I have met far too many individual inventors who brought me their patent convinced that at least company X was infringing, only to have me walk them through either why it was not the case or why the application as written or its prosecution history would make any such case a very, very uphill battle. In virtually all such instances, the inventor’s belief as to their patent’s scope, and what the patent’s actual scope was, bore little resemblance. In some cases, it was due to poor drafting, in some cases it was due to what happened (amendments and/or arguments made) during prosecution, in other cases it was due to changes in the law in between issuance and infringement, and in some cases it was because what they were asserting was disclosed but never claimed, and in others it was merely a wishful extension of their invention with the benefit of hindsight that they never foresaw at the time of application filing. It was very disheartening to deliver that kind of news. In at least one instance, the person went to one of the above contingent lawyers thereafter who took on the case and, after two years of litigation and payment of disbursements for the lawyers, the inventor lost on summary judgment for some of the very reasons I pointed out. I was neither prescient nor clever, I merely objectively looked at the facts and the law and drew a conclusion. I would have been stunned if any of my partners at the time or any of the marginally experienced associates at my firm would have come to a different overall conclusion, even if we might have disagreed over the placement of particular problematic facts and law in a hierarchy.
Nancy Tedeschi
November 13, 2014 04:46 pm
Well I think the non patent lawyers should either pass the patent exam or not practice patent law. The problem is you need a science degree and the non patent lawyers don’t have the background. I don’t know call me crazy but plumbers have to be licensed in their fields, electricians to, not sure why non patent attorneys are allowed to litigate patent cases when they don’t know the law. Makes no sense.
Rich
November 13, 2014 04:31 pm
Bless you Nancy!

Prosecution can only be done by those registered to practice before the PTO.

On the litigation front that would make a HUGE difference (although I would add that the judges would have to have at least 5-7 years experience actually prosecuting applications). In addition, I would add that the judges would have to be Article III judges (i.e. they would have to be nominated, confirmed by the Senate just like any other district court judge. Many general firms now have attorneys who can sit for the patent bar do so just to get a registration number, but they never will pick up an application in progress in their lives.

Unfortunately, the concept of a specific patent trial court (including suggestions of using a panel of 3 judges instead of a jury) has been raised before and, to my understanding, been universally opposed by non-patent lawyers because it would be a grant of a de facto “monopoly” in that work to the patent bar and cut them out of the picture.
Nancy Tedeschi
November 13, 2014 04:14 pm
@paul we could make sure that litigation and patent prosecution only be allowed to be done by patent attorneys that are admitted to practice in front of the USPTO. All judges in patent litigation should also have a license to practice in front of the USPTO. Their are patent litigators out there that have no business litigating patent cases.
Paul Morinville
November 13, 2014 02:14 pm
Rich, The issue of enforcement of patents by inventors (what I call inventors includes investors who end up owning patents because without their capital, inventors cannot start companies based in their inventions) is a very old issue. There may have been a lull in the years previous to 1990 (I don’t know), but it has been going on since Eli Whitney. In the early 1800’s it was much more prevalent than it is today. In the late 1800’s the issue of what they pejoratively called “patent sharks” was almost identical to today’s “patent troll” myth.

I’m not sure it is a measure of legal or inventor integrity – I doubt given what I know of human nature that this played into anything. Both eras had in common a technological revolution and a corresponding increase in the number of patents. I think that is more likely the cause of your perceived increase.

You’re a lawyer. Please explain to me how it is that a patent standing on its own cannot generate an injunction against an infringer. If as you say “Injunctions are available as a patent infringement remedy” is true, please give me an example of any inventor earning an injunction against any infringer since eBay. The truth is that eBay made it practically impossible for an inventor to get an injunction.

While you think that the inventor is better served without an injunction because you say the inventor would also lose licensing revenue, that judgement is left to the inventor alone. There are other reasons for injunctive relief.

If loser pay becomes the law of the land, then is is fair to ensure that both parties in litigation have the same risk going in. For the inventor, that risk becomes the loss of the patent and financial ruin. For the infringer, that risk is equivalent to a rounding error not even accounted for in a 10K. That risk needs to become more reasonable… it needs to be the loss of the line of business built on the patent – an injunction.
Rich
November 13, 2014 01:42 pm
@Paul – Copyright infringement is predominantly civil, very few copyright infringements (willful or not) satisfy the criminal portion of the statute. Injunctions are available as a patent infringement remedy. However, making them mandatory would likely have the opposite effect you wish because companies would do everything to avoid an injunction (and deprive the patentee of royalties for the subsequent sales that could not be made as a result – particularly where the patentee has no capacity to make or sell their invention themselves or to get a licensee willing to do so).

I have represented, and represent, lots of individual inventors AND large companies (including Fortune 100 companies) and can see (and empathize with) both sides. This is a complex problem where well-intended “fixes” often conform to the law of unintended consequences and/or have the opposite to the intended effect. Most practitioners will agree that the use of good patents (i.e. not invalid) that are infringed should be paid for (and advise their clients to that effect if it is the case) and assertions of bad patents (or inappropriate assertions of good patents) should be fought against vigorously and squashed.

The problem is that, with patents, we are forced to define an invention using words (an inherently imprecise art) and those who practice this imprecise art as a profession include persons with a broad range of skill and experience. Throw into the mix, independent inventors who are often less skilled in that regard than most practitioners, yet try to draft and prosecute their own applications, and judges who are ignorant of the most basic concepts of physics, mechanics, electronics, biology and/or chemistry and issue opinions reflecting that ignorance and you wind up with the morass we have to deal with.

If you look back at the time prior to about 1990, you did not have these problems as a general matter and the law was relatively stable. Why? Because patent cases were handled pretty exclusively by patent attorneys who were a small bar that knew each other reasonably well, they understood the application and prosecution process and also litigated, and because they had a reputation to uphold among their peers within the bar did not hesitate to advise their clients when they had a bad case (whether as a patent owner or accused infringer), so cases routinely settled unless the issues were reasonably balanced with respect to the issues for both sides or not fighting meant the difference between life and death for the company.

In and around 1990, a few big judgments caused the general legal bar (as opposed to the patent bar) to see patent lawsuits as the new “cash cow” and jumped with both feet into urging clients to bring suits and fight. As a result, in many cases, you had technology-ignorant lawyers arguing to technology-ignorant (and overly busy) judges about technical subjects in an overly simplified manner or by non-technical analogy that was, at best, inappropriate and, at worst, downright wrong, in an effort to hit the patent “lottery” jackpot. Not wanting to be left out, patent lawyers quickly started jumping on the litigation bandwagon so as not to miss out. This “land rush” led to bad cases and worse/ambiguous law that only fueled the growth in the number, complexity and marginal cases being brought. At the same time, a Patent Commissioner was put into place who came from the Copyright Office with a mindset (implemented as policy) that patent applicants were “customers” who had to get value for what they were spending and so the purpose of the Patent Office was to “issue patents” (as opposed to examine applications and award patents to only those inventions that truly merited it under the relevant law). Moreover, at the same time the Patent Office has relaxed its standards as to who can sit for the patent bar exam and what it takes to pass. [As an aside: From 1952, when the current Patent Act was first enacted through about the mid-1990’s, about 1000 new patent attorneys/agent were admitted to practice by the PTO each year (there were about 40,000 registration numbers assigned during that time period, including those practitioners who practiced prior to the 1952 Act and were automatically assigned numbers). In the mid 1990’s changes were made such that in the 20 years since then, another 33,000 or so have been added to the PTO rolls!]

With the confluence of those events, the number of patent applications skyrocketed and boatloads of patents that would NEVER have made it through the Office ever before were being issued at a record pace. If you look at patents written pre-1990 versus those written since, you will see many, many more that are poorly written, vague, ambiguous, if not a morass of gibberish and techno-gobbledygook designed to obscure what the invention really is and its scope so that infringement suits could be brought more easily and perhaps won in marginal or dubious cases. As a result, companies got sued way, way more often than ever before and had no choice but to fight every case (meritorious or not) tooth and nail, lest they be seen as an easy “mark” and get sued even more on more dubious cases.

We all have been reaping the “rewards” of that history ever since.
Paul Morinville
November 13, 2014 12:14 pm
Loser pay tilts the field against the inventor especially when the defendant is a major corp with lots of money. Paying the inventor’s costs is equivalent to a rounding error in the greater scheme of a large defendants financials. Conversely, an inventor will be bankrupted and can lose their patents altogether as a result. It’s not surprising that large corps are the folks pushing for loser-pay.

Contrary to Rich at 7. In my experience, the infringer is much more likely to engage in frivolous litigation and other frivolous delay tactics. One launched false charges to get the case moved to CA. They were successful and that drove costs through the roof for our side.

Lastly, If an inventor can be financially destroyed by losing a patent lawsuit, should not the same scale of justice fall on the infringer if they lose? To Nancy’s point, it should be criminal – copyright infringement is… why not patent infringement? At minimum, the inventor should be allowed to exclude the infringer from the use of the technology – an injunction. After all, that exclusive right is all a patent is according the the US Constitution. Article I Section 8 Clause 8 does not say that an inventor is entitled to a license – it says the inventor is entitled to an injunction. (in effect)
Nancy Tedeschi
November 13, 2014 11:17 am
Not sure why it is to much to send someone to jail if they were fully aware of your patent and have infringed it anyway. It is an asset that someone knowingly took. They actually throw them in jail in Germany and there is not much willful infringement going on there. Why should someone have to go through the stress of suing someone who knowingly infringed their patent only to get back what was rightfully theirs. The stress of a lawsuit is worth more than double the damages. This has actually happened to me and I would rather see them pay for their crime in prison. It would set an example and stop some of the BS these companies are doing.
Rich
November 13, 2014 11:09 am
@Nancy – The issues of validity and infringement are almost entirely separate. I agree that if a patent is challenged in the PTO and the patentee prevails, the defendant should be stuck with merely litigating infringement, but making them concede infringement is simply not right — because they may not actually infringe (as a matter of law), even if you believe it. For example, there is a patent doctrine known as estoppel by argument in which things you (or your representative) say during prosecution your are forbidden to contradict. If, during prosecution, you have a claim that recites a “metal widget” and argued that prior art reference X discloses wood widgets, which flex, and that your disclosure discusses titanium widgets with no discernible flex so the prior art reference X does not meet your claim or render it obvious, that argument would be binding on you. Thus, if the accused infringer is making a spring steel widget, even if you believe that they infringe by making a metal widget, if their widget has flex, they may have a good basis for non-infringement because the “metal widget” of your claim should be interpreted as restricted to non-flexing metal widgets.

Your suggestion of jail for willful infringement is a bit much, but I could agree that if the statute was changed to MANDATE an award of at least double, but no more than treble, damages for a true finding of willful infringement (instead of leaving it discretionary) few practitioners would object.
Nancy Tedeschi
November 13, 2014 10:27 am
I have another idea, if it is found to be willful infridgment then but them in jail. If you steal money in this country you go to jail, the same should be done for willful infridgment. Fraud is fraud and should be punished as such.
Rich
November 13, 2014 10:04 am
As a patent practitioner who has litigated against NPEs and independent inventor-contingent fee attorney “partnerships”, both in instances where the issue of infringement was truly a debatable close call and instances where the infringement assertion was objectively as close to the line of frivolous as one could get (if not over it), rather than loser pays I think that there is an easy answer. In my personal experience, the biggest abuses have involved independent inventors, in cahoots with (or unknowingly misled by) a contingent fee attorney looking for a quick payout on a case that (to a trained practitioner) substantially lacks merit with the hope that the defendant will “cave” because the cost of settling will be much less than the cost of litigation. Those of us practicing in the litigation arena can easily name the 4-10 lawyers/firms to which I am impliedly referring. In such instances, if the case is being handled on full or partial contingency: (1) a plaintiff must say so in the complaint, and (2) in such contingency cases, if a patent is invalidated or found not infringed on summary judgment, the plaintiff AND their counsel will be jointly and severally liable (on a comparative fault basis) for the attorney’s fees of the defendant(s) [if multiple patents are asserted and not all are eliminated on summary judgment, then some apportionment would be made]. In other words, if the attorney is willing to take the proceeds of a win, (since they are, presumably, better able to assess the merits of the case than the plaintiff from a legal standpoint) they should be willing to also assume the risk of an overzealous assertion. That places the lawyers on the hook and will make them think twice about the merits of the cases they bring and will cause them to avoid overreaching.

An equally plausible alternative abuse-avoiding mechanism would be to require every patent plaintiff to prepare a complaint much in the way now required to bring an ITC case (i.e. providing detailed claim reads and application with respect to each accused product), requiring that plaintiff also construe every term in each asserted claim that they would argue does not get its ordinary meaning, and mandating that a plaintiff is estopped thereafter from arguing ANY different interpretation of any claim term as asserted in the complaint (in other words, a plaintiff’s Markman brief would be limited to explaining WHY their interpretation as provided with the complaint is correct and/or why defendant’s proposed interpretation is wrong). In short, make your claim in a detailed fashion and, having done so, be stuck with it. That would prevent grossly overbroad readings by plaintiffs in asserting infringement and then shifting narrower interpretations as the case progresses and defendant’s prior art and non-infringement defenses come to light (a major cause of increased litigation cost).
Nancy Tedeschi
November 13, 2014 08:07 am
As an independent inventor who has patents all over the world I couldn’t disagree with you more. I currently am in litigation suing a company for patent infringement and can only hope I get my attorneys fee back. These big companies that try and take on the independent inventor is just wrong and should have to pay. The company I am suing challenged my patent in the patent office and I retained all 62 of my claims. Now I have to sue them in federal court. Maybe they should pass a law that if a company try’s to invalidate your patent and losses they should also be quilty of infridgment at the same time.

This system is broken and the independent inventor hardly stands a chance against these big companies.

Maybe the government should institute a program to help fund the litigation of independent inventors who have legitimate patents and can’t afford to defend them. This system is broken and needs to be fixed.
ben
November 12, 2014 05:29 pm
‘Current Patent Reform is Already Working’

Sure it is. It’s legalized invention theft which is what the backers were aiming at.

“patent reform”…America Invents Act, vers 1.0, 2.0, 3.0…

“This is not a patent reform bill” Senator Maria Cantwell (D-WA) complained,
despite other democrats praising the overhaul. “This is a big
corporation patent giveaway that tramples on the right of small
inventors.”

Senator Cantwell is right. All these bills do is legalize theft. Just because they call it “reform” doesn’t mean it is. The paid puppets of banks, huge multinationals, and China continue to brain wash and bankrupt America. If you tell a lie often enough and can dupe others to repeat that lie, eventually it is accepted as fact. As Mark Twain said, ‘truth is not hard to kill, and (that) a lie well told is immortal’. Those who use the amorphous phrase ‘patent troll’ expose themselves as thieves, duped, or doped and perpetuate the lie.

They should have called these bills the America STOPS Inventing Act or ASIA, because that’s where they’re sending all our jobs. These changes are killing our small and startup firms and the jobs they would have created. The present bill (vers 1, 2, 3, etc) is nothing less than another giveaway for huge multinationals and China and an off shoring job killing nightmare for America. Even the leading patent expert in China has stated these bills will help them steal our inventions.

Patent reform is a fraud on America. These bills will not do what they claim they will. What they will do is help large multinational corporations maintain their monopolies by robbing and destroying their small entity and startup competitors (so it will do exactly what they paid for) and with them the jobs they would have created. For the last several years now they have been ransacking and looting small entities taking everything they can carry. They have already damaged the US patent system so that property rights are teetering on lawlessness. These bills will only make it harder and more expensive for small firms to get and enforce their patents. Without patents we cant get funded. In this way large firms are able to play king of the hill and keep their small competitors from reaching the top as they have. Yet small entities create the lion’s share of new jobs. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” Meanwhile, the large multinationals ship more and more jobs overseas. These bills are a wholesale destroyer of American jobs.

piausa.wordpress.com
Curious
November 12, 2014 04:54 pm
focusing the fight on dropping loser pays does nothing to improve the situation for small innovators
I agree with this statement. Being against loser pays — while the intellectually-correct position (IMHO) — is not a position that seems supportable on its face. This is because people seemingly agree that the first order consequence of “loser pays” (i.e., the loser pays) seems reasonable. However, successfully explaining the second and third order consequences (e.g., this proposal will likely increase litigation costs, as a whole, and discourage settlement) of “loser pays” requires both a sophisticated presentation of the arguments and a sophisticated audience capable of understanding these arguments.

On the other hand, I believe there is a cleaner argument is to be made that the “patent reforms” (both already implemented and currently contemplated) are not really targeted to trolling behavior. Instead, the end result of these reforms is to make patent assertion more expensive across the board, which targets all “small” inventors – including those with legitimate patents and legitimate claims of infringement. As it a result, these reforms make it much harder for the “small” inventor to assert their patents — particularly against larger (and much better financed) entities.

Patent reform (as both implemented and contemplated) is more about tilting the playing field more in the favor of the big guys than about preventing trolls.
jodi
November 12, 2014 03:23 pm
Randy – focusing the fight on dropping loser pays does nothing to improve the situation for small innovators. Large corporate interests would be happy to fight this fight – at worst case it’s status quo (and status quo is great for large corp infringers). If the best we can hope for is status quo, then why bother?

Focusing patent reform on fixing the problem at the source – the fact that small innovators can’t enforce their own patent property rights – is a fight worth fighting for.
Randy Landreneau
November 12, 2014 02:21 pm
Jodi – Yes, in a perfect world. But big corporations have infinitely more time, money and influence to push their agenda, which is to weaken the US Patent System. There have been corporate efforts to weaken the US Patent System as far back as the 1850’s. What was said by the media about the Wright Brothers sounds very similar to what is being said about NPEs.

Randy Landreneau
Independent Inventor
jodi
November 12, 2014 11:58 am
Focus on the problem at its source – the fact that inventors cannot enforce their own patents. They are forced to either engage 3rd parties – or much more likely sell their patents for meager amounts to 3rd parties.

Strengthen the system so potential infringers are aware of the consequences of infringement – and encouraged to license instead of ignore.