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Why attorney fees may not be the key to reducing patent trolling

Last week, the US Supreme Court accepted two patent infringement cases challenging the standard used to assess when attorney fees can be claimed. But could the decisions have an unintended effect on the activities of patent trolls?

Unlike in the UK and the rest of Europe, in the US each party usually has to pay its own attorney fees. But under Section 285, a court may decide in “exceptional” cases that one party should pay “reasonable” attorneys fees to the winner. Under Section 285, a case qualifies as exceptional if it is objectively baseless and brought in bad faith.

The two cases the Supreme Court accepted, Highmark v Allcare Health Management and Octane Fitness v Icon Health and Fitness, concern the standard for what constitutes an “exceptional” case in this context.

In Highmark v Allcare, insurance company Highmark asks whether the Federal Circuit must give deference to a lower court’s opinion that a patent claim is objectively baseless. After being unsuccessfully sued for infringement by patent licensing business Allcare, Highmark was awarded $5 million in fees by a district court but this was reversed by the Federal Circuit. One of two dissents said the decision by the appellate court “deviates from precedent” and establishes a review standard that is “squarely at odds with the highly deferential review adopted by every regional circuit and the Supreme Court in other areas of law.”

“The issue presented also has tremendous practical importance,” said Highmark in its petition for certiorari. “Litigation by patent assertion entities sometimes called ‘patent trolls,’ now accounts for a majority of all patent cases. The threat of an exceptional-case finding is a crucial deterrent to meritless suits designed to extort licensing fees.”

It is true that the high cost of defending a lawsuit in the US is what allows the patent troll business model to thrive, since it usually makes more financial sense for defendants to settle. But one problem with trying to reduce trolling by making it easier to collect attorney fees is that some trolls are shell companies with few assets to collect when fees are awarded.

Making it easier to collect attorney fees in patent infringement cases may actually have the unintended effect of increasing privateering, as legitimate companies concerned about the prospect of being ordered to pay the other side’s fees have more incentive to sue through a shell company.

The SHIELD Act, which also proposed to disincentivise patent trolling by awarding fees, attempted to avoid this problem by requiring a plaintiff determined by a judge to be an NPE to post a bond at the start of the litigation. In doing so, however, it sailed into the treacherous waters of attempting to define what constitutes a patent troll. Adam Mossoff of the George Mason University School of Law recently pointed out that under the SHIELD Act criteria, Intellectual Ventures would in many instances not be regarded as a troll, because it is the original inventor of many of its patented products. Besides, it is probably safe to bet that trolls, given sufficient incentive, would simply morph into a different shape to avoid fitting whatever definition anyone ascribed to them.

The truth, as unappealing as it may be to some of those who make a living from patents, is that reducing the large number of low-quality patents granted each year would put a significant dent in the future arsenal of patent trolls (an arsenal that is strengthened by the presumption of validity awarded to granted patents, which makes invalidating them more challenging).

A suggestion by Brian Love, an assistant professor at Santa Clara University, on structuring patent maintenance fees to discourage trolls by making old patents more expensive to maintain also sounds like a potentially effective way to disincentivise trolling.

But while there may be ways to reduce patent trolling, it is doubtful that we will ever eliminate it. As long as there are patents, there will probably be patent

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