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August 28, 2014

Fee-Shifting Decision in ‘Troll’ Case Shows Where Courts Have a Role, Profs Say

Lawmakers have wrangled over the issue of litigation fee-shifting as they try to reign in “patent trolls,” but legal experts say a district court judge’s decision last week to order the loser of a patent infringement case to pay the other party’s attorney’s fees might show that courts could penalize abusive patent litigation themselves.

The decision by U.S. District Judge Denise Cote of the Southern District of New York to award attorneys fees to startup FindTheBest shows that district courts “have the tools and will on occasion use them” them to order fee-shifting, University of Pennsylvania law professor R. Polk Wagner said in an interview with Technocrat. (Fee shifting essentially is when a plaintiff in a litigation case has to pay a defendant’s attorney’s fees, or vice-versa — whoever loses)

Wagner said that it was “not clear how much effect” the case would have for patent assertion entities — also known as “trolls” — but said that it would reduce certain bad behavior in patent infringement cases because plaintiffs will have to at least look into their claims prior to suing, to avoid risking payment of the other side’s fees.

Wagner said the judge’s ruling appears to clear up at least one of the issues that lawmakers have been targeting: nuisance lawsuits. Bad behavior will decrease if district courts become more active in shifting fees, he said. It’s better to put it in the hands of district court judges who deal with the matter on a daily basis than to legislate presumptive fee-shifting, he contended.

The decision comes on the heels of two Supreme Court decisions in April on the matter of fee-shifting in patent lawsuits. The high court found that the federal circuit’s standard for fee-shifting was “too high” and told district courts they could use their own discretion to decide whether or not to shift fees,  Wagner said. The Supreme Court signaled that courts should be less hesitant in finding exceptional cases and ordering fee-shifting, he said. And Wagner thinks it’ll happen.

Villanova law professor Michael Risch called last week’s decision is a “mixed bag.” On the one hand, it highlights abusive practices that people who favor legislation can point to as an example, but on the other hand, it gives the appearance that district courts can handle the issue themselves, he said. He told Technocrat that courts are going to move to define a “new vision” for exceptional cases.

He said that in the aftermath of the Supreme Court decision, we’ll see “some more” fee-shifting, but said he wasn’t sure about the amount of increase. The FindTheBest case wasn’t particularly groundbreaking, he said, but it did show that courts could order fee-shifting.

“But whether they will, I don’t know,” he said, adding that most claims aren’t as frivolous as people wanting an overhaul portray.

In this particular case, Risch said the court determined that FindTheBest’s case was an exceptional one and that the company could recover attorneys fees, but he thinks the court would have awarded fees under the old standard as well, calling the case an “easy” one.

The Electronic Frontier Foundation says in a blog post that legislation is still needed :

Judge Cote’s ruling (indeed, her handling of the entire case) shows that trial courts have tools to crack down on patent troll abuse. Unfortunately, not all judges possess the time or inclination to use these tools. A more flexible standard for fee shifting will only increase the incentive for plaintiffs to file cases in courts that are perceived to patent friendly, like the Eastern District of Texas and the District of Delaware. We still need meaningful reform from Congress and the USPTO to stem the tide of patent troll abuse.

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