The Potential Unintended Consequences of Fee Shifting after the Supreme Court Decisions in Octane Fitness and Highmark

POSTED BY Andrew Beckerman-Rodau | Professor of Law & Co-Director of the Suffolk University Law School IP Concentration, e-mail: arodau@suffolk.edu), website: www.lawprofessor.org


Yesterday (April 29, 2014) the U.S. Supreme Court handed down two unanimous decisions in the Octane Fitness case and the Highmark case. Both cases addressed the standard for awarding attorney fees in patent infringement cases to the prevailing party in accordance with the patent law statute which provides that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.”

Prior to these cases the U.S. Court of Appeals for the Federal Circuit made it very difficult for U.S. District Courts to award attorney fees in patent cases. The Supreme Court decisions make it significantly easier for district court judges to award attorney fees. The decisions put patent law more in synch with other areas of law by placing the discretion to award attorney fees with the district court judge; And, in limiting the standard for the Court of Appeals for the Federal Circuit to review and reverse a district court judge’s discretionary decision to deny or allow attorney fees. The Federal Circuit will now be required to allow the district court’s decision to stand unless it is shown on appeal that the district court judge abused his or her discretion in deciding to award or deny attorney fees. This is a high standard that will typically prevent the Federal Circuit from reversing the district court’s decision in most cases.

These Supreme Court cases have been heralded by some who think it will improve the patent system by preventing or reducing patent infringement suits by non-practicing entities that neither make nor sell any products. Such entities – often derogatorily referred to as “patent trolls” – will be less likely, according to some people, to bring patent infringement suits if they face the potential of paying attorney fees for the other party.

I think these cases will be unlikely to significantly impact patent trolls because the business model for many trolls is only based on threatening to bring lawsuits as a tactic for forcing settlements rather than actually bringing law suits.

More significantly, these decisions are likely to have some unintended consequences. For example, a patent on a key technology developed by a tech startup may be the only thing preventing a large established company from “stealing” the technology. Having a patent levels the playing field. It has also spawned patent attorneys who are willing to handle patent infringement suits for small startups on a contingency basis. The monetary risk in bringing an infringement is substantial with attorney fees often being in the millions of dollars. Making it easier for judges to award attorney fees to the prevailing party increases the risk calculus and may actually deter many tech startups from bringing an infringement action. It is also likely to make it more difficult to find a patent attorney willing to handle a case on contingency in light of the increased monetary risk. Ultimately, this may benefit large established companies who have sufficient resources so that the potential risk of paying attorney fees if they lose will not be a deterrent to bringing actions. This might also make it more difficult for smaller tech startups to raise money and that could reduce technological advances which is the opposite of the goal of patent law.

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