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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What’s Left for Nokia? Patents, Patents, Patents!

POSTED BY Bridget Sarpu

Earlier this month Microsoft and Nokia struck a deal unlike any other.  Microsoft will obtain Nokia’s devices and services unit and license the company’s mapping services in a deal worth $7.2 billion.  Specifically, the two-part transaction included Microsoft spending $5 billion on Nokia’s mobile phones unit, in hopes to compete with companies like Google and Apple in the smartphone market, and then it spent another $2.18 billion to license Nokia’s patent portfolio.  What is included in that patent portfolio?  The deal gives Microsoft use of more than 8,500 Nokia design patents, as well as a 10-year license to around 30,000 feature patents and patent applications, intellectual property that is estimated to be worth about $6 billion.  So what is left for Nokia?

For years, patents have been a vital part of the technology business.  A patent is an intellectual property right granted to an inventor “to exclude others from making, using, offering for sale, or selling the invention.”  Patents allow companies to protect ideas, however, companies are also able to buy and sell patents to other companies, as well as profit by licensing them out to others for use.  Patents have recently become hot topics since big tech companies like Apple and Samsung continually sue one another for billions of dollars over the technologies found in smartphones, computers, tablets, and other gadgets.  With the rights of licensing patents, persons or companies can enforce patent rights against accused infringers who do not acquire the necessary patent license.  Unfortunately, some companies dedicate all of their resources to enforce patent rights in order to collect licensing fees, however they do not manufacture products or supply services based on the patent in question.  These companies, known as patent trolls or patent assertion entities, exist solely to exploit and intimidate competitors by threatening litigation for overly broad patents.  This in turn hurts businesses and stifles innovation.

So what is left for Nokia? To be clear, Nokia is keeping most of its patent portfolio.  All Microsoft is gaining are the design patents, along with licenses to the patent portfolio, not complete ownership of the portfolio.  Selling Microsoft its smartphone business could make way for Nokia to enforce its patents more aggressively.  Having sold all their physical devices and equipment, Nokia is now free to pursue any company they feel is “infringing” their patents.  Best of all they can threaten litigation on infringers without worrying about counter attacks against their own technologies (they have no real technologies that could be violating other patents).  This setup leaves Nokia as potentially an unlikable patent troll, most likely seeking to pursue infringers who rival Microsoft.

Because the patent licenses are nonexclusive, Nokia can use them any way it wishes and they will presumably use them as a profit center.  For example, Nokia is the holder of the only patents known to read Goggle’s video compression format software (VP8).   Nokia has already made clear that it has no intention of licensing to Google to use its patent thus leaving Google with a blocked technology with little hope to progress.  In the past, Google could retaliate by attacking Nokia’s infringement of its own patents.  However, because all of Nokia’s products belong to Microsoft, that line of defense is no longer available.  Nokia can now analyze EVERYONE’S business and identify and challenge all potential infringements.  With access to a substantial budget, Nokia can afford lengthy litigation and seek substantial fees from any industry that competes with Microsoft.

In sum, Nokia has ample opportunity to join the patent troll business, threatening not only big competitors like Apple, Google, and Samsung, but also threatening the progression of all future innovations.  For a company that seemed to be on the downfall for selling the majority of their products, Nokia now has a newfound and concerning power in the tech world.