Wednesday, June 12, 2013

Why Stop at Fees? The Case for Making All Patent Losers Pay, and Pay Heavily

Guest post by Professor Jonathan Masur, University of Chicago School of Law

The excellent op-ed published last week by Chief Judge Rader, Colleen Chien, and David Hricik has re-ignited the debate surrounding attorneys’ fee awards in patent cases. This conversation has dovetailed with the renewed focus on patent trolls, spurred by congressional and presidential attention to the issue. Taken together, these issues present the possibility of a productive approach to the problem of patent trolls—and to firms that assert weak patents more generally.

Yet there is no reason to stop with attorneys’ fees, and no reason to apply this logic only to plaintiffs who assert weak patents. In a recent paper, Anup Malani and I use similar logic to advocate for (1) even higher penalties that are assessed against (2) any party that loses a patent case, whether plaintiff or defendant.

Our system of enhanced rewards and penalties has three principal virtues, above and beyond what the fee-shifting provision of 35 U.S.C. § 285 would allow. First, we would calculate the penalties applied to patent losers based upon the entire economic value of the case, not just the attorneys’ fees. This higher figure will serve to deter weak patent filings in many cases where attorneys’ fees alone might not. That is, there will be many cases in which the payoff from a victory will be worth the risk to a weak patent holder of being assessed attorneys’ fees in the event of a loss. Increasing the penalties for bringing and losing such a case would make the case unprofitable. Second, we would apply these penalties across the board, not just in “exceptional” cases as called for by 35 U.S.C. § 285. There will be plenty of cases in which firms assert weak but plausible patents. These are cases that harm innovation, and which the patent system would be better off without, but it is unlikely that courts will ever view them as exceptional.

And third, if this approach makes sense for weak patent plaintiffs, it should be applied to weak patent defendants as well: any defendant who challenges a strong and worthwhile patent by infringing, and loses at trial, should be made to pay for having created a risk that the patent will be mistakenly invalidated. Erroneous verdicts in favor of patent defendants can harm innovation just as much as erroneous verdicts in favor of patent holders. This type of symmetric application is theoretically possible under 35 U.S.C. § 285, but we suspect that courts will be even less likely to declare a patent defendant’s claims “exceptional” than they would a patent plaintiff’s. All told, our approach would make weak patent claims less valuable and less worth asserting, and strong patent suits more valuable and more worth asserting. It would weed bad cases from the federal courts without those courts having to lift a finger. There are a number of additionally useful considerations, complications, and modifications, all of which we describe in detail in the paper.

Our proposal might be fairly criticized on the ground that it cannot be achieved under existing federal law and would require an act of Congress (or God). Yet even if such a proposal is never enacted by Congress, our analysis offers useful insights as to how courts should use the existing § 285 mechanism. Courts should (1) interpret “exceptional” broadly to cover as many cases as possible; (2) apply 35 U.S.C. § 285 to plaintiffs and defendants alike; and (3) award attorneys’ fees very generously, at the outer monetary limits of what may seem appropriate. As Rader, Chien, and Hricik suggested, if Congress will not act, the courts can take matters into their own hands.

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