Courts Award Attorneys’ Fees on 50% of Motions Post Octane

Yesterday the Federal Circuit Bar Association sent a letter to Congressman Bob Goodlatte (R-VA) and Congressman John Conyers (D-MI), the Chair and Ranking Member of the House Judiciary Committee, respectively. In the letter, signed by Federal Circuit Bar Association President-Elect Edgar Haug, the Association explains that since the Supreme Court’s decisions last term in Octane and Highmark motions for attorneys fees are being granted at three times the rate they were in the year preceding the decisions.

The letter reads, in part, as follows:

We pointed out in our letter of February 20, 2015, that the recent Supreme Court rulings in Octane and Highmark (collectively, “Octane“) relaxed the standard for recovering attorney’s fees under section 285, and thus rendered the fee-shifting provisions of H.R. 9 unnecessary. Testimony presented to this Committee on February 12, 2015, incorrectly reported, “in the most recent three months, the rate of full denials of attorneys’ fees motions is about the same as it was before the Supreme Court decided Highmark and Octane.” Testimony of Krish Gupta at 12-13.

We have reviewed each district court decision between the date of the Octane decision and March 31, 2015, which substantially ruled on a motion for fees under section 285. The results are summarized in the attached paper, “A Comparison of pre-Octane and post-Octane District Court Decisions on Motions for Attorneys’ Fees Under Section 285.” The data establishes that motions for attorney’s fees under section 285 after Octane were granted at a rate almost three times as high as in the year preceding Octane. In addition, the data establishes — contrary to the witness’s testimony — that 50% of motions for fees under section 285 filed by accused infringers were granted between January 1, 2015, and March 31, 2015. In contrast, in the 12 months preceding Octane, only 13% of such motions were granted.

The mandatory fee-shifting proposed by H.R. 9 materially changes the law and will substantially impair the ability of certain patent holders to enforce their rights.

It is interesting that the Federal Circuit Bar Association is calling out the testimony of Krish Gupta. During Gupta’s testimony before the Senate Judiciary Committee on March 18, 2015, Gupta cited the bogus and thoroughly debunked Bessen-Meurer “study” that erroneously claims that patent trolls cost American businesses $29 billion annually. That estimate erroneously and egregiously reached by the hopeless flawed Bessen-Meurer study that conflates “costs” with “transfers,” and further lumps together practicing corporations with non-practicing entities. Sadly, continued reliance on this near fraudulent study is commonplace despite the fact that the authors themselves have retreated from their own conclusions. At the time of his testimony I wrote: “Gupta’s reliance on the debunked Bessen-Meurer study suggests that he is either completely unknowledgeable or that he is pushing flawed data in an effort to mislead.” Given the fact that his testimony regarding fee-shifting was completely false it seems that Gupta is either willfully ignorant as to the real facts, or he is intentionally trying to mislead Congress.

In any event, the fee-shifting provisions in the Innovation Act would create a presumption that the loser in a patent infringement lawsuit must pay the attorneys fees of the winner. There is no doubt that such open ended potential liability will cause individual inventors, universities and start-ups to think twice about filing even meritorious patent infringement lawsuits. If they will not consider suing then why would they consider spending the time and money to obtain a patent in the first place? Unfortunately, the presumptive fee-shifting provisions of the Innovation Act would create a disincentive to obtain a patent, which would be tragic given that it would disproportionally influence a most innovative group.

Ironically, fee-shifting will not likely change anything with respect to the bad actors the legislation is ostensibly aimed at. We know that corporations settle bad cases brought by bad actors, which means that there will be no prevailing party and hence no attorneys fees. Even if corporations change their ways (which seems unlikely) and they fight patent trolls, the nefarious actors will simply declare bankruptcy and never pay a dime. See Fee-shifting won’t do anything to stop Patent Trolls.

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7 comments so far.

  • [Avatar for angry dude]
    angry dude
    April 15, 2015 02:21 pm

    2The patent insurance guy at IPISC:

    I have even better proposal: all patent holders must buy mandatory liability patent insurance – just in case they decide to enforce their patents

    More patents – more insurance premiums (strictly proportional to the number of patents – no corporate discounts)

    I’d be happy to see insurance premium bills of IBM or Google

    Just joking…

    You should know yourself that the system is f****** up

  • [Avatar for The patent insurance guy at IPISC.]
    The patent insurance guy at IPISC.
    April 15, 2015 10:36 am

    The only way out of this dilemma is a private solution that reduces the risk in owning and enforcing patents The insurance industry has long been the “go-to” industry which can function to accept risk shifted to it. And the good news is that the more insurance that patent holders buy the lower the price – you know the greater the base over which to spread the risk and more competition to keep prices down. Ask yourself, how much is it worth to stay in business or be able to assert your patents?
    I’m sure you know it was the insurance industry that funded the Octane case – one of our policies in fact.

  • [Avatar for Steve]
    Steve
    April 14, 2015 08:29 pm

    It boggles the mind and shocks the conscience when you realize that those very same congressmen (and women) who are working so hard to protect American innovators in foreign countries … are so eager to cripple those very same innovators here in our own country.

    When did American innovation in the rest of the world become more important that American innovation here in America?

  • [Avatar for Paul Morinville]
    Paul Morinville
    April 14, 2015 01:31 pm

    They won’t invest in a startup without a patent if that company is in a field where they could file patent.

  • [Avatar for angry dude]
    angry dude
    April 14, 2015 12:53 pm

    presumptive fee shifting + joinder provision = patent is a toxic asset

    What kind of fool will invest any money in startup with patents which can be litigated at some point with or without investor’s permission ?

  • [Avatar for Gene Quinn]
    Gene Quinn
    April 14, 2015 11:59 am

    Paul-

    That is an excellent point. This is why giving District Court Judges more discretion is the best way to go. It seems clear based on the numbers that Octane and Highmark have changed the playing field. We should wait and see what that means over a longer period of time before rushing in with a legislative fix, particularly one that presumptively awards attorneys’ fees.

    -Gene

  • [Avatar for Paul Morinville]
    Paul Morinville
    April 14, 2015 11:52 am

    One important distinction on this loser pay is it is non-presumptive while HR9 proposes presumptive. When I talk to investors and contingency attorneys about enforcing my patents, they look at it in an equation. They estimate costs and multiply it by risk. If damages are significantly above that number, they will look at the case. If it is lower, they move on.

    Non-presumptive loser pay means that cost and risk are not built into the suit. If you keep your nose clean, you can avoid it. Conversely, presumptive loser pay raises cost and raises risk becasue it must be accounted for at the beginning of the suit. That means that damages must be higher in order for the investor and law firm to take the case.

    Damages have been going down due to eBay and other changes, so presumptive loser pay really just knocks out the bottom of enforceable patents.

    It’s really just an attack on little inventors. It’s the guy with the cat comb with 3 employees who is harmed.

    We are going the wrong way. We need to make patent rights stronger and lower costs and risk. That is the only way to fix the patent system.

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