A “loser pays” attorney fee rule
I first blogged about the Senate version of the patent reform bill back in August, just after it was introduced.
A comment in a post from just a few days ago prompted me to take a look back at the Senate bill. Specifically, I wanted to remind myself of the new attorney fee shifting provision. Here’s what Section 5(b) of the Senate patent reform bill, S. 3818, says (on p. 23 of the bill):
(b) ATTORNEY’S FEES. – Section 285 [of Title 35] is amended to read: “(a) The court shall award, to a prevailing party, fees and other expenses incurred by that party in connection with that proceeding, unless the court finds that the position of the nonprevailing party or parties was substantially justified or that special circumstances make an award unjust.”.
Today, 35 U.S.C. sec 285 reads as follows: “The court in exceptional cases may award reasonable attorney fees to the prevailing party.”
The House version of the patent reform bill does not contain this provision, as I recall. I think it makes a great deal of sense, in U.S. patent litigation, to move much closer to the English Rule for damages.
Dennis Crouch is suggesting that the “English Rule” enables deep-pocket Defendants to bully impecunious would-be Plaintiffs, who are frustrated because they have a good case but can’t afford to litigate. England considered that point some years ago, and tweaked its system to deal with that cause for concern. The elegant fix brings the cream of the specialist patent litigation firms in on the side of the hard up Little Guy.
One way forward for Little Guy patent owner, troubled by a big ugly flagrant corporate infringer, is as follows:
1. “tool up” with a patent claim that is resistant to prior art attacks (relatively straightforward, outside USA)
2. find a law firm that thinks you should win, and will bet its own judgement, to the tune of “double the hourly rate if we win, nothing if we lose”
3. helped by the law firm, find an insurance company, that will back the judgement of the law firm, and insure you on the risk of paying the other side’s legal fees, if you lose. Pay the premium.
4. Approach the infringer, with i) the act ii) the law firm’s opinion iii) the insurance contract.
5. If the other side doesn’t cave in forthwith, fight and win. The action will settle before trial.
6. Even if it goes to trial, the Judge will award costs, which include the 2 x hourly rate AND the insurance policy premium you paid. You happy, law firm happy, insurance company happy, corporate infringer much chastened because in England, the quantum of damages is realistic.
7. Of course, the English system does validity on a “preponderance ” standard, but I presume that Congress could live with that, in the current climate of Patentee vs Public.
Now, Joe, Dennis, isn’t that a recipe to suit the small guy with a good case, even under the “English Rule”, and whether or not Little Guy is an impecunious patent owner or a hard-up start-up in the midst of a big ugly corporate thicket?? In England, litigation is understood to be a last resort, and 95% of cases settle during the fact-finding procedures prior to trial. Something of interest there for the USA, maybe?
Comment by MaxDrei — December 10, 2006 @ 5:38 am
Max,
I’m actually a bit more concerned about a patentee extracting royalties based on a weak patent than I am about a patentee with a strong patent being unable to recover. Given that patent challenges are almost certainly undersupplied (because a successful attack on a patent’s validity provides a benefit that is shared with everyone, but is paid for only by the attacker), I like a “loser pays” rule for a successful patent attacker … it keeps him or her in the fight longer, providing a public benefit (invalidating an improvidently granted patent) on the malefactor patentee’s dime rather than on his or her own. Of course, any rule must take account of the fact that there are mistakes of both sorts (erroneously successful infringement suits, and erroneously successful infringement defenses).
Joe
Comment by Joe — December 10, 2006 @ 12:49 pm
Joe, for restricting the flow of dodgy patent grants, a look at Art. 115 EPC is instructive. Members of the public can, for free, alert EPO Examiners to prejudicial prior art. Exrs in civil law continental Europe (including EPO) are free to leverage that art and resist grant but, until now, the EPO has given scant attention to such observations on patentability. In Nov 2005 the EPO ran a conference on “Quality” and one of the speakers urged the EPO to pay more attention to pre-issue observations from concerned members of the public. The more attention the EPO pays, of course, the more of these observations the EPO will receive so, understandably, Examiners counting disposal points do not encourage the public to observe. Thus: something here for Prof. K Moore, and: now that public opinion is swinging against grant of crap claims, maybe the EPO will give Exrs more points for leveraging such observations?
Comment by MaxDrei — December 10, 2006 @ 2:03 pm
In the posting above, not Kim Moore (and not Kim Novak either) but Beth Noveck, with her “Peer Review” idea.
Comment by MaxDrei — December 10, 2006 @ 11:34 pm
Any reader interested in Prof. Beth Noveck’s paper, “Peer to Patent: Collective Intelligence and Intellectual Property Reform,” which Max mentions in the preceding comment, can download it from SSRN.
Comment by Joe — December 11, 2006 @ 8:13 am