Earlier, we reported on Monolithic Power Systems’ and its affirmed award of sizable attorney fees in an infringement suit filed against it by O2 Micro (the post on the case is here; the post regarding the appeal is here). Today, the Supreme Court will hear argument in Octane Fitness v. ICON Health, which also addresses fee-shifting in patent cases. One difference in the Octane case, however, is that there are no allegations of litigation misconduct (as there was in the Monolithic case).
It bears reiterating that patent litigation is enormously expensive. As noted in our earlier post, its one reason why “fee-shifting” is such an important concept in patent cases. To over-simplify somewhat, fee-shifting awards the defendant its legal fees and costs in a case where it is deemed to be the “prevailing party” and where the case is found to be “exceptionable” (see Section 285 of the Patent Act). Getting the Court to deem a case ‘exceptionable is tough, though. Really tough. The law dictates that the party seeking fees must establish (by a ‘clear and convincing’ standard) that the case is “exceptional”.
Today’s excellent article (Supreme Court May Endorse Fee Shifting in Frivolous Patent Suits) by Roger Parloff, Senior Editor of Legal Affairs at Fortune, explains the nuances of this standard. As Mr. Parloff notes in his article, the Court will need to strike a balance between addressing the alleged wrongs of patent trolls and NPE’s (“non-practicing entities”); i.e. those who use patents, not to protect their products, but as a litigation weapon; and preserving the “American Rule.” The “American Rule” basically dictates that, with a few exceptions, a plaintiff losing a law suit is not obligated to pay the winning defendant’s legal fees. In theory, at least, the rule is meant to keep the right to file suit open to all.
As is true with many rules, the “American Rule” hasn’t been immune from the universal law of unintended consequences. Unfortunately, because the standard for finding a patent case “exceptional” is so high, some plaintiffs have allegedly based their business model on asserting (sometimes) weak patents on (sometimes) weak infringement claims. As one side of the argument sees it, without reform, the “American Rule” encourages “patent trolls” to roll the dice with the aim of forcing the other party to pay up to avoid protracted and expensive patent litigation.
Those of us in the legal community need to consider why Rule 11 of the Federal Rules of Civil Procedure (basically, Rule 11 requires that every complaint be filed only after due diligence in investigating the claims ) hasn’t been enough (and it hasn’t) to prevent abusive patent litigation. While there are likely multiple factors, important factors are the complexity of patent infringement claims, the standard for complaints and the enormous work and cost (for both litigants and the court) that must be done with regard to disposing of a case on a motion for summary judgment.