Federal appeals court: 'Patent trolls' should foot legal bills

  • Article by: SUSAN DECKER , Bloomberg News
  • Updated: December 26, 2013 - 7:46 PM

Federal judges in appeal of memory-cell case suggest higher stakes would help cut down on bad-faith litigation.

 

– Patent owners who lose infringement lawsuits should have to pay the winners’ legal fees more often, a U.S. appeals court said Thursday in adding its views to a debate before Congress and the Supreme Court.

The U.S. Court of Appeals for the Federal Circuit in Washington ordered a judge to analyze whether memory-cell maker Kilopass Technology Inc. should pay legal fees incurred by closely held competitor Sidense Corp.

It said the court must consider “whether Kilopass acted in bad faith in light of the totality of the circumstances” even if there’s no specific evidence of wrongdoing, Judge Kathleen O’Malley wrote.

The Federal Circuit, which handles all U.S. patent appeals, has been grappling with how to crack down on owners who demand royalties on patents that might not be infringed or might be invalid. The Supreme Court in October accepted two cases on the issue and Congress is considering legislation that would require losers in patent cases to pay the winner’s fees.

The issue of legal fees is part of a broader debate over an increase in patent suits by businesses whose sole mission is to extract royalty revenue. Those entities, dubbed “patent trolls” by critics, filed 19 percent of all patent lawsuits from 2007 to 2011, according to the Government Accountability Office. A White House report said more than 100,000 companies were threatened last year with infringement claims.

“Too many patent owners are bringing claims that are meritless and then settling for a nuisance value with the expectation their claims would never be tested,” said Edward Reines, a lawyer with Weil, Gotshal & Manges LLP in Redwood Shores, Calif., who also teaches at Stanford Law School.

The U.S. Patent Act says fees can be awarded “in exceptional cases,” even though they are rarely granted. O’Malley, writing for a three-judge panel, rejected a request by Sidense to lower the standard of proof needed to make its argument. While Sidense’s argument “is not a frivolous one,” it’s beyond the power of a three-judge panel to make that decision, she said.

Chief Judge Randall Rader, in a concurring opinion, said the Federal Circuit should go even further. He said a 2005 decision from the court unfairly restricted district judges’ authority to impose fees only if the case was objectively baseless.

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