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Court Ruling on Legal Fees May Stem the ‘Patent Troll’ Tide

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Is someone else profiting off your patented idea? If you are considering legal action, you may want to make sure your patent infringement case is backed by solid data, including prior art research and patent litigation research, as a new court ruling now gives judges wider latitude to discourage “frivolous” patent lawsuits.

The Supreme Court of the United States ruled in April 2014 that judges in patent infringement cases have discretionary power to order plaintiffs to pay some or all of the defendant’s legal fees if they find that the plaintiffs litigated their case in an “unreasonable manner,” particularly in such a way that it “stands out from others with respect to the substantive strength of [the claim].”

In other words, do not accuse someone of infringing on a patent unless you have performed an exhaustive patent claim analysis and can back up your assertions with convincing evidence. 

The court’s ruling in Octane Fitness, LLC v. Icon Health & Fitness, Inc. was widely seen as a blow to the non-practicing entity (NPE) industry, better known by the derisive term “patent trolls.” NPEs are companies that hold patents but that produce few, if any, of their own products. They instead purchase patents from other firms and then hunt through the marketplace for goods and services employing technology which might arguably violate the patent they hold. The NPE then approaches the company that offers the allegedly infringing product or service and demands a license fee for the use of its patent. The company must then decide between agreeing to the NPE’s licensing requirements or defending against a patent infringement claim in court.

The Supreme Court ruling clarifies language in the U.S. Patent Act which empowers judges to award attorneys’ fees to a prevailing defendant only in “exceptional cases.” Those had been more narrowly defined by a lower federal court as “objectively baseless” cases that were “brought in bad faith” or cases involving “material inappropriate conduct.”

A 2012 study by two legal scholars at Boston University concluded that NPEs cost other businesses about $29 billion in 2011. And it’s not just the huge corporations. Though more than half of that figure was paid by large companies, the majority of entities facing claims from NPEs were small and medium-sized businesses.

Forbes article concludes that the new ruling will change the patent industry on two fronts.

“While the court’s decision makes life harder for non-practicing entities or patent trolls,” the article said, “it will also put the brakes on inter-company patent suits…Some of the most contentious litigation comes when one company sues another as a strategic weapon.”

 

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