Friday, June 7, 2013

Attorney fee shifting in patent litigation

Section 285 of the U.S. Patent Act states that courts "in exceptional circumstances may award reasonable attorney fees to the prevailing party.”  Case law establishes that the moving party must establish exceptional circumstances by clear and convincing evidence;the district court then determines if fees are appropriate, and if so in what amount.  The amount is reviewed on appeal under the abuse of discretion standard. Only a limited number of circumstances justify fee awards in patent cases, however, including  “inequitable conduct before the PTO; litigation misconduct; vexatious, unjustified, and otherwise bad faith litigation; a frivolous suit or willful infringement.”  Wedgetail, Ltd. v. Huddleston Deluxe, Inc., 576 F.3d 1302, 1304 (Fed. Cir. 2009).  As I discuss in my book (see pp. 209, 276, 328, 360, 370, 372), although attorneys' fees are not often awarded in China and Taiwan, the limited availability of attorneys' fees in U.S. law differs from practice in many other countries (including the European nations, Canada, Australia, and Japan), which award attorneys' fees to the prevailing party--though often not in the full amount that the prevailing party actually incurred. In Japan, for example, parties don't always request fees, and when they are awarded, they often are set at 10% of the damages recovered rather than based on an hours-worked basis.

Recent proposals, however, may indicate some changes coming to U.S. law.  President Obama's recent recommendations to Congress, for example, include "providing district courts with more discretion to award attorney’s fees under 35 USC 285 as a sanction for abusive court filings (similar to the legal standard that applies in copyright infringement cases)."   On Wednesday, Chief Judge Rader and Professors Colleen Chien and David Hricik published an op-ed in the New York Times stating that "fees were shifted under Section 285 in only 20 out of nearly 3,000 patent cases filed in 2011," but arguing that judges could and should award fees more frequently. And there are some proposals pending in Congress that might make it easier for courts to award attorneys' fees.  The Essential Patents Blog has links to the pending bills.

I've long suspected that awarding attorneys' fees to the prevailing party, not just in cases involving abusive or frivolous litigation but as a general policy, would be a good idea because it would internalize an externality caused either by the infringement or by the patentee's prosecution of an unsuccessful suit.  As I discuss in my book (see pp. 148-49), however, law and economics scholars are not of one mind on this issue; according to some of the models, routine awards of attorneys' fees may decrease the likelihood of settlement, for example.  It would be great if there were some way to rigorously test the various hypotheses, but the multiplicity of potentially relevant variables makes this is a daunting task.  As the physicist Sean Carroll recently observed in another context we “make progress by considering all the hypotheses, and working hard to bring them into confrontation with the data. Use philosophical considerations all you want to inspire you to come up with new and better ideas; but it’s reality that ultimately judges them.”  In the social sciences and law, unfortunately, that’s often a tall order.  

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