...trolls and other speculative plaintiffs will likely become more circumspect in their filing strategies because each case necessarily involves fixed costs and attorney fees that were much more manageable when suits had literally dozens of defendants joined in a single court.
The recent Octane Fitness and Highmark, Inc. opinions, both authored by Justice Sotomayor after unanimous holdings by the United States Supreme Court, were a welcome development for corporate defendants in patent infringement actions.
These cases relax the circumstances under which the exceptional behavior standard for unreasonable and vexatious patent litigants under 35 U.S.C. § 285 can be applied to meritless plaintiffs so that attorney fees are more easily recovered.
Under the old law (Brooks Furniture Mfg., Inc. v. Dutailier Int’l., Inc.), harried defendants had to show by clear and convincing evidence that a plaintiff’s claims were “objectively baseless” and brought in “subjective bad faith” in order to recover attorney fees. The Court today held that the Brooks Furniture test was too rigid and effectively negated the possibility of defendant recovery under § 285.
Today’s cases therefore loosen the standard for recovery to a finding of unreasonableness within the discretion of the district court, even in instances where none of the plaintiff’s individual actions were sanctionable but, when considered as a whole, were unreasonable.
Looking forward, it would seem these cases might have a couple of practical effects. First, when considered together with the recent AIA requirement that defendants in general be individually sued instead of collectively, trolls and other speculative plaintiffs will likely become more circumspect in their filing strategies because each case necessarily involves fixed costs and attorney fees that were much more manageable when suits had literally dozens of defendants joined in a single court. Moreover, previously absent liability exposure for meritless suits is now present because plaintiffs may have to pay attorney fees for numerous defendants if the litigation strategy fails in a manner deemed unreasonable by the trial court.
Another effect might be to curtail Congressional momentum for patent troll reform, since the Supreme Court has now given corporate defendants a more accessible basis for financial relief when they prevail.
In particular, if a trolling plaintiff’s litigation theory is as suspect as most corporate defendants believe they are, the defendants can at least recover costs and attorney fees if they persuade the judge the suit was brought unreasonably. This is an interesting point because, while Congressional leaders mostly agree that something must be done to limit troll suits, defining what exactly needs to be done or even who the trolls are has proven surprisingly difficult.
For example, when a plaintiff lacking a product or market share in an industry buys a patent in bankruptcy and then sues several industry leaders for infringement, it is pretty clear the plaintiff is trolling as they term is commonly used.
But what about cases where a long-standing industry participant exits its business position but then launches a financial recovery program by suing under their patent portfolio? Are such plaintiffs also to be considered trolls for these purposes? Won’t such plaintiffs argue that they would have had products and a market position but for the pervasive infringement?
In last week's opinions, the High Court just might have thrown Congressional draftsmen a much-needed lifeline.
[Ray Ferrera is a partner with the Adams and Reese Special Business Services Practice Group, and Partner in Charge of the firm’s Houston office. He also serves as the Practice Team Leader for the Intellectual Property and Technology Practice Team.]