The Cost of Defending Against Patent Trolls

by Winstead PC
Contact

It should come as no surprise that defending against Non-Producing Entities—most of which are Patent Trolls[1]—is expensive, especially for small businesses and corporations. In support of his ongoing legal battle with the patent troll Personal Audio, LLC, Adam Carolla has currently raised over $445,000 dollars towards litigation through the crowdfunding website FundAnything.com.[2] Yet, unless Personal Audio decides to drop the litigation entirely, Carolla’s legal costs will certainly climb much higher.

 AVERAGE COSTS OF DEFENDING AGAINST NPEs

Carolla estimates that defending against Personal Audio’s patent suit could cost around $1.5M. This number is a reasonable prediction based upon the average expenses of other defendants in patent infringement lawsuits brought by NPEs. In recent years, over half of plaintiffs in patent infringement claims have been NPEs. In 2013 alone, 67% of patent infringement cases were filed by NPEs.[3] The median litigation cost to defend against a patent infringement claim by a NPE where the amount in controversy is between $1M-$25M is a staggering $983,000 at the end of discovery and $1.75M after trial.[4] The mean litigation cost is even higher—1.3M after discovery and $2.0M after trial. Predictably, the cost of litigating against a NPE rises as the amount in controversy rises. If Personal Audio pursues its case to a judgment, it will likely cost Carolla at least $1M in legal costs.

SETTLEMENT AND PROGNOSIS

In his battle against Personal Audio, Carolla has determined not to settle and fund his legal defense out of pocket if necessary. Patent trolls are frequently criticized for pursuing settlement costs as a key source of revenue. Approximately 90% of patent infringement suits initiated by NPEs settle.[5] Of those that do not settle, many more are defeated at the summary judgment stage. Ultimately, only 26% of patent infringement claims by NPEs within the past few years have been successful.[6] Yet, of those patent infringement claims that do reach trial, 65% are successful. In light of the potential to be stuck with massive royalty damages and momentous litigation costs, it is little surprise that most defendants choose to settle. Personal Audio has previously offered to settle for $3M.[7] If, as Carolla believes, Personal Audio does not have a valid legal claim[8], there is a strong probability that he can win the case at the summary judgment stage.

COST-SHIFTING OF ATTORNEY’S FEES

In light of high legal costs and the tendency of patent troll entities to pursue litigation for financial gain, there has recently been a movement to reform patent law by granting attorney’s fees to the prevailing party in a patent infringement suit. Federal law does allow parties to recover attorney’s fees, but only in “exceptional” cases.[9] Recently, the Supreme Court has adopted a broader interpretation of what is an exceptional case in Octane Fitness, LLC v. ICON Health and Fitness.[10] Previously, a case was only exceptional if it was brought in bad faith or was objectively baseless. Under the Supreme Court’s new interpretation, an exceptional case in one that stands out from other similar cases with regards to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.

 In theory, Octane Fitness may assist defendants like Carolla, but the determination is ultimately left to the trial court’s discretion and its interpretation of the plaintiff’s claim. Current law may likely be insufficient to compel courts to apply cost shifting against NPEs and encourage defendants to litigate patent infringement claims to a final judgment. The most popular jurisdictions, in which NPEs file over half of their patent infringement claims, are the Eastern District of Texas and Delaware.[11] These two districts have two of the highest success rates for NPE claims which reach a final judgment.[12] Though the full impact of Octane Fitness remains to be seen, given that NPE litigation is concentrated within two favorable jurisdictions, shifting the costs from defendants to patent trolls in vexatious cases could require a further legislative push.

In 2013, the Innovation Act (2013 H.R. 3309) passed in the House. This bill included a provision which allowed the prevailing party to recover reasonable attorney’s fees. But, previous attempts to pass patent reform targeted specifically at patent trolls through the Senate failed after Sen. Leahy (D-VT) pulled patent reform from the Senate’s agenda.[13] There were many bills being considered in the Senate, but the main bill was the Patent Quality Improvement Act (2013 S. 866). This compromise bill did not include a cost-shifting provision. Many news outlets have reported that the decision to pull patent reform was motivated by interests groups such as biotech, pharmaceuticals, Universities, and law firms.[14] These entities, which rely on their ability to assert patent rights, oppose cost-shifting reform.

CONCLUSION

The current risk of defending against patent infringement claims is very high. Because of high legal costs and the difficulty of recovering reasonable attorney’s fees, defendants are motivated to settle even when faced with claims that a defendant believes will be unsuccessful. If patent trolls are to be deterred in the future, it must become more cost effective for defendants like Carolla to mount a legal defense. Otherwise, settlements will continue, and patent trolls will continue to dominate patent infringement litigation.


[1] See RPX Corp., 2013 NPE Litigation Report 39, available at http://www.rpxcorp.com/wp-content/uploads/2014/01/RPX-2013-NPE-Litigation-Report.pdf.

[2] Adam Carolla, Save Our Podcasts Legal Defense Fund, FundAnything.com, https://fundanything.com/en/campaigns/patenttroll (last visited July 17, 2014).

[3] Pricewaterhouse Coopers LLP, 2014 Patent Litigation Study 2, available at http://www.pwc.com/en_US/us/forensic-services/publications/assets/2014-patent-litigation-study.pdf

[4] Am. Intellectual Prop. Law Ass’n, Report of the Economic Survey 35 (2013).

[5] John R. Allison et al., Patent Quality and Settlement Among Repeat Patent Litigants, 99 Geo L.J. 674, 694 (2011).

[6] Pricewaterhouse Coopers supra note 3, at 11.

[7] Brian Lund, Can Adam Carolla Defeat a Patent Troll and Save Podcasting?, Daily Finance (April 9th, 2014, 12:24 AM)http://www.dailyfinance.com/on/adam-carolla-patent-troll-podcasting-lawsuit-stakes/.

[8] Michael Pham, Carolla Going after the Patent Trolls, WinTech Blog (July 8th 2014) http://www.wintechblog.com/2014/07/carolla-going-after-the-patent-trolls/.

[9] 35 U.S.C.A. § 285 (West, Westlaw through 2014).

[10] Octane Fitness, LLC V. ICON Health and Fitness, 134 S.Ct. 1749 (2014).

[11] RPX Corp., supra note 1, at 18.

[12] These numbers are based upon patent infringement suits litigated by NPEs in the period from 1995-2013. Pricewaterhouse Coopers LLP, supra note 3, at 18.

[13] Sam Gustin, This is How the Patent Trolls Won, Time (May 24, 2014) http://time.com/111639/patent-reform/.

[14] See, e.g., Erin Mershon & Tony Romm, Patent Reform Hits Dead End in Senate, Politico (May 21, 2014) http://www.politico.com/story/2014/05/patent-reform-senate-106968.html.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Winstead PC | Attorney Advertising

Written by:

Winstead PC
Contact
more
less

Winstead PC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.