Earlier this year, we covered the potential passage of a bill called the SHIELD Act, proposed in Congress, that would allow for prevailing defendants in suits brought by patent trolls, or non-practicing entities, to recover their attorneys’ fees and costs. The bill was designed to prevent trolls from extracting patent-licensing fees through the enforcement of “low quality” patents that are not practiced by the plaintiff entity.
Yesterday, the House passed a bill, now entitled the Innovation Act, that performs this same cost-shifting function, a huge step in the fight for patent reform…
…or is it? The relevant portion of the Innovation Act states the following with respect to prevailing party fees and costs:
The court shall award, to a prevailing party, reasonable fees and other expenses incurred by that party in connection with a civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents, unless the court finds that the position of the nonprevailing party or parties was substantially justified or that special circumstances make an award unjust. (Emphasis Added)
At first glance, this seems to do exactly what we’d expect–punish a nonprevailing party for its unnecessary claim, thereby deterring lawsuits from trolls with low-grade patents. But looking more closely, all of this hinges on the judge’s determination of whether the plaintiff is “substantially justified” in the claim. This term is undefined in the bill, so, presumably, the federal judiciary will be tasked with creating a legal definition when this provision is inevitably exercised in court.
What’s odd about the bill’s wording is that the judiciary already has the power to sanction attorneys and parties for “frivolous” claims–claims with false allegations or claims that harass or unnecessarily increase the costs of litigation–under Rule 11 of the Federal Rules of Civil Procedure. Part of a judge’s arsenal for violation of Rule 11 is to order the payment of the other party’s attorneys’ fees. It is therefore unclear how the judicial power under this new statute will modify this rule, if at all. If the new language does not add anything to the Rule 11 scheme, this presents a problem for troll targets. Judges are reluctant to issue Rule 11 sanctions in cases where the claim can pass the pleading stage, and troll claims (though arguably harassing and needless) will continue to be meritorious under federal law–this bill does not change that.
Congress attempts to address this (presumably) by detailing in the bill new pleading requirements for patent infringement claims to increase the bar for bringing a claim. But approach this cautiously. It remains to be seen whether judges will actually review patent claims with extra scrutiny under the new pleading requirements (if the bill is passed, that is).
In short, the enthusiasm of a Congressional win in this field is optimistic, but Congress’s strange drafting choice may leave patent defendants clambering for additional legal support. Hopefully the Senate can rectify this issue in another round of edits.