Is Fee Shifting Really the Answer to Abusive Patent Litigation?
On December 5, 2013, the House passed H.R. 3309, which is otherwise known as the Innovation Act. The Innovation Act proposes a dramatic departure from traditional litigation by incorporating a fee-shifting provision. The fee-shifting provision would require a court to award the prevailing party reasonable fees and other expenses incurred by that party unless the court finds that the position and conduct of the non-prevailing party were reasonably justified in law and fact.
Under existing law, a court can only award attorneys' fees and costs to the prevailing party in "exceptional" cases. In practice, however, this rarely occurs. Advocates of fee-shifting provisions in patent cases argue these new provisions will discourage abusive patent litigation by "patent trolls" or non-practicing entities. While this may be true, fee shifting may also reduce the value of patents by making litigation – and patent enforcement – less palatable. As a result, smaller companies, individual inventors, and others without significant financial resources may avoid litigating otherwise meritorious claims.
Fee shifting may also encourage risk shifting, which may result in more litigation by established players in the non-practicing-entity space. Utilizing a portfolio approach to litigation, larger players may be more capable of offsetting the risk of loss in any one case. Small entities may suffer, but established players may flourish.
Whether the Innovation Act becomes law remains to be seen. And even if it does become law, it is unclear how the courts will apply the fee-shifting provisions in practice.