Patent Troll Target Strikes Back — Court Grants First Fee-Shifting Award

Last year, the Supreme Court in Octane Fitness, LLC v. ICON Health & Fitness, Inc. changed the legal standard by which courts could grant fee-shifting in patent infringement cases, or the awarding of the attorneys’ fees of the prevailing party, pursuant to the Patent Act’s fee-shifting provision. Prior to Octane Fitness, the Act permitted courts to award fee-shifting in “exceptional” cases, although the Federal Circuit had defined an “exceptional” case as one that involved “material inappropriate conduct”, or was both “objectively baseless” and “brought in subjective bad faith”, and required parties seeking fee shifting to prove the exceptional nature of the case under this standard by “clear and convincing evidence”. The Court rejected this standard in Octane Fitness, holding that the fee-shifting statute in the Patent Act only imposed one constraint on courts — that the case be “exceptional”, which should be construed by its ordinary meaning of “uncommon” or “rare” — which means that the case should be one that simply stands out from others in regards to the strength of the party’s case, or in regards to the unreasonable manner in which the case is litigated. Courts could determine whether a case was “exceptional” based on the “totality of the circumstances” You may recall that a startup by the name of FindTheBest was sued by Lumen View Technology last year, and FTB’s CEO pledged to fight back with $1 million of his own money. FTB won the legal victory against Lumen in short order, with the court invalidating the patent in November of last year. However, FTB had already spent hundreds of thousand of dollars in legal fees, not to mention the time and money company executives had to spend to focus on the case. Fortunately, the court last week awarded FTB compensation from Lumen for FTB’s fees and costs in defending the suit. The court found that this was the prototypical “exceptional” case, noting Lumen’s structuring as a shell company, the voluminous litigation Lumen had been involved in over the past two years, the lack of due diligence performed by Lumen prior to initiating legal action, and their tactic of threatening expensive litigation and escalating settlement demands if FTB attempted to defend the suit, and finding that Lumen brought suit solely to extract a settlement from FTB, hoping that it would rather pay a smaller settlement than engage in costly litigation. Hopefully this case signals the beginning of the end of patent troll litigation. However, entrepreneurs shouldn’t take it as a green light to go ahead and fight every troll demand with the expectation that the court will award you your costs at the end. The court awarded costs in Octane Fitness because it was a prototypical “exceptional” case — Lumen had conducted minimal, if any, due diligence, and had a pattern of engaging in clear harassment through patent litigation. If anything, patent trolls are likely to be much more careful pursuing future litigation, including conducting better due diligence, reducing the aggressiveness and threatening nature of their settlement demands, and creating further corporate layers and shells to obfuscate the extent of their litigation activities. However, startups with the resources to fight a patent troll now may have a little more incentive to do so, knowing that there is the likelihood at the end of the fight of recouping those expenses.

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