Should Those Sued In Bogus Patent Infringement Cases Be Able To Recover Legal Fees?

from the this-may-be-important dept

Mon, Jul 12th 2010 11:01am — Mike Masnick

There's a potentially important legal battle going on following a highly questionable patent infringement claim made against Netflix and Blockbuster. The whole case seems pretty ridiculous. Basically a patent attorney had a rather basic idea on how to improve Netflix with a minor feature that pretty much anyone could have come up with, got a patent on it, formed a "company" whose only purpose was to sue... and then sued. The court quickly dismissed the lawsuit, which is now being appealed. However, Netflix is appealing itself on a separate issue: saying that the current system makes it much harder for those being sued to get attorney's fees, even in such ridiculous lawsuits.

Groklaw goes into more detail about the issues in the lawsuit, pointing out that those suing for patent infringement can get attorneys' fees on cases where willful infringement is found, but those who are sued (even for bogus patents) can only recover attorneys' fees in "exceptional cases." Netflix is claiming that this creates an unfair imbalance. Lots of companies seem to be agreeing with Netflix, as Amazon, Facebook, Microsoft, Oracle, Toyota, and others have all filed amicus briefs siding with Netflix.

This is, actually, quite a big deal. An awful lot of totally bogus patent infringement lawsuits settle just because it's cheaper to pay up than to fight it in court. Even if you "win," the legal fees may outweigh what you could have settled for earlier on. And this perpetuates the problematic system. First, many patent system defenders take those "settlements" as proof that there was infringement and that the patents are valid. Second, it just gives those companies more reasons (and money) to keep suing others. It's a huge problem for many companies today -- and if the court reasonably lowered the barrier on granting attorneys' fees against totally ridiculous patent claims, it might make some of those questionable patent holders think twice before suing.

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Filed Under: attorneys' fees, patents
Companies: netflix

47 Comments

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barney rumble, 12 Jul 2010 @ 11:19am

um
yes and then some for harassment like a double penalty
YOU Lose you pay double

SO YOU BETTER BE SURE your suit is tight
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Jon Renaut (profile), 12 Jul 2010 @ 11:26am

Misplaced liability
If he was granted the patent, doesn't he have every legal right to sue? Sure, it makes him a schmuck, but shouldn't the liability be placed on the patent office for issuing the patent on something that was obvious?
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Anonymous Coward, 12 Jul 2010 @ 11:32am

So maybe hold the guy who sued responsible and the pto. That way both are discouraged from bogus patents. Be the worker would try a lot harder to find prior art if he was liable for it.
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James, 12 Jul 2010 @ 11:33am

Re: Misplaced liability
But the key thing is that it should decrease the number of false settlements (where the patent should be ruled invalid but it is cheaper to settle than to fight). Which should have two effects: fewer bogus or frivolous lawsuits, and more patents being ruled as being invalid by the courts.
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Griffon, 12 Jul 2010 @ 11:36am

with prejiduce
It's been my thought for years that this is a problem. It seems to me that it should be the standard that any case that get's set down hard, and particular those that are a corporation or business attacking individuals (infringement without profit, slap suites etc), should always be settled with prejudice so defenders against BS attacks don't have o bankrupt themselves to to be protected or just to stand up for their rights. Right now in any of of company vs person or even corporation vs. small business the incentive is to give in or settle even on frivolous suites because the expense of defending is insane.
If the standard was that you as the defendant would not have to take on that burden of cost of if you win there would be a lot more people willing to stand up, and I would imagine a lot more lawyers willing to stand up with them.
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Jon Renaut (profile), 12 Jul 2010 @ 11:38am

Re: Re: Misplaced liability
I agree that it may end up with a positive outcome, but I don't think the ends justify the means here.

The guy may not even have known how obvious it was. He wasn't a programmer or anyone involved in Netflix's innovation process. He was a patent attorney.

But what this does is place liability on a guy who has done nothing but be a jerk. He followed the law. He's under no obligation to promote the progress and the general well-being of society. The error was by the patent office, so that is where we should place the blame.
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Tom Utley, 12 Jul 2010 @ 11:50am

Loser Pays
We need loser pays ASAP. Lawsuits are killing us.
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Tom Utley, 12 Jul 2010 @ 11:50am

Loser Pays
We need loser pays ASAP. Lawsuits are killing us.
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angry dude, 12 Jul 2010 @ 11:58am

Welcome to America
Patent lawsuits are just a form of civil lawsuit
There is Rule 11 sanction which can be applied to plaintiffs but in practice it is rarely used
Why ? Simple
America should stay a (civil) lawsuit happy country
the more (civil)lawsuits, the better

So just shut up
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Michal, 12 Jul 2010 @ 11:58am

Re: Re: Re: Misplaced liability
I see your point. But so does the parent...Trying a case always has consequences, no matter the outcome.

How different is this from a liability case, say if you crash your car into another's and it is your fault, you are liable for damages. If you sue other person and loose, you have caused unnecessary expense on the defendant so you should compensate? Perhaps these expenses should be somewhat capped or there would be an "lawyers arms race" (runaway costs).
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Anonymous Coward, 12 Jul 2010 @ 12:05pm

"Bogus" seems to be a word enjoying popular and regular use on this site anytime the authors of articles here jump on the "It is Obvious" bandwagon.

Apparently this case was decided on the basis of non-infringement, and not that the patent was deemed invalid.

The relevant prior art seems clear and not of the type beyond the technical expertise of the USPTO examiners, so it is a bit premature to bandy the word "bogus" around to suggest that the issued patent covers a manifestly obvious invention.

As I look at the lineup of those coming to the aid of Netflix, it could not be more clear that the end goal of this appeal concerning damages is much less one of balancing the opportunity for receiving an award of attorney fees, and much more a rather stealthy attack on "software" patents per se.

Before forming opinions cast in stone, it would be nice to have a copy of the patentee's appeal brief in hand to understand his legal arguments pertaining to the finding of non-infringement. After all, understanding both sides of a case is much better than being presented with only one side.
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AJ, 12 Jul 2010 @ 12:13pm

It only makes since...
IF someone accuses me, and I have to spend money in defending myself, it would only make since that if found innocent,my accuser would pay my legal costs. Othewise, isn't it just extortion?

I think it should be the same in a criminal case as well. If someone really was innocent, and they had good proof that this was the case, they could probably get a really good laywer to defend them because the laywer was sure to get paid.
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dan, 12 Jul 2010 @ 12:13pm

where do you live
I want to sue you for being an idiot who is wasting bandwidth with your stupid opinions. Your wasted bandwidth has driven up the price of my connections and I wish to recoup my losses.

What goes around idiot, comes around.
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Matthew Stinar (profile), 12 Jul 2010 @ 12:16pm

Re: Misplaced liability
No, he doesn't have the right to sue people who aren't infringing his patent. If I read correctly, the point here is to fight the lawsuits that should never have been filed and leave alone those who do have the right to sue.
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Jon Renaut (profile), 12 Jul 2010 @ 12:26pm

Re: Re: Misplaced liability
That's not how I read the post, though I admit I did not click through to read the details.
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diceless, 12 Jul 2010 @ 12:31pm

The problem of shell companies
It sounds like a great idea to make those that bring bogus patent cases to pay if they lose. But the biggest weakness is the fact that most already use shell companies that have no assests except for those needed to take the case to court. If they lose, they don't lose anything since all they need to do is declair bankrupty and then walk away. The patent is usually nearly worthless and the cash the company has is usually held by another entity. So what awards is there left to be claimed?
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Jon Renaut (profile), 12 Jul 2010 @ 12:41pm

Re: Re: Re: Re: Misplaced liability
If I know that I am liable and sue you anyway, then you should get legal fees reimbursed. If I am suing to determine liability, then you don't get anything (aside from whatever you are due as the injured party).

In this case, as far as I can tell, he had a patent that Netflix was violating. He had every right to sue, and Netflix doesn't deserve anything. But, like I said in another comment, I didn't click through beyond the Techdirt article, so there might be more to it that I'm not taking into account.
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Anonymous Coward, 12 Jul 2010 @ 12:45pm

Re:
And your opinions are cast of what, clay? You certainly seem to have some strong opinions yourself.
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Anonymous Coward, 12 Jul 2010 @ 12:50pm

Re: Re:
My only "opinion" pertains to the likelihood that this case is less about recovery of attorney fees and more about an antipathy towards so-called "software patents".

As for another view of this matter, one that I noted was absent, is the following blog post by the patentee. Mindful that it represents his perceptions, it is nonetheless quite informative:

http://nicdagreek.typepad.com/my_weblog/2010/07/setting-the-record-straight.html
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Anonymous Coward, 12 Jul 2010 @ 12:57pm

Innocent people/entities should not have to pay to prove that they are innocent.
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Red Monkey (profile), 12 Jul 2010 @ 1:07pm

some but not all claims are invalid or not infringed
What do you do with a "loser-pays" system in which some asserted claims are infringed and some aren't? Does loser lose attorneys fees if even one claim hits its mark? Would it be some sort of ratio of hits to misses?
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Red Monkey (profile), 12 Jul 2010 @ 1:10pm

Re: It only makes since...
There is a grand jury system that stands between an accused and an overzealous prosecutor. Maybe there should be a similar system in place for patent infringement?
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angry dude, 12 Jul 2010 @ 1:25pm

Re: where do you live
In a nice house you can't afford, punk

I also have Verizon Fios with a LOT of bandwidth and even more bandwidth at work

Now drop dead, techdirt retard
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JNG (profile), 12 Jul 2010 @ 1:31pm

Netflix nonsense
I am the inventor and the person that Netflix tries to malign in their papers. If you want to see the whole story and then make your own judgement, please see my post at:

http://nicdagreek.typepad.com/my_weblog/2010/07/setting-the-record-straight.html

After you read what happened I think you have a different opinion about the merits of their request here.
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NAMELESS ONE, 12 Jul 2010 @ 1:32pm

@2
sure he can sue but if he/she knows its a flimsy patent they
A) they might not buy into them types a patents
B) and the number of lawsuits regarding stupid flimsly patents would drop massively.
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DanVan (profile), 12 Jul 2010 @ 1:34pm

To this day I wish we allowed most winners to get their lawsuits paid for by the losing side

This would stop MANY people from filing ridiculous suits
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Common Sense, 12 Jul 2010 @ 1:49pm

Re: Re: Re: Misplaced liability
He may not have broken the law, but that doesn't mean he has followed it. If all he's doing is being a jerk, or if he doesn't actually know how obvious something he's trying to patent is, then he's abusing the system, which should be against the law. The system isn't there for him to be able to set up bogus companies and sue people, just because it's legal. The ends absolutely justify the means, and people SHOULD be thinking twice before they patent something.

Patents should not be a "get rich quick" scheme.
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Anonymous Coward, 12 Jul 2010 @ 2:02pm

Re: Re: Re: Re: Misplaced liability
...and what precisely are the facts upon which you rely in support of your comments regarding this specific case?
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xs (profile), 12 Jul 2010 @ 2:33pm

Absolutely No way in HELL should the loser pay system be allowed to exist in this area. Loser Pay system will simply make it more convenient for big corporations and deep pocketed entities to violate patents and not suffers the consequence. Because the patent holder will be afraid of the cost of litigation.

If the loser pay system exist and I was CEO of a big corporation, then I would feel absolutely no need to honor any patent from ordinary individual and small companies at all. If they threaten to sue, I'll just show them my team of lawyers, their hourly rate, and the length of time I could drag out the process, so the final lawyers bill will bankrupt them 10 times over. Even if they got a rock solid case, my low ball offer for settlement will stand a much better chance of been accepted under this threat.

NO way. The currently system is flawed, but it's there for a purpose.

A better system would be to make US patent office, and the clerk who approved the patent co-defendants in all patent lawsuits. This way, they won't be so keen on approving frivolus patents that invite law suits.
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xs (profile), 12 Jul 2010 @ 2:39pm

Re:
Another fairer system would be to make whoever is richer loser pay. Compare the asset of the two, if one's asset is a certain multiple over the other, then this richer party will pay everyone's legal fee if it looses.
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nasch (profile), 12 Jul 2010 @ 4:36pm

Re:
If they threaten to sue, I'll just show them my team of lawyers, their hourly rate, and the length of time I could drag out the process, so the final lawyers bill will bankrupt them 10 times over.

How is that different from the current situation? I mean, now the little guy's legal fees will bankrupt him if he loses, and maybe also if he wins. Under loser pays, they'd bankrupt him and then some if he loses, and he'd pay nothing if he wins. Seems like a better outcome to me.
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Craig (profile), 12 Jul 2010 @ 5:06pm

It's different here in Canada...
Canadians are about as sue-happy (crazy) as Americans in principle, but we DO have protection against lawsuits causing the defendant to go broke.
If you want to sue someone, you must have a real, defensible idea that you could/should win the case. If you don't, the judge can assess legal and court costs against the plaintiff.
I doubt that it's a perfect solution, but it's still something. That way Jane Public won't have to settle only because she knows the lawsuit would wipe her out.
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Pre-order now and save $1.59, 12 Jul 2010 @ 5:17pm

Re: Re: where do you live
How to win friends and influence people,
by Angry Dude

Journey with Angry Dude through his demented rants and weak attempts at communication. Experience the highs and lows of his pathetic life spent tilting at windmills. You will be astonished at how tolerant others are to his condition. Available in paperback and e-book
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Jay (profile), 12 Jul 2010 @ 5:40pm

Re: Netflix nonsense
"Then Netflix doesn’t bother either to explain that the “exceptional” requirement in the trademark cases it cites has usually been interpreted to require a finding of culpable conduct on the part of the losing party, “…such as bad faith, fraud, malice, or knowing infringement, before a case qualifies as `exceptional."

Uhm... Not to be a huge drag but if you set up a company to make a patent, copyright, trademark, etc, for only the chance to sue, isn't that bad faith?

After the first few paragraphs, your tone seems rather... arrogant. It's as if you are asking us the readers to be persuaded by you in saying you're correct in your assessments merely by law.

Also, from the looks you could have solved this amicably by allowing Netflix to use the patents in 2006:

"The real facts are that in early 2006, before I had any patent whatsoever, a friend of mine familiar with my then dozen plus pending applications on the subject indicated that he knew one of the original founders at Netflix, and that this person might be interested in buying the whole portfolio. After some initial exchanges, we entered into a formal evaluation agreement with Netflix to have further discussions about their purchase of the portfolio. "

But you turned them down:

"Netflix tried to BUY the patent applications, and they failed. I turned down their last proffered terms, not the other way around. This little distortion of the facts is introduced again by Netflix to suggest that I somehow had a vendetta against them. What is apparent now, in hindsight is that my apprehension was probably justified. "

Now, there's three sides to every tale. Your side, my side, and the truth. From your own tone in the weblog, I'm not likely to believe that you simply turned down Netflix (2006 version before they took off) without some kind of compensation. I can believe that negotiations on the patent failed.

Regardless, it seems that you're wanting to fight them for this small patent and you're not looking to compete in some new way. I side more with Netflix at this current moment than I do with you with all respect.
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Anonymous Coward, 12 Jul 2010 @ 6:07pm

Re:
Perhaps the court can hold the patent holder responsible and the patent holder can then turn around and sue the USPTO and hold them responsible for damages.
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Anonymous Coward, 12 Jul 2010 @ 6:21pm

Re: The problem of shell companies
Perhaps to invalidate all the patents that the shell company has under the pretext that the company is abusive. Or maybe they should go after the parent company.
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Big_Mike (profile), 13 Jul 2010 @ 5:45am

I didn't read any other comments but here is the problem with making the loser pay legal fees. I don't have a lot of money so I use a very inexpensive lawyer to fight my battles. On the other hand Netfix can afford to pay top end lawyers. Lets say I have a legitimate case, I could be intimidated by the price of their lawyers. "Yes you have a good case but if you lose you will have to pay 10 times what you paid me to there lawyers and you still have to pay me." Big business tramples on the little guy. Now, If the lawyers have to pay and not the client, the Hell ya! Then we lose the ambulance chasers and lawyers only take cases they think they can win... that would be awesome!
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Hephaestus (profile), 13 Jul 2010 @ 6:59am

Re: Netflix nonsense
After reading both side of this. I am leaning towards netflix side.

Anyone have a list of this guys patents?
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xs (profile), 13 Jul 2010 @ 7:00am

Re: Re:
Under current system, the amount of legal fee I have to pay is determined by myself. If I can't pay that much, I hire a cheaper lawyer, use up less billable hours, or even stop the whole thing if I have to. The big company can feel free to spend as much as they want to, but it doesn't cost me any extra. The factors in the risk-reward calculation is entirely controlled by myself. Under loser pay system, how much the other side can afford to spend becomes the deciding factor that needs to be considered, instead of the odd of winning the case.
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Willton, 13 Jul 2010 @ 9:10am

Re:
To this day I wish we allowed most winners to get their lawsuits paid for by the losing side

This would stop MANY people from filing ridiculous suits

It would also stop many people from filing legitimate lawsuits.
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Anonymous Coward, 13 Jul 2010 @ 9:37am

Re: Re:
...which is one of several reasons why Congress specifically rejected the UK aproach.
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Willton, 13 Jul 2010 @ 11:18am

Re:
Now, If the lawyers have to pay and not the client, the Hell ya! Then we lose the ambulance chasers and lawyers only take cases they think they can win... that would be awesome!

If that were the system, no one would want to be a lawyer. If you wanted to bring a case against someone, you'd have to do so pro se (i.e., representing yourself), as no lawyer would want the potential liability of paying someone else's legal costs, even if the case is legitimate.
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nasch (profile), 13 Jul 2010 @ 11:33am

Re: Re:
If that were the system, no one would want to be a lawyer.

So... killing two birds with one stone? ;-)
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Willton, 13 Jul 2010 @ 11:50am

Re: Re: Re:
So... killing two birds with one stone? ;-)

Funny guy. I hope you enjoy the prospect of representing yourself in court.
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Anonymous Coward, 13 Jul 2010 @ 1:27pm

Re: Re: Re: Re:
nasch appears to have been injecting humor, so I would not take the comment seriously.

But, you do raise a point overlooked by many. People will always hate lawyers until they need one, and even then fully half using the services of a lawyer for litigation will hate lawyers even more.

Imagine how a pro se litigant feels if he/she loses. I can imagine few things more terrible than hating oneself.
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Matthew Stinar (profile), 22 Jul 2010 @ 11:26pm

Re: Re: Re: Misplaced liability
FWIW, I was referring to the article being linked, not the Techdirt commentary on the article.
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Matthew Stinar (profile), 22 Jul 2010 @ 11:29pm

Re: Re: Re: Re: Misplaced liability
If they were thinking clearly enough, they probably wouldn't be patenting in the first place. Whether or not patents made any sense in the past, it is becoming increasingly clear that they are merely a drain on innovation in this modern era.
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