Multi-Million Dollar Award of Legal Fees in Patent Case

cash_gavel-300x206While the US Congress is considering legislation to introduce “fee-shifting” in patent cases – requiring the loser to pay the winner’s legal fees – the fact that there already exist limited fee-shifting arrangements is often overlooked.

As we commented in our recent blog, “Patent Reform Could Affect All Patent Owners,” Congress is looking to legislate fee-shifting in an attempt to slow down so-called “patent trolls,” believing that patent owners will be less likely to pursue spurious litigation if they know they may be forced to pay the ‘winner’s’ legal fees.

As we said in our recent blog,

…this could harm smaller companies that own patents because even when a case has merit, victory is not assured.  A small company suing a large company such as Google or Facebook for patent infringement would face greatly increased risk in enforcing its intellectual property rights – especially since the large company could take steps that intentionally increase the legal costs with the intent to pressure the smaller patent owner to settle on unfavorable terms.

A recent case from the Southern District of New York shows, however, that new legislation calling for fee-shifting is not required: the courts already have the authority and the mechanisms to limit ‘bad behavior’ and law suits with questionable merit.

TouchTunes Interactive Networks and Arachnid, Inc. have been sparring over alleged patent infringement for more than 15 years.  Arachnid, Inc., is a company mostly known for being a leading manufacturer of an electronic dartboard.  In the early 1990s, the company acquired patents relating to digital jukeboxes.  The company never actually developed an operating business in the field.  In 1998, Arachnid sued digital jukebox maker TouchTunes for patent infringement. The case was dropped in 1999.  A few years later Arachnid acquired additional patents relating to digital jukebox technology, and the company started suing manufacturers.  In 2007, Arachnid was making claims in the industry that TouchTunes was infringing its patents.  TouchTunes decided not to wait to be sued – it was sure it did not infringe the patents – it struck first, filing a declaratory judgment asking the court to find that it did not infringe Arachnid’s patents.

It took some time, but in October, 2013, TouchTunes won the case, when a federal judge ruled that the company did not infringe any of Arachnid’s six patents which were in contention.

But the case did not end there: TouchTunes filed a motion asking to be reimbursed for its legal fees and expenses – and won.  The final amount has not yet been decided, but TouchTunes requested $5.3 million and the judge said the request was “not unreasonable,” and asked for additional billing records.

The changes Congress is planning in its patent reform efforts are intended to curtail “bad faith litigation” – yet we have provided an example of how existing law, in particular Section 285 of the Patent Act, actually provides judges with all of the discretion they need to stop such litigation. The judge in the case, Robert Sweet, said

Taken together, Arachnid’s actions — the ‘tactics of counsel’ in offering incomplete expert reports, and the ‘conduct of the parties’ in positing directly contradictory litigation theories depending on the forum — as well as the lack of ‘closeness’ of the case, subjected TouchTunes to severe reputational damage in defending what ultimately amounted to a frivolous lawsuit over a period of five years.

The question we are posing is should Congress spend the time and effort in drafting further legislation to cover an area where judges already have the authority and the power to discretionary rule as they think is right.

On the other hand, fee-shifting can work both ways.  As our client, IP Navigation Group, LLC, pointed out in an article Patent Lawsuit Defendants Behaving Badly, defendants, especially ones that engage in willful infringement, may also be compelled to pay attorney’s fees if they lose.


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