Even the most casual observer has probably heard the words “patent reform” in news recently. Since the US House of Representatives passed the Innovation Act in December, many thought a Senate bill targeting patent reform could not be far away. It took four months, but we learned last week that the Senate Judiciary Committee would be moving forward with the Leahy-Lee patent bill. Proposals from Senators Cornyn and Schumer have focused debate on fee shifting as one procedure designed to discourage patent troll behavior.

The debate over fee shifting reforms has many different perspectives. The position espoused in the Innovation Act is that by awarding reasonable fees and expenses to the prevailing party, fee shifting will deter frivolous claims of patent infringement. Patent assertion entities (PAEs) often file unmeritorious lawsuits against defendants to elicit license payments–a sound business decision when faced with potentially expensive and lengthy litigation. Fee shifting functions by (1) reducing the risk of expense to the defendant of litigating a lawsuit brought by a PAE and (2) increasing the potential cost to the PAE of filing a lawsuit. The second function is particularly important because, unlike ordinary patent litigants, PAEs generally are not concerned about liability for counterclaims, and their risk is therefore relatively little.

However, many, including Senator Schumer, are concerned that fee shifting would negatively impact companies that initiate litigation based on a good faith belief that a competitor is infringing their patents. The provision could be particularly burdensome for small companies that may not be able to pay the costs incurred by the defendant. Fee shifting could also deter legitimate litigation on patent validity, thereby reducing a post-issue patent “quality control” mechanism. However, these arguments may be flawed because, as some have correctly argued, the actual impact of fee shifting is not well understood.

As the “correct” legislative solution is debated in Congress, still others have suggested that judges already have the authority to curtail abusive litigation. Section 285 of the Patent Act gives judges the authority to shift the cost of litigation, although few judges exercise it. Chief Judge Rader, for one, has advocated this practice as a preferable alternative to legislation. In any case, be prepared to hear the term “patent reform” for a while longer.

Emily Gabranski

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