Trolling the U.S. and EU Patent System: Solved by a Loser-Pays-Attorney-Fees Regime?

Abstract

Frivolous litigation over patent issues poses a significant barrier to innovation, especially in United States where so-called “patent trolls” or PAEs are responsible for most legal conflicts on patent issues. In comparison, Europe has far less PAE-activity than the United States, but the number of such cases in Europe has increased in recent years. Although the situation is complex, the differences between PAE-activity in Europe and the United States are most likely caused by the use of different legal frameworks for fee-shifting, i.e. the presence and absence of a loser-pays-attorney-fees regime, respectively. In analyzing the arguments for and against moving to a loser-pays system, this paper concludes that the existing troll problem can be reduced by adopting, as a standard practice, a system under which the loser must pay the winner’s attorney fees. It follows that a loser-pays-attorney-fees system disincentivizes PAEs from filing frivolous suits, increases the quality of patents in lawsuits, ensures a more equal bargaining position for defendants in settlement negotiations, and results in lower settlements. Nevertheless, this paper also cautions that the benefits of fee-shifting substantially depend on the mechanism chosen. Limiting the reimbursable fees by pre-determined caps might render fee-shifting less effective. However, placing no limits on reimbursable fees might disincentivize innovation and potentially threaten access to justice. Therefore, this paper recommends two features to find a right balance between the reimbursable costs subject to fee-shifting on the one hand, and innovation and access to justice on the other. First, legislative and judicial authorities are advised to implement certain procedural safeguards to shift only reasonable and proportionate attorney fees. This can be accomplished through an issue-based approach and/or the adoption of mandatory case management conferences. Second, automatic fee-shifting should be limited to “PAE losers” only. In determining which parties should be exempted from automatic fee-shifting, this paper suggests, in line with the never adopted working-requirement, to exempt only those parties that submit proof of adequate patent commercialization.