EFF: EFF Successfully Defends Users’ Right to Challenge Patents and Still Recover Legal Fees

EFF Successfully Defends Users’ Right to Challenge Patents and Still Recover Legal Fees

When individuals and companies are wrongly accused of patent infringement, they should be encouraged to stand up and defend themselves. When they win, the public does too. While the patent owner loses revenue, the rest of society gets greater access to knowledge, product choice, and space for innovation. This is especially true when defendants win by proving the patent asserted against them is invalid. In such cases, the patent gets cancelled, and the risk of wrongful threats against others vanishes.

The need to encourage parties to pursue meritorious defenses, is partly why patent law gives judges the power to force losers to pay a winner’s legal fees in “exceptional” patent cases. The fee-shifting allowed in patent cases is especially important because there are so many invalid patents in the possession of patent trolls, which are entities that exploit the exorbitant costs of litigating in federal court to scare defendants into paid settlements. When patent trolls abuse the litigation system, judges have to make sure that they pay a price. That’s why the selective fee-shifting that happens in patent cases is so important.

However, proving invalidity in district court takes a lot of time and money. That’s why Congress created a faster, cheaper alternative when it passed the America Invents Act in 2011.

That alternative is the IPR system, which allows parties to get a decision on a patent’s validity in less expensive, streamlined, proceedings at the Patent Office. One benefit of this system is the huge savings to parties and courts of avoiding needless patent litigation. Another is that going to the Patent Office should, in theory, yield more accurate decisions. When Congress created the IPR system, the whole point was to encourage parties to use it to make patent litigation cheaper and faster while improving the quality of issued patents by allowing the Patent Office to weed out those it shouldn’t have granted. 

Fee-shifting and IPR are both meant to deter meritless patent lawsuits. That’s why we weighed in last year in a case called Dragon Intellectual Property v. Dish Network. In April, a panel of Federal Circuit agreed with our position. It’s a win for properly applied fee-shifting in the patent system, and for every company that wants to fight back after being hit with a meritless patent threat.

In the Dragon v. Dish case, a federal circuit tried to stop defendant Dish Network from getting its fees because of Dish’s success using the Patent Office’s inter partes review (IPR) system. That’s right—Dish was penalized for winning.

In this case, the district court saw that a party was successful at proving invalidity in an IPR—but then actually held that against the winning party. Dish Networks was one of several defendants Dragon sued for infringement. After the suit was filed, Dish initiated IPR proceedings. But before those proceedings finished, the District Court construed the patent’s claims in a way that required finding non-infringement. While that decision was on appeal, the Patent Office finished its review and found Dragon’s patent invalid. 

Yet when Dish tried to recover the cost of litigating Dragon’s invalid patent, the District Court refused on the ground that Dish wasn’t the prevailing party. Oddly, its success proving invalidity at the Patent Office became grounds for stripping it of separately prevailing on non-infringement.

That ruling made no sense; if anything, Dish’s success in proving invalidity should reinforce, rather than undo,  its status as the prevailing party. It would have also created a big new downside for defendants considering IPR proceedings: if they won, they could have lost prevailing party status in district court, and thus the possibility of recovering the cost of paying their attorneys. So EFF weighed in, filing an amicus brief in support of Dish’s prevailing party status with the Federal Circuit in February of 2019.

More than a year later, on April 21, 2020, the Federal Circuit finally ruled, agreeing with EFF that the district court’s finding of non-infringement made Dish the prevailing party. Dish’s parallel success in proving invalidity at the Patent Office did not change that. The Federal Circuit’s decision makes clear that proving invalidity at the Patent Office doesn’t make an earlier non-infringement win—and thus the possibility of recovering attorneys’ fees— disappear. That principle is important: If patent owners could save themselves from fee awards by having their patents invalidated by the Patent Office, they would have a perverse incentive to assert the worst patents in litigation.

But a month after the Federal Circuit issued its decision, Dragon filed a petition asking the full court to convene and re-hear the case. On June 24, the Federal Circuit finally denied that petition, making its decision final.

Even though the Federal Circuit was skeptical that fees would ultimately be recoverable in this case, its decision will help protect the IPR system, as well as proper fee-shifting. Those who need an efficient way to challenge a wrongly-granted patent will have one, and it won’t make the cost of district court litigation even greater.