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Politicians want “loser pays” rule for patent trolls
- TallboyOne 14y agoReading about this patent trolling just makes me angry :(
- dromidas 14y agoI really hope this works like they intend. For some reason I see patent trolls figuring a way around it though.
- eli 14y agoIANAL and I don't know nearly enough about it, but one potential problem with "loser pays" is that you could be found guilty of some relatively minor infraction and then get slammed with legal bills that are far in excess of the original damages.
- cmsmith 14y agoThis is addressed in the article. Losing defendants don't have to pay. Meaning that if you sue someone and win, you still have to pay your own legal bills.
- chimeracoder 14y agoThis is really easy for patent trolls to get around - patent trolls (NPEs) are typically shell companies that have no assets that can be seized (aside from the patent itself).
- pronoiac 14y agoWon't that mean that if they lose a case, they shut down?
- chimeracoder 14y agoSo they spin up a new one. Shell companies are like EC2 instances - cheap and disposable.
- cosmie 14y agoIt means the troll's shell company, whose only asset is the now-useless patent, is shut down. The parent company isn't touched, nor the thousands of other subsidiaries owned by said parent company.
- DannyBee 14y agoDeliberately underfunding an LLC is not something that is going to be looked upon kindly, particularly if it's purpose is exactly to get around the law. Any judge worth his salt would either sanction the hell out of the lawyers involved, or let you go after the parents.
- damoncali 14y agoThat's the rub - what is underfunding? Should you have to plan to lose lawsuits?
- DannyBee 14y agoYes, you should have to plan what your exposure is when you lose lawsuits. Normal businesses already do, and warn about it in SEC filings.
- jrs235 14y agoAs I mentioned in another reply: How could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?
- Bill_Dimm 14y agoCouldn't the judge require the patent troll to put money into escrow to cover their opponent's estimated legal expenses (otherwise not allow the case to proceed)?
- neotek 14y agoBecause you don't limit access to the courts based on how much money someone has. That's insane.
- scott_s 14y agoNot for everyone, but for those judged to be non-practicing entities.
- akavlie 14y agoIronically, that's exactly what happens now -- defendants usually don't have access to the courts, because they don't have millions to defend themselves.
- rayiner 14y agoWe do it for shareholder derivatives suits, and in several other contexts. For B2B lawsuits it's not a big deal.
- lancefisher 14y agoThis is a really good step though. If paying legal fees becomes a problem for NPEs, then perhaps the next step is to require NPEs to post a bond before going to trial.
- milfot 14y agoWhat (good) purpose do shell companies serve? LLC is limits liability doesn't it? Its not no liability. Surely a more effective and wide ranging measure would be to enforce limits on the limitations. If no one wants to take some small amount of responsibility for a company, that company has no business existing.
- damoncali 14y agoThey're not really shells. They're very small companies created to limit the exposure of the owners to liability. This is not weird or abnormal in business. Real estate guys use separate entities for their projects all the time. If one gets in trouble, it leaves the others intact. That is the whole point of limited liability.
- GFischer 14y agoReal estate guys shouldn't be doing it either. A coworker had his house destroyed by errors on an adjacent building site, and he faces the real risk of the real estate guys declaring a loss on this one and moving on to the next "shell company".
- damoncali 14y agoThnk about that for a moment, because it's not even possible. How are you going to finance a second building when the first one has the ability to suck up all the cash flow? No bank would do it. No equity partners would do it. Throwing out limited liability is a huge deal.
- GFischer 14y agoCourts should have the option of making directors or whatever personally liable in the case of gross negligence (like cratering an adjacent building). Either that, or mandatory insurance for these cases. It's just unfair that someone is made homeless and faces the threat of being left out in the cold while the persons responsible are raking massive profits elsewhere. It's not a faceless meteorite crash, it was gross negligence. I can't find the news in English, but: http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio-conmociono-parque-batlle-no-hubo-lesionados http://www.lr21.com.uy/comunidad/430518-derrumbe-de-edificio... In the case of patent trolls, "piercing the veil" is also complicated. There's also the common practice of naming a figurehead as the person responsible for a company, while the real owners don't figure in the legal documents (we call them "testaferros" over here). I don't know what the solution is (I wish I did), but the current system doesn't seem to be working out well.
- JumpCrisscross 14y agoThe shell would have to post a bond when it is deemed to be a non-practising entity, i.e. not subsection (d) compliant. "Any party that fails to meet a condition under subsection (a)(3) shall be required to post a bond in an amount determined by the court to cover the recovery of full costs." [1] The subsection (a)(3) reference points to the subsection (d) exemptions for original inventors, parties which have made "substantial investment" in exploiting the patent through "production or sale of an item covered by the patent", universities, and technology transfer organisations "whose primary purpose is to facilitate the commercialisation of technology developed by one or more institutions of higher education". [1] http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD-Act-113th-final.pdf http://cdn.arstechnica.net/wp-content/uploads/2013/02/SHIELD... § 285 subsection (b)
- jrs235 14y agoHow could the judicial system incorporate rules to pierce the corporate veil in such situations and therefore expose the shell company creator(s)? Would something like this help? And what are the cons?
- jmduke 14y agoThis is called the English Rule (http://en.wikipedia.org/wiki/English_rule http://en.wikipedia.org/wiki/English_rule), and is adopted in nearly every Western democracy (besides, of course, the US).
- drzaiusapelord 14y agoHow do you stop me from making LLC's or s-corps with almost no assets over and over again to sue? Most patent trolls have next to nothing in assets. If people aren't in threat of losing their savings or their home then they aren't going to care about such rules.
- rayiner 14y agoComparing the U.S. to other western countries is fraught with pitfalls. The English rule discourages private litigation, which is a more reasonable practice in Europe where there is aggressive public enforcement of the law. It's not a sane practice in a country where everything from labor rights to health and environmental rights are largely enforced through private litigation (by design).
- rmc 14y agoI assure you that there is loads of private litigation in European countries (eg UK). There's even a term for it "compo culture", there are ads on TV looking for people who have been injured and they sue the other party.
- incomethax 14y agoWhat struck me from the article: >For example, successful copyright plaintiffs usually win attorneys' fees if they have a registered copyright. That means that the MAFIAA gets their legal fees back if they sue the 9-yr old down the street and win? IMO that's pretty messed up.
- mmcconnell1618 14y agoI believe the article said defendants are exempt from paying legal fees to the other side. The rule would be "plantiffs's pay when they lose."
- JumpCrisscross 14y ago"The bill would allow patent defendants to file a motion seeking to have a judge rule that the patent owner is a certain type of 'non-practicing entity'—although the bill doesn't use that term. If the motion is successful, the lawsuit can still proceed, but if the patent-holding company loses, it will be on the hook for legal costs." The bill is essentially a judicial shortcut to make patent litigation riskier for non-practicing entities, precisely, non subsection (d) entities. Unfortunately, there is little judicial consensus (to the best of my limited knowledge) on what this means. ARM produces nothing tangible - it licenses designs. That makes ARM look like a non-practicing entity. Yet few would brand it as a patent troll. Having losing plaintiffs pay is good. But it still leaves the defendant bearing the risk of adverse judgment. Even the non-practicing entity shortcut means hiring a lawyer. Perhaps, for patent suits, the plaintiff should have to, as part of filing the suit, dislose whether they or their beneficial owners' related entities have a history of filing patent suits deemed frivolous.
- nitrogen 14y agoOne could argue that ARM's "practice" is producing designs. They are heavily involved in the creation and implementation of their patents, making them different from any troll that licenses "patents" they bought rather than "designs" they created.
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- JumpCrisscross 14y agoSo patents are only valid if held by their originator? That would make the IP non-transferable. In ARM's case, it would mean a takeover would invalidate its value.
- nitrogen 14y agoI didn't say anything about patent validity, only that it's arguable ARM does not meet some possible definitions of NPE. I admit that the reference to trolls buying patents near the end of my second sentence slightly muddies that intended meaning.
- OGinparadise 14y agoPays what? They will create a few LLCs for each case with next to zero assets. If they lose the case the patents are almost by definition worthless, so they get nothing. However, think of trying to legitimately sue Microsoft, or Apple or Google for using your patent. You have their bills to worry about too and they can out-lawyer almost everyone. This is no doubt loved by the largest corps, it does nothing to stop trolls but makes it much harder for a real person /entity to sue them (with tens of billions in the bank) Edit: Imagine the first day in court, months after the other side's billing has started: you see 16 lawyers on the [Google's, MS, Apple's] side and have a heart attack! 16X$400 an hour (on the low side) X 5 hours = $32,000 for half a day, just to show up in court.
- elpachuco 14y ago>>Pays what? They will create a few LLCs for each case with next to zero assets. If they lose the case the patents are almost by definition worthless, so they get nothing. Sounds like fraud to me. I'm sure this loop hole could get closed.
- eridius 14y agoPerhaps, once deemed an NPE, the plaintiff could be forced to put up the legal costs in escrow for the duration of the trial? Not only will this require them to be able to pay if they lose, but it will be a further deterrent to even attempting to sue.
- DannyBee 14y agoThis would definitely be a good case for piercing the corporate veil.
- trotsky 14y agoOne of the real problems in this whole situation has been defining NPE's. Law scholars seem to be unable to come to anything close to a consensus on how to define one (legally) without causing a lot of collateral damage. So now congress wants circuit court judges to be on the hook for labeling every plaintiff? Sounds like a good way to make sure a little venue shopping will solve all the plaintiff's problems. It's not like NPE's don't already have a history of that /s
- noonespecial 14y agoAlmost there. All we need now is a personal penalty for the lawyer who knowingly brings the frivolous case and I'd bet that it would tip the balance just enough so that trolling mostly disappears.
- rayiner 14y agoYou mean like Rule 11(b)(2) and 11(c)? http://www.law.cornell.edu/rules/frcp/rule_11 http://www.law.cornell.edu/rules/frcp/rule_11
- noonespecial 14y agoI wonder how effective it would be if every trolling victim filed this motion for sanctions automatically. Of course, that assumes going to court in the first place, which brings us back to the original problem, I guess. Could this be used along with the judge's ruling that the troll is this type of NPE? As in: You're a troll, pay the defendant, oh and your lawyer pays too?
- AnthonyMouse 14y ago>I wonder how effective it would be if every trolling victim filed this motion for sanctions automatically. What makes you think they don't already? The problem with patent trolls isn't that what they're doing is illegal, it's that what they're doing is legal.
- noselasd 14y agoOr, http://news.ycombinator.com/item?id=5215758 http://news.ycombinator.com/item?id=5215758
- cooldeal 14y agoUnfortunately, this is doing to stack up the deck against individual small inventors. This guy would've had to start a car company in order not to be liable for millions in legal fees if he lost? http://en.wikipedia.org/wiki/Robert_Kearns http://en.wikipedia.org/wiki/Robert_Kearns Somehow I think the big companies will exploit this, and start violating NDAs and real patents willy nilly, since the bar has been raised for them. But the patent trolls are doing enough damage too, I am not sure if it's worth hurting a few real deserving inventors.
- ramblerman 14y ago"The bill would allow patent defendants to file a motion seeking to have a judge rule that the patent owner is a certain type of "non-practicing entity"—although the bill doesn't use that term. If the motion is successful, the lawsuit can still proceed, but if the patent-holding company loses, it will be on the hook for legal costs." a) I doubt your example of Robert Keans, who is actually an inventor and not a patent troll would be found to be the latter by most judges. b) If the motion is successful, you can still pull out and save the costs. You did lose, but you didn't go broke trying. So It's probably not quite as dramatic for the little guy, as you suggest.
- h4pless 14y agoCorrect me if I'm wrong, but the article states that if the plaintiff is the inventor or original assignee, they would qualify as a practicing patent holder and would not be liable for paying the defendants fees. In Kearns' case, he would not be liable for paying defendants fees because he was the original inventor of the technology.
- deleted 14y ago[deleted]
- AnthonyMouse 14y agoThe plaintiff is an inventor or original assignee. The plaintiff is actually using the patent. The plaintiff is a university or "technology transfer organization" Last one shouldn't be there. It's redundant with the first in 99% of the cases that matter and sets up an obvious method for the trolls to rebrand themselves as universities or "technology transfer organizations" for the sole purpose of evading the law. Also, forget the "loser pays" system. Just make establishing one of the first two a prerequisite for having standing to sue for patent infringement.
- Karunamon 14y agos/university/accredited university, and strip out the technology transfer organization bit (though again, that leaves ARM in a weird spot) Somehow I doubt that patent trolls will develop curriculums and bring in students for the sheer purpose of bilking inventors.
- AnthonyMouse 14y agoARM falls clearly into the first category. They hire engineers who develop chips and are the original assignee of the patents. >Somehow I doubt that patent trolls will develop curriculums and bring in students for the sheer purpose of bilking inventors. Maybe. I could see how they might partner pretty quickly with the likes of the University of Phoenix however.
- learc83 14y agoThe most important part of this bill isn't that it forces losing plaintiffs to pay legal costs, it's that it forces plaintiff's classified as an NPE by the judge to post a bond to cover the defendant's possible legal costs. This will vastly increase the cost of operation for NPEs.
- scottevi199 14y agoI missed that part - if this is accurate - then I agree that this could have an impact.
- mtgx 14y agoIt should be for everyone asserting patent infringement allegations, not just "trolls". That way, they would at least think twice about using trivial patents against others, knowing that if they lose the trial, they have to pay the winner's expenses. It would also encourage some companies to take companies who are asking them to pay "patent fees" to Court if they think the patents are not good enough, and they could win.
- jessriedel 14y agoI don't think definition of "trolls" is a sensible way to handle the problem either, but I think the idea is that if you don't restrict it to trolls, then Google can wantonly infringe on a patent owned by Joe Littleguy. Joe couldn't possibly risk suing Google when he might be responsible for the millions in legal defense that Google could rack up in a heartbeat.
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- arbuge 14y agoIt's great that the trolls would have to pay for losing the lawsuit, but the basic problem remains - the company being sued can't afford to be the losing party, leading it to pony up outrageous settlement/royalty fees. Even for junk patents, certain well known jurisdictions (read: Marshall, TX) award the trolls in these cases 80%+ success rates at trial. The trolls would only be on the hook for the remaining 20%, in addition to having collected all the settlements and royalties for cases which never made it to trial. In view of the above I don't see this changing much of anything.
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- edouard1234567 14y agoI would go a step further and ask the plaintiff to subsidies the defense and only get reimbursed if they win. In many cases (including one I was involved in) the defendant doesn't have enough cash to hire a proper defense and is forced into settling. This will put all the burden/risk on the plaintiff and therefore limit the abuse against small start-ups that typically don't have access to a lot of cash.
- lsiebert 14y agoDon't patent trolls already create LLCs or other corporate firewalls so that if they are countersued, they don't have assets?
- learc83 14y agoYes. But this bill requires NPEs to put a bond to cover the defendant's legal fees in case they lose.
- will_brown 14y agoVery bizarre to focus on the symptom and not the cause. Legislators appear to acknowledge the USPTO gives out patents to patent trolls and yet wants to focus on curbing their enforcement not their registration. Perhaps this is a necessary step, because so many patent trolls currently exist, but why don't the legislators focus instead on cutting the head off the snake and prohibit patent trolls from successfully registering a patent in the first place. For example, Trademark law requires that a application indicate the date of first use in commerce, and the one exception is filing under "intent to use". I know there are a lot of arguments against a similar provision for patents, but why not make this distinction in Patent applications, because if a patent is actually used in commerce, then you basically insure the holder is not just a troll.
- scottevi199 14y agoIf "patent trolls" are formed as shell companies (located in the eastern district of texas) that have no assets other than the patent and enough to sue (i.e. corporation whose shareholders form it by merely contributing the patent and a nominal amount of funds), then this bill is useless unless it also permits piercing of the corporate veil (or equivalent for other limited liability entities such as LLC) such that the shareholders or directors are also liable for the attorney's fees of the defendant. Otherwise, why would a patent troll place assets other than enough to litigate in their shell companies?
- olliej 14y agoThat was my thought - i couldn't see why this would make things better (you don't remove trolls, but people who we don't want to consider trolls would now run the risk of simply being outspent and then bankrupted -> which could "hilariously" result in them selling the IP to an actual troll...). I think the fix would be to stop allowing overly broad patents (eg. actually say how what you're doing what you're claiming, instead of saying "i have an idea" and not saying how to do it)
- fpgeek 14y agoWhy should "loser pays" be limited to patent trolls? I understand that they're the least sympathetic players is a patent system, but a bogus patent lawsuit is a bogus patent lawsuit. I would even argue that, in many cases, a company trying throw sand in the gears of their competitors by using patents that never should have been granted is worse than a patent troll. At the end of the day, a patent troll just wants to extract money (and typically is happy to extract it from all players equally). A company suing its competitors, by contrast, is trying to upset the competitive balance in some market which can easily have more far-reaching implications. One counterargument I've heard is that we don't need "loser pays" for practicing entities because they can be countersued with your own portfolio, so you can eventually negotiate a truce based on MAD. To me, this misses the point. MAD is a workaround for some bugs in the patent system, not an end in itself. If there's a better way to discourage trumped-up patent lawsuits, we should use it too (or even instead, depending). And MAD has significant weaknesses (doesn't protect small players vs big players, favors incumbents, etc.) that a broad "loser pays" could help.
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- jheriko 14y agoMaybe I am naive, but can't we do even more to make patent trolling impossible? Like forbidding their transfer to such non-practicing (or any) entities to begin with? Or maybe not having patents and finding a new way to encourage development in medicine - which afaik is the only area where patents have a measurable benefit. (to make clear i mean /benefit to society/ not money)