Federal Appeals Court Says Patent Suit Losers Should Pay Legal Costs

Patent owners who lose infringement lawsuits should have to pay the winners’ legal fees more often, a U.S. appeals court said in adding its views to a debate before Congress and the U.S. Supreme Court.

The U.S. Court of Appeals for the Federal Circuit in Washington yesterday ordered a judge to analyze whether memory- cell maker Kilopass Technology Inc. should pay legal fees incurred by closely held competitor Sidense Corp.

The court must consider “whether Kilopass acted in bad faith in light of the totality of the circumstances” even if there’s no specific evidence of wrongdoing, Circuit Judge Kathleen O’Malley wrote.

The Federal Circuit, which handles U.S. patent appeals, has been grappling with how to crack down on owners who demand royalties on patents that may not be infringed or valid. The Supreme Court in October accepted two cases on the issue and Congress is considering legislation that would require losers in patent cases to pay winners’ fees.

The issue of legal fees is part of a broader debate over a rise in patent suits by businesses whose sole mission is to extract royalty revenue. Those entities, dubbed “patent trolls” by critics, filed 19 percent of all patent lawsuits from 2007 to 2011, according to the Government Accountability Office. A White House report said more than 100,000 companies were threatened last year with infringement claims.

“Too many patent owners are bringing claims that are meritless and then settling for a nuisance value with the expectation their claims would never be tested,” said Edward Reines, a lawyer with Weil, Gotshal & Manges LLP in Redwood Shores, California, who also teaches at Stanford Law School. “The intrepid defendant who fights and wins ends up not being compensated for their fees.”

The case is Kilopass Technology v. Sidense Corp., 13-1193, U.S. Court of Appeals for the Federal Circuit (Washington).