Category Archives: Legal Updates

What are “standard terms of business”?

Readers who are English commercial lawyers, and perhaps some others, will be familiar with the provisions of the Unfair Contract Terms Act 1977 (UCTA). Specifically, they will be aware of section 3(1) which, in business-to-business contracts, requires exclusion clauses that form part of “written standard terms of business” to be “reasonable”. Separate requirements apply to consumer contracts, both under UCTA and under consumer legislation more generally. Section 3 of UCTA provides:

3(1) This section applies as between contracting parties where one of them deals on the other’s written standard terms of business.

(2) As against that party, the other cannot by reference to any contract term—

(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or

(b) claim to be entitled—

(i) to render a contractual performance substantially different from that which was reasonably expected of him, or

(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

[emphasis added]

These provisions raise a number of questions, including when is a term reasonable. But today’s blog article is on the question of when a party contracts on its written standard terms of business.

For example, consider the following scenarios. In which of these am I required to justify my exclusion clause as reasonable, and in which am I free to impose unreasonable terms?

  1. I send you my standard contract and tell you it is not negotiable.
  2. I send you my standard contract and tell you that it is negotiable, but no change is made to the clauses dealing with liability.
  3. I send you my standard contract and tell you that it is negotiable, and offer to change the limit of liability from the price paid (in the standard contract) to twice the price paid.
  4. I send you my standard contract and tell you that it is negotiable, and agree to something close to your request for liability to be limited to the level of my insurance cover.
  5. I send you a draft contract and make no comment on whether it is a standard contract (but it does bear my company’s logo), and you think it might be based on a template from the PLC database. When negotiating liability issues in this draft contract, I take one of the positions outlined in 1-4 above.

This type of thought process may be relevant to a company that is seeking to limit its liability, eg through standard terms of sale and through standard contracting processes that seek to win the “battle of the forms”.

It may be unrealistic to reach definite conclusions on these points. To date, there has been little judicial guidance. But even if there were a body of case law, the court’s interest in doing “justice” in the individual case may be of more practical importance than general categorisation of this kind.

The recent case of African Export-Import Bank & Ors v Shebah Exploration & Production Company Ltd & Ors [2017] EWCA Civ 845 (28 June 2017) was one of the first times that the Court of Appeal had been asked to consider what are written, standard terms of business. Longmore LJ, giving the unanimous judgment of the court, went through the limited case law that touched on this subject. He approved a judgment in an earlier case which decided that a party relying on UCTA must establish:

  1. the term is written,
  2. it is a term of business,
  3. it is part of the other party’s standard terms of business, and
  4. the other party is dealing on those written standard terms of business.

Usually, he thought, there would be little controversy about points 1 and 2. On point 3, and where the contract was based on an industry-standard contract, he approved an earlier decision in which it had been said:

I shall not attempt to lay down any general principle as to when or whether the Unfair Contract Terms Act applies in the generality of cases where use is made of model forms drafted by an outside body. However, if the Act ever does apply to such model forms, it does seem to me that one essential for the application of the Act to such forms would be proof that the model form is invariably or at least usually used by the party in question. It must be shown that either by practice or by express statement a contracting party has adopted a model form as his standard terms of business. For example, an architect might say, “My standard terms of business are on the terms of the RIBA Form of Engagement”. Without such proof, it could not be said that the form is, in the words of the Act, “the other’s” standard terms of business.

On point 4, he quoted various earlier decisions, including the following quote from a judgment of HHJ Seymour:

…it is not enough to bring a case within Unfair Contract Terms Act 1977 s.3 that a party has established terms of business which it prefers to adopt, as, for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as, for example, provision for arbitration in the event of disputes. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being “written”, and they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being “standard”.

He also quoted some comments from Nourse LJ in St Albans District Council v ICL, a leading case from 1996 in which the terms were held not to be reasonable:

The fourth requirement is that the deal must be done on the written standard terms of business. That raises the question whether the Act applies in cases where there has been negotiation between the parties the result of which is that some but not all the standard terms are applicable to the deal. In St Albans City and District Council v International Computers Ltd [1996] 4 All E R 481 (the only other case, so far as counsel were aware, which has come before this court on this issue since the Act was passed), the party relying on the Act submitted that, if there were any negotiation of any kind, the Act could not apply. That broad submission was rejected by this court in an obiter passage of the judgment of Nourse LJ with whom Hirst LJ and Sir Iain Glidewell agreed, but Nourse LJ went on to approve (at page 491g) the statement of Scott Baker J at first instance that the deal in that case had been done on the defendant’s standard terms of business because those terms remained “effectively untouched” by the negotiations that had taken place. That leaves open the question of the correct approach when some of the standard terms are not part of the deal.

Longmore LJ concluded:

I would also approve these first instance decisions and hold that it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other’s written standard terms of business”.

On the facts, he concluded that the parties did not contract on standard terms of business, and therefore UCTA didn’t apply. He commented:

A party who wishes to contend that it is arguable that a deal is on standard business terms must, in my view, produce some evidence that it is likely to have been so done. …It cannot be right that any defaulting borrower can just assert that business is being done on standard terms and that the lender then has to disclose the terms of other (how many other?) transactions he has entered into before he is entitled to summary judgment.

At one level, this case is very specific to its facts. But it does indicate that:

  1. It is for a party that seeks to rely on UCTA to show that the other party was contracting on its standard terms of business. This may seem harsh, but presumably on different facts, where a party puts forward its own template agreement, this may be slightly easier to establish than when a party drafts an agreement based on a third-party template.
  2. If standard terms of business are used, but are substantially changed in negotiations, UCTA doesn’t apply.

There is nothing very earth-shattering about these conclusions, but it is useful to get some guidance from the Court of Appeal on this subject.

 

 

 

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Negotiating fair and reasonable licence terms

The recent case of Unwired Planet International Ltd v Huawei Technologies Co Ltd & Anor continues to provide much food for thought. This blog has previously commented on the poor drafting of the licence terms that the parties settled, and which the court declared to be “fair, reasonable and non-discriminatory”, or FRAND.

The more that IP Draughts thinks about the case, the more he comes to realise that this is really a case about contract negotiations that have got stuck, and where the parties want to reach agreement. Because the patents to be licensed were “standards-essential patents”, or SEPs, the parties were able to ask the court to settle the terms of their licence agreement. A by-product of the case being about SEPs is that the court had to decide on questions of the rules of standards-setting bodies, and competition laws, and conduct in litigation. These aspects of the dispute took up a lot of time and money, and led to some ground-breaking judicial comments. But the heart of the case was about what terms were reasonable in a patent licence agreement.

IP Draughts is writing an article about the transactional aspects of the case, which has so far reached about 8,000 words. He hopes to get it published by a legal journal in the next few months.

Looking at the case in this way enables you to broaden its application beyond the arcane world of SEPs and FRAND, which many IP lawyers don’t get involved with, as it tends to be something that large corporations do, in specific industry sectors such as telecommunications.

In IP Draughts’ world, perhaps the most obvious analogy is the terms of “access rights” to IP that parties to a Horizon 2020 research consortium are supposed to grant one another. The grant terms of the European Commission for this and similar research programmes include a great deal of detail on the IP licences that the collaborating parties are required to grant one another and external parties.

Consider, for example, the following terms, taken from the Multi-Beneficiary General Model Grant Agreement (Version 4.0 27 February 2017):

25.3 Access rights for other beneficiaries, for exploiting their own results
The beneficiaries must give each other access — under fair and reasonable conditions — to background needed for exploiting their own results, unless the beneficiary that holds the background has — before acceding to the Agreement — informed the other beneficiaries that access to its background is subject to legal restrictions or limits, including those imposed by the rights of third parties (including personnel).

‘Fair and reasonable conditions’ means appropriate conditions, including possible financial terms or royalty-free conditions, taking into account the specific circumstances of the request for access, for example the actual or potential value of the results or background to which access is requested and/or the scope, duration or other characteristics of the exploitation envisaged.

26.2 Joint ownership by several beneficiaries
Two or more beneficiaries own results jointly if:
(a) they have jointly generated them and
(b) it is not possible to:
(i) establish the respective contribution of each beneficiary, or
(ii) separate them for the purpose of applying for, obtaining or maintaining their protection (see Article 27).
The joint owners must agree (in writing) on the allocation and terms of exercise of their joint ownership (‘joint ownership agreement’), to ensure compliance with their obligations under this Agreement.

Unless otherwise agreed in the joint ownership agreement, each joint owner may grant non-exclusive licences to third parties to exploit jointly-owned results (without any right to sub-license), if the other joint owners are given:
(a) at least 45 days advance notice and
(b) fair and reasonable compensation.

31.3 Access rights for other beneficiaries, for exploiting their own results
The beneficiaries must give each other — under fair and reasonable conditions (see Article 25.3) — access to results needed for exploiting their own results.

 31.4 Access rights of affiliated entities
Unless agreed otherwise in the consortium agreement, access to results must also be given — under fair and reasonable conditions (Article 25.3) — to affiliated entities established in an EU Member State or associated country, if this is needed for those entities to exploit the results generated by the beneficiaries to which they are affiliated.

[Emphasis added.]

These are not necessarily the only situations in which parties must grant licences to background or foreground IP, but they are the main ones that IP Draughts found on a quick search of the model terms linked above. Nowadays there are multiple versions of the model terms for different research programmes.

There is, as far as IP Draughts is aware, little or no jurisprudence on what amounts to fair and reasonable conditions, or fair and reasonable compensation, in the context of EU-funded research programmes (though he is happy to be corrected).

Of course, in most cases parties simply agree terms without the need for judicial guidance. This is true for SEPs and for IP arising from EU-funded research programmes. In both cases, licensing has been happening for decades. But in case the parties decide to go to court over whether they have been fair and reasonable, the Unwired Planet case provides useful guidance that could be applied by analogy to the above-quoted EU terms.

As part of the article that he is writing, IP Draughts has come up with a 10-point plan for drafting and negotiating fair and reasonable (and non-discriminatory) licence terms, based on Mr Justice Birss’s judgment in the Unwired Planet case. The points may not be particularly clear without the surrounding, detailed commentary, but they are reproduced here for what they are worth. In its current draft form, the 10 points are as follows:

  1. Work with technical and patent attorney colleagues to identify or define the patents that are to be licensed. This may not be an easy task, particularly in the case of SEPs, where the list of SEPs may change during the lifetime of the licence.
  2. Unless the parties agree otherwise, ensure that the terms of the licence agreement comply with the detailed rules of the standards-setting body, or the European Commission’s terms of funding, as applicable.
  3. When drafting and negotiating the licence agreement, always take a reasonable position that can withstand scrutiny by a court.
  4. When negotiating the licence, don’t assert that any term is a ‘deal breaker’ (i.e. that it must be included in the licence agreement) unless you are certain that a court would regard that term as fair and reasonable.
  5. During litigation, it may be in each party’s interests to come up with complex models and criteria to justify a particular set of royalty rates, and the judge may echo this complexity in his judgment. But when it comes to drafting a licence agreement, try to agree royalty terms that are as simple as possible, as this will reduce the likelihood of further dispute over their application.
  6. Try to agree as many of the licence terms as possible, and ask the court only to decide major issues of principle.
  7. Where you agree terms without needing the intervention of the court, it is likely, but not inevitable, that the court will agree with your assessment that the agreed terms are fair and reasonable (and non-discriminatory).
  8. Except for points that are likely to be considered by the court as raising FRAND issues, the parties should draft and negotiate the licence agreement in the same way as any other patent licence agreement.
  9. Start your licence negotiations with a template licence agreement that has been drafted (a) in a clear, modern style, and (b) to be suitable for use under the law and jurisdiction of the contract. Don’t use a US template for an English law agreement.
  10. Involve a contract drafting specialist in your negotiating team, preferably one who has experience of drafting patent licence agreements.

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Why is M&A contract drafting so bad?

Before we get to that question, here are some others: why do people called Wood start insurance businesses, and what makes them so good at it that they become millionaires?

Back in the 1980s, Peter Wood set up Direct Line, an insurance company whose advertising was famous for featuring a red telephone handset on wheels. He later started another successful insurance business, eSure. Sir Peter Wood, as he is now called, is said to be worth about half a billion pounds.

When IP Draughts first read the Supreme Court’s judgment in the case of Wood v Capita Insurance Services Ltd [2017] UKSC 24 (29 March 2017), he assumed this was another Peter Wood venture. But in fact, the person selling an insurance business in this case was a Mr Andrew Wood. According to the case report, he received 94% of £7,681,661, or about £7.2M, from the sale of Sureterm Direct Limited to Capita Insurance Services Limited. Plus possibly some deferred consideration, the amount of which is not stated in the judgment. Impressive, but not on the same scale as his namesake.

General approach of the English courts to conctract interpretation

The Wood v Capita judgment is interesting mainly because the court was required to interpret a badly-constructed indemnity clause. It also includes some comments on contract interpretation generally, but as Lord Hodge, who gave the sole judgment (with which all the other justices – including Lords Neuberger and Sumption – agreed), stated:

It is not appropriate in this case to reformulate the guidance given in Rainy Sky and Arnold; the legal profession has sufficient judicial statements of this nature. But it may assist if I explain briefly why I do not accept the proposition that Arnold involved a recalibration of the approach summarised in Rainy Sky.

Regular readers of this blog will be aware that we have briefly commented on the Rainy Sky and Arnold cases in the past. For a more detailed and considered view of these and other recent cases on contractual interpretation, and how they should be applied to the facts of IP transactions, readers are directed here. This link is to the abstract of an article Contract Law for Intellectual Property Lawyers, which IP Draughts and his colleagues Lisa Allebone and Mario Subramaniam have recently written for the Journal of Intellectual Property Law and Practice, and which should appear in the print version of the Journal in the next few months. For what it is worth, the article agrees with Lord Hodge’s assessment of the impact of Arnold on Rainy Sky.

Analysis of the indemnity clause

Thus, the main interest of Wood v Capita is in how the court applied the existing law on contractual interpretation to the facts of a specific indemnity clause. In the 3 months or so since the judgment was published, many law firms have written articles summarising the case. IP Draughts will take a slightly different approach, by focussing more on the wording and what it says about the state of M&A drafting.

Here is the clause that was in dispute:

The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer’s Group against all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and all fines, compensation or remedial action or payments imposed on or required to be made by the Company following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person and which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service. [emphasis added by IP Draughts]

The facts, very briefly stated, were:

  1. Allegations were raised about the conduct of the business prior to its sale to Capita. In essence the allegation was that, after a customer had obtained an online quote, and had been put in touch with a member of the Sureterm sales team, they were quoted a higher premium, which had in effect been made up by the sales person without reference to the underwriter, simply to increase the sales commission.
  2. Capita notifed the Financial Services Authority (FSA), who required Capita to implement a compensation scheme to customers.
  3. Capita claimed under the indemnity for the costs of the scheme and various other costs, totalling about £2.4M.
  4. Wood argued that he wasn’t liable under the indemnity, as there had been no “claims or complaints registered with the FSA” (see wording of indemnity above).

Readers will see that the above-quoted clause has numerous components, whose relationship to one another is unclear. The court broke these components down, and added numbering to aid discussion, as follows:

The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer’s Group against

(1)       all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and

(2)       all fines, compensation or remedial action or payments imposed on or required to be made by the Company

(A)      following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other authority against the Company, the Sellers or any Relevant Person

(B)      (i) and which relate to the period prior to the Completion Date (ii) pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service.

In IP Draughts’ view, this breakdown is not entirely helpful, as it makes some assumptions about the relationship of each component with each other. He prefers to do so as follows:

  1. The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer’s Group against
  2. all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and
  3. all fines, compensation or remedial action or payments imposed on or required to be made by the Company
  4. following and arising out of claims
  5. or complaints
  6. registered with the FSA, the Financial Services Ombudsman or any other Authority
  7. against the Company, the Sellers or any Relevant Person and
  8. which relate to the period prior to the Completion Date
  9. pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service.

Some remarkable arguments and comments were made about the relationship of these items to one another. Using IP Draughts’ numbering system, Lord Hodge notes that:

  • the parties agreed that item 3 is already covered by the wording of item 2, and so is “otiose” (or redundant to you and me), and was included “for the avoidance of doubt”.
  • Capita argued that items 4 to 7 qualified item 3 but not item 2 (which is difficult to reconcile, as the judge noted, with the previous bullet point), but that items 8 and 9 qualified both 2 and 3.
  • Wood argued that items 4 to 9 qualified both 2 and 3 (but see below).
  • Wood argued that a comma should be inserted after item 4, so that it was not qualified by item 6, but was qualified by item 7. In other words items 5 and 6 should be rolled into one.

Various other technical arguments were made on the drafting, including the potential tautology of using the word “claims” in both item 2 and item 4. Ultimately, the court had to decide whether a customer had to make a claim or complaint in order for the indemnity to be triggered. The 5 justices in the Supreme Court said yes, as did the 3 judges in the Court of Appeal, but the respected judge in the High Court said no.

IP Draughts’ first reaction to this case is to wonder what the drafter was thinking, when allowing such a poorly structured clause to be included in the agreement for which he or she was responsible. Then he has second thoughts, and wonders what pressures the drafter was under to produce wording of such low quality, and what training he or she had in contract drafting.

Clearly, a major issue in this case is that there were at least 9 separate components in the clause (IP Draughts has now spotted some more), and the drafter had not clearly established the relationship between them. This allows numerous interpretations, only some of which were explored in the present case. To some extent this can be fixed by including numbering, as the judge in this case did.

But the clause breaks so many other basic rules of contract drafting that it is difficult to know where to start. In no particular order, some significant issues are:

  • No contract needs a sentence of 119 words.
  • Rather than simply indemnify the buyer, the seller is required to “undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer”. This drafting approach appears to IP Draughts to be M&A industry practice, perhaps just UK M&A practice. He sees obligations to pay rather than indemnities (though here the two concepts seem to have been combined). IP Draughts understands that “covenants to pay” were originally used instead of tax indemnities in M&A transactions because tax indemnities had certain undesirable tax consequences under applicable legislation. They are, he understands, thought to be stronger than warranties in that they are a simple debt and not subject to the rules on causation, remoteness and mitigation. Thus, a practice has developed in M&A contracts of stating obligations to pay as a substitute for indemnities. He is not aware of any case law that supports this approach, and he has always put the practice down to the inward-looking “group think” of the M&A legal community. But he is happy to be corrected.
  • On pure drafting grounds “undertake to pay” is bad drafting. Why not just “shall pay”?
  • Item 2 in IP Draughts’ list mixes up various types of claim with various types of financial category (damages, costs, etc). He finds this confusing and his indemnities tend to separate out these two categories.
  • In what sense is a claim “suffered”? This is such an old-fashioned word, and is used in different ways – sometimes it means “allow” as in “suffer little children to come unto me” (Luke 18).

On the positive side, at least we have avoided “hold harmless and defend” in the above wording. IP Draughts hopes that somewhere in the agreement the seller is given conduct of any claims in respect of which the indemnity applies.

Seeing this clause feeds IP Draughts’ prejudices about the lack of interest in contract drafting among M&A practitioners. But he isn’t smug about the IP community either, as his recent article about the wording of a FRAND licence agreement demonstrates.

There’s a lot of it about…

 

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What is a patent troll, and how can you defeat it?

trollWhen witnesses appear before committees of the British House of Commons, they are not told in advance what the questions will be. When IP Draughts and Dr Daniel Nelki of Wellcome Trust appeared before the Science and Technology Committee in December, we were not expecting to be asked “what is a patent troll?”, but we tried our best to answer the question.

IP Draughts burbled on for a while about non-practising entities, pointed out that universities fell within this description but should not usually be considered as trolls, and suggested that (a) it was a particular, aggressive way of pursuing patent litigation that was troll-like, rather than the assertion of patents per se; and (b) patent trolls were more of a US than a European phenomenom.

In IP Draughts’ understanding, though he is not a litigator and certainly not a US litigator, a number of factors create a favourable environment for patent trolls in the USA:

  1. The poor quality of some patents in the USA, which should not have been granted. These sometimes claim developments that are used widely across an industry, thereby creating a large pool of potential infringers.
  2. texas2The pro-patent bias of some courts in the USA; the United States District Court for the Eastern District of Texas is a particular favourite for patent owners. Or just a lack of understanding of patents in some non-specialist courts, which creates uncertainty of outcome of patent actions.
  3. The possibility of jury trials in patent cases, which also adds to uncertainty.
  4. The cost of litigation in the USA, partly as a result of very extensive discovery procedures.
  5. The absence of a general “loser pays” approach to legal costs (except in “exceptional” cases – see below). This reduces the risk to a patent owner who bring a speculative law suit; he won’t be hit with a large bill for the defendant’s legal costs if he loses the case.
  6. The availability of legal representation on a contingency fee basis, where the patent owner has no obligation to pay its lawyer’s legal costs other than a percentage of any damages that the owner wins in the litigation. This also reduces the risk to a patent owner who brings a speculative law suit.

These factors sometimes encourage patent owners to bring spurious claims, and make it easier for a defendant to pay a “nuisance value” amount to a patent owner rather than defend a patent claim, no matter how weak the patent.

reachOccasionally, IP Draughts’ UK clients have asked him about letters from US law firms asserting patents in terms that were considered troll-like. In one case, many years ago now, the patent was for a method of testing for a chemical compound. It was a US patent, probably weak, and the client was based in the UK so it was unlikely there would be any immediate infringement. However, the patent had broad claims that included products discovered using the testing method, known as reach-through claims. If these claims were upheld in relation to the client’s products, and if the products were sold in the USA as was hoped, the patent could have done significant harm to the client’s (future, hoped-for) business.

The client consulted specialist patent attorneys, who advised that the risk of infringement of a valid patent was low.

But how should the client respond to the US lawyer’s letter? The letter claimed that many companies in the industry had taken licences and that a good deal could be struck if the client responded promptly. It also claimed that the inventor (who had assigned the patent to a non-practising entity) was a US academic who was going to use the royalties for the benefit of science. This last part seemed designed to position the plaintiff as a “good guy” in any future jury trial.

In the end, the client decided to ignore the letter and subsequent follow-up letters and eventually the US law firm stopped writing. Perhaps a small biotech company in a foreign land was not the primary focus of the patent owner’s efforts.

An alternative approach to dealing with a non-practising entity is to stand up to it and devote resources to fighting any litigation. If you have enough money, and the right judge, this may work.

coteIt is heartening, in this context, to read the recent decision by Judge Denise Cote, of the United States District Court for the Southern District of New York, in the case of Gust, Inc v Alphacorp Ventures, LLC and Richard Suarez, of December 8, 2016, reported here.

Not only did the judge decide the patents were invalid, she awarded costs against both the patent owner and their lawyers. It seems from the report that the patent owner is unlikely to be able to pay the approximately $500,000 awarded to the defendant, so their attorneys may be forced to pick up the tab.

Her reasons for awarding costs, on an exceptional basis, included the fact that the patents were clearly invalid, and the aggressive way in which the patent owner, via his attorneys, had conducted the litigation. From a quick scan of the decision, this seems to have included:

  1. The patents claimed methods of raising money via crowdfunding, albeit dressed up as the use of software for this purpose.
  2. It was obvious in light of the Supreme Court’s 2014 decision in the Alice case that these patents claimed unpatentable material. The patent owner had “attempt[ed] to masquerade its otherwise abstract idea by highlighting allegedly ‘inventive’ elements… But these generic computer elements do not confer patent eligibility”.
  3. The case was initially brought in the Eastern District of Texas (and, according to a press report, a jury trial was sought) “a venue that bears no relationship to the parties or facts at issue in this case …further supports a finding of inappropriate motivation”.
  4. When the defendant managed to get the case transferred to New York, the patent owner tried to withdraw its case by providing a covenant not to sue (see article about that subject on this blog). However, the defendant didn’t accept that this brought the matter to an end.
  5. The patent owner, which was a non-practising entity, had pursued the case in an aggressive way despite acknowledging that it was “not worth litigating”. Its goal was “not to secure a reasonably royalty for infringement of a valid patent, but rather to extract a nuisance settlement …on the theory that Gust would rather pay an unjustified albeit minimal license fee than bear the costs of the threatened expensive litigation in a distant venue”.
  6. Awarding costs against the patent owner’s attorneys, the judge commented on the attorneys’ “bad faith motivation” in bringing the case in Texas, and conducting it in the way that they did.

Heady stuff. This is just one case, though according to the final paragraph of the judge’s Wikipedia entry she has form in awarding costs in patent cases. It will be interesting to see if other US judges follow this judge’s approach and make the USA a less attractive environment for non-practising entities bringing patent infringement actions.

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