Is Cost of Defense an Appropriate Consideration for an Exceptional Case Determination?

When a patent plaintiff does nothing to increase the costs of defense beyond what is to be expected for normal litigation, is the cost of defense a proper consideration?  The Federal Circuit has spoken clearly that “there is no minimum damages requirement to file a patent infringement case,” and “[a]sserting seemingly low damages against multiple defendants—or settling with defendants for less than the cost of litigation—does not necessarily make a case ‘exceptional' under § 285.” Thermolife Int'l LLC v. GNC Corp., 922 F.3d 1347, 1363-4 (Fed. Cir. 2019) citing AdjustaCam, LLC v. Newegg, Inc., 861 F.3d 1353, 1361 (Fed. Cir. 2017). However, should it ever be an appropriate consideration when there is no evidence that the patent plaintiff did anything to increase the costs of the lawsuit beyond what would normally be expected? 

The Federal Circuit has never expressly found that the costs of defense is a proper consideration, standing alone.  In Thermolife, Federal Circuit recognized that a patent plaintiff is able to make patent litigation more affordable by distributing common costs over many suits, thus making each suit worthwhile on lower terms. Id. Moreover, as for settlement amounts, a low figure might simply reflect the small size of an individual defendant's potential liability. Indeed, the figure may result from what the Supreme Court has recognized as the normal, legitimate settlement calculus, which includes consideration of litigation costs: specified as a prediction of the amount of liability, discounted by its probability, plus the transaction costs of further litigation. Evans v. Jeff D., 475 U.S. 717, 734, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986); see Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1369 (Fed. Cir. 2017).

However, in today's patent infringement world, another factor that should be considered by the courts is the high cost to the plaintiff to prosecute patent infringement litigation, which are high enough to take away most patent plaintiffs' access to legal representation.  Liability and damages experts alone can be several hundred thousand dollars with the costs of even small cases getting into the seven figures.   

The AIPLA Economic Survey for 2023 states that when damages are less than $1 million, the costs of suit per patent for simple technologies is $300,000 through discovery and claim construction, and another $600,000 per patent to take the case through trial and appeal. AIPLA Report of the Economic Survey 2023 at 61.  When the damages are between $1 million and $10 million, those numbers increase to $600,000 and $1 million per patent, respectively.  Where the damages alleged are between $10 million and $25 million, those numbers increase to $1.5 million and $3 million per patent, respectively.  Where damages alleged exceed $25 million, those numbers further increase to $1.5 and $3.625 million per patent.  The report adds that for complex technologies, these reported costs can increase by up to 50%.  Id.  Accordingly, patent litigation has become so expensive as to make it almost impossible for most patent owners to enforce their patents unless the potential damages are well into the seven figures.

The Federal Circuit has considered cost of defense as a factor in the totality of the circumstances supporting an exceptional case finding in Blackbird Tech LLC v. Health In Motion LLC, 944 F.3d 910, 916–19 (Fed. Cir. 2019), where the patent plaintiff reduced its settlement demand multiple times to what was less than the cost of defense before it unilaterally dismissed the case.  The court found that the lowering of settlement demands when coupled with a very weak infringement read and other litigation misconduct supported an exceptional case finding.  Blackbird Tech LLC, 944 F.3d at 916–19.  However, what if Blackbird Tech LLC had supplied evidence that the high costs of the litigation forced it to reduce its settlement demand, that it could not afford to litigate to the end?  Would the result have been different?

What about a patent plaintiff with a very strong infringement position who cannot afford to take the case through trial because the damages are less than the costs to prosecute the lawsuit?  Is that patent plaintiff to be denied access to the courts simply because of the costs to litigate?  Shouldn't reducing the settlement demand in light of the costs to prosecute the lawsuit be entitled to at least the same weight, if not more, than a defendant's cost of defense in considering an exceptional case finding? 

Under these facts, wouldn't the lowering of the settlement demand be the most reasonable action the plaintiff could take?  Reducing the settlement demand seems logical when a patent plaintiff cannot continue the lawsuit but still has a valid and infringed patent. 

Stated another way, if a patent plaintiff has not brought its infringement claims with ‘surmise and suspicion,' (SeePark-In-Theatres v. Perkins, 190 F.2d 137, 142 (9th Cir. 1951)) but is forced to lower its settlement demands to what a defendant argues is lower than the cost of defense because it cannot afford to pay the legal fees to prosecute the case or because the potential damages are less than the fees to prosecute the case, would the lowering of the settlement demands support an exceptional case finding?  This author thinks not and encourages every patent plaintiff responding to a motion to find a case exceptional to include evidence, if accurate, that its low settlement demands were due to the high cost of patent litigation.  That the plaintiff simply could not afford to fight to the end.

The true issue on this point is that patent litigation is unavailable to most patent holders due to its high cost.  Small patent holders are therefore denied access to the courts.  Any policy or factor that would further serve to deny access to the courts based merely on the costs of defense or value of a case should be dissuaded. Rather, the courts should do all they can to open the courts to all patent owners with valid infringement claims, regardless of their size or value.