In recent years, the lower Federal Circuit Court had set a high
bar for costs awards. Previously, a party needed to demonstrate
that the lawsuit had been brought in "subjective bad
faith" and was "objectively baseless", or else
involved "material inappropriate conduct". Critics noted
that this was a nearly impossible standard to meet – since
bad faith and willful misconduct are very difficult to prove
– and that this tilted the playing field too far in favour of
so-called non-practising entities (NPEs), who had little to lose in
asserting patents widely.
The U.S. Supreme Court has now held that costs awards are
appropriate in an "exceptional" case; that is, a case
that "stands out from others with respect to the substantive
strength of a party's litigating position...or the unreasonable
manner in which the case was litigated." Evidence of bad faith
or intentional misconduct is no longer required to prevail.
Moreover, the Court held that the decisions of trial courts
regarding costs should be afforded deference by appellate
As a point of comparison, the Canadian patent litigation system
has been relatively free of assertions by NPEs. There are other
factors at play: the reluctance of Canadian courts to grant
injunctions and our smaller market, for example. However, the
threat of costs awards also serves to skew a
"cost-benefit" analysis away from launching the sorts of
"exceptional" lawsuits contemplated by the U.S. Supreme
While the decision this week lowers the bar, costs awards in the
United States are still far from automatic. Nevertheless, the
decision should cause at least some prospective plaintiffs to
reconsider the merits of their patent assertions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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