Cisco Systems, Inc. (CSCO), Apple Inc. (AAPL), and Google Inc (GOOG) Join Forces on Patent Law

The new law and the American Rule
Under the terms of the new law, a party that brings an unsuccessful patent suit may be ordered to pay the legal fees of the company it sues if the judge determines that such relief is appropriate. The plaintiff would be automatically exempted from such a determination if the original inventor or a university was a party to the suit. More significantly, if the party bringing suit is actively involved in the manufacture of a product that relies on the patent, this cost-shifting option would not come into play.

The problem with the entire concept is that in the U.S., we follow what is called the American Rule. Under the American Rule, all parties are responsible for paying their own legal fees. This differs from the English Rule under which the losing party is responsible for the legal fees of the winner. The concept behind the American Rule is that injured parties should not be chilled from bringing legitimate cases by the fear that if they lose they may be forced to bear the crushing legal expenses of larger defendants. In general, we Americans cannot help but root for, or at least try to protect, the little guy.

Rep. John Conyers, D-Mich., said: “We have a measure before us that the plaintiff pays and the defendant who might be an alleged patent infringer pays nothing. This is disturbing.” What this comment highlights is the idea that putting a law on the books that subverts the American Rule should be somewhat offensive to us all. While the aim of the law is to effectuate important patent reform, this may not be the best way to accomplish it.

Each of the above companies has made full-throated supports of the new law. This makes sense given the ever-rising cost that these nuisance suits represent. While this issue is not likely to be resolved in the immediate term, it warrants the attention of all technology investors.

The article Cisco, Apple, and Google Join Forces on Patent Law originally appeared on Fool.com and is written by Doug Ehrman.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Apple, Cisco Systems, and Google. The Motley Fool owns shares of Apple and Google.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.