Section 285 of the Patent Act states that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. The statute does not say who pays the fees, but the assumption (mine, at least) has generally been that it is the non-prevailing party—because who else would pay?
Several recent district-court decisions suggest that owners of non-practicing patent holding entities may be personally liable for the prevailing party’s attorney’s fees, despite the general rule that (with certain limited exceptions) owners of companies are not personally liable for the debts of the company.
For example, in Phigenix v. Genentech (decision available here), the district court (in the N.D. Cal.) granted the defendant’s motion to join one of the plaintiff’s owners (who owned more than 50% of the plaintiff’s stock) as a party for exceptional-case purposes. The court allowed joinder, recognizing that, once the owner appeared, due-process principles entitled him to defend himself from an attorney’s fee award. Important to the court’s decision seemed to be the fact that the plaintiff offered no evidence of its solvency. The court found that the defendant need not pierce the corporate veil to add the owner as a party.
The district court (in the E.D. Tex.) in Rothschild Connected Devices v. ADS Security (decision available here) similarly allowed a defendant to amend its answer and counterclaims to add the sole member of the plaintiff as a party for Section 285 purposes, after the court awarded, but the plaintiff entity failed to pay, approximately $290,000 in attorney’s fees and costs under Section 285.
It will be interesting to see whether the Federal Circuit allows Section 285 attorney’s fee awards against a party’s owner(s). But, at least for now, the lesson is that forming a company to hold your patent is not a surefire way to limit your potential liability for the defendant’s legal fees.