Supreme Court Rulings Could Curb Patent Trolls

By Robert Ambrogi Esq

Could a pair of Supreme Court decisions result in a reduction of so-called patent troll lawsuits? That is what some commentators are saying about two cases decided April 29 that give federal district court judges greater discretion to award attorneys' fees in patent litigation.

Others, however, say the impact of the cases will be incremental, at most, and that it remains up to Congress to formulate any significant curbs on abusive patent litigation.

Defining 'Exceptional'

In the first and more far-reaching of the two cases, Octane Fitness v. Icon Health & Fitness, the Supreme Court struck down the attorneys' fees standard set by the Federal Circuit Court of Appeals in the 2005 case, Brooks Furniture Mfg., Inc. v. Dutailier Int'l, Inc.

In Brooks Furniture, the Federal Circuit interpreted Section 285 of the Patent Act, which authorizes a district court to award attorneys' fees to the prevailing party in patent litigation "in exceptional cases." The Federal Circuit held that a case is exceptional only "when there has been some material inappropriate conduct" or when the litigation was both "brought in subjective bad faith" and "objectively baseless."

This framework, the Supreme Court ruled, "is unduly rigid, and it impermissibly encumbers the statutory grant of discretion to district court judges."

Rather, an exceptional case "is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated," the Supreme Court held.

Erroneous Standard of Review

In the second of the two cases, Highmark Inc. v. Allcare Health Management System, Inc., the Supreme Court held that the Federal Circuit had erred in applying a de novo standard of review in the appeal of an attorneys' fee award.

Based on its ruling in Octane Fitness, the Supreme Court said that a district court has discretion to decide whether a case is exceptional and warrants attorneys' fees. In an appeal of an award, the Federal Circuit should reverse the district court's decision only if there was an "abuse of discretion."

"We therefore hold that an appellate court should apply an abuse-of-discretion standard in reviewing all aspects of a district court’s §285 determination," the Supreme Court said in sending the case back to the Federal Circuit.

Both decisions were written by Associate Justice Sonia Sotomayor. Highmark was a unanimous decision and Octane Fitness was almost unanimous, except that one justice, Antonin Scalia, joined in all of the opinion except three footnotes.

Impact on Patent Troll Lawsuits

Together, these decisions make it easier for the prevailing party in a patent lawsuit to recover its attorneys' fees and for that fee award to withstand challenge on appeal. Even so, the larger question for many is whether the decisions will curb litigation by patent trolls.

In an analysis written by William Seymour and Eric Carnevale, lawyers with the intellectual property firm Lando & Anastasi in Cambridge, Mass., the authors say that the two cases are likely to spur defendants to request attorneys' fees in more cases and to cause patentees to think twice before heading to court.

"Octane Fitness should … alter the cost-benefit analysis for patentees who are considering asserting weak infringement claims, and provide them with another reason to carefully and honestly assess the merits of their case before accusing someone of patent infringement," Seymour and Carnevale conclude.

Possible Limited Impact

Patent lawyer Andrew W. Williams, writing at the Patent Docs blog, however, questions just how broad the impact of these cases will be. Noting that the Supreme Court defined an "exceptional" case as one that "stands out from others," and given statistics that suggest that litigation by so-called patent trolls make up the majority of patent cases, he wonders how many of these cases could be fairly said to "stand out."

"If the statistics of some of the anti-troll organizations are to be believed, 'troll' litigations make up the majority of court filings," writes Williams, who is a partner with the IP firm McDonnell Boehnen Hulbert & Berghoff in Chicago. "If this is so, do these cases truly stand out?  Even the much smaller number of suits brought by patent assertion entities, 19%, identified by the GAO hardly makes these cases the antithesis of 'run-of-the mill' litigation anymore."

At the blog Patently-O, Dennis Crouch, associate professor at the University of Missouri School of Law, predicts that Octane Fitness will prove not to be a watershed, but will result in only incremental change.

"The law remains that attorney fees should only be awarded in exceptional cases that involve misconduct or extreme behavior," Crouch writes. "Our long tradition in the US had avoided attorney fees except in rare cases and I do not see this court changing that tradition in any dramatic way."

Rather, it is up to Congress to enact a fee-shifting provision that will create a presumption in favor of awarding fees to the prevailing party. Just such a provision was included in the Innovation Act passed earlier this session by the House of Representatives. A stepped-back version is pending in the Senate. Enactment of either would "push the law well beyond" its current state, Crouch notes.

Disagreement between the House and Senate over attorneys' fees remains the greatest roadblock to passage of patent reform legislation, according to a recent TechCrunch report. Republicans want to require the losing party in a patent lawsuit to pay the prevailing party's attorneys' fees, but Democrats fear that too strong an attorneys' fee provision might discourage meritorious claims from being filed, especially by smaller companies with limited resources.

Your turn. What impact do you think this has on future patent cases?

Robert Ambrogi Esq

Robert Ambrogi Esq

We are proud to partner with an author of Bob’s caliber to provide exclusive articles for our legal clients and leading industry experts. Robert J. Ambrogi is a news media veteran and the only person ever to hold the top editorial positions at the two leading national U.S. legal newspapers, the National Law Journal and Lawyers Weekly USA. He is currently a Massachusetts lawyer who represents clients at the intersection of law, media and technology. He is also internationally known for his writing and blogging about the Internet and technology. Media and Technology Law Bob represents a range of businesses and individuals, concentrating in print and electronic media companies and the editorial, sales, marketing and technology professionals who work in them. He also counsels businesses and individuals in employment matters. Arbitration and Mediation An established professional in alternative dispute resolution, Bob has been an arbitrator since 1994, focusing on labor and employment and securities disputes. A mediator in a range of civil disputes, Bob completed the training required by Massachusetts law to protect confidentiality.

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