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US Supreme Court hears three patent trolling cases
Patent troll cases heard by US Supreme Court
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Patent trolling—the aggressive assertion of weak or meritless patent claims by non-practicing entities—is a frequent target of disdain from open source enthusiasts. Thus it may be of some comfort to readers that the highest court in the US has recently decided the issue is worth looking into. Three cases have already been heard, but decisions are, as usual, still a ways off.
On February 26, 2014, the US Supreme Court heard oral arguments in two separate cases. These cases both focus on the grounds for awarding legal fees for victorious defendants of weak-to-completely-baseless lawsuits for patent infringement. How the Supreme Court decides to rule in these cases might cripple patent trolling... or it could give it a shot of adrenaline.
The issue of awarding legal fees seems like a dry, procedural matter at first glance. But, this issue is crucial in the fight against patent trolling: if trolling means there's a good chance of losing $1-2 million (which is what legal fees can easily amount to in these types of cases, including those that never even go past the lower courts) for each organization that decides to fight back, it can really cripple the patent troll "business model." The profit from shaking down twenty or so companies for a few thousand dollars, each in pre-trial settlements, pales in comparison to the millions of dollars of losses from just one organization realizing it is threatened by a paper tiger, and fighting back. Facing that situation, why troll for money?
The legal basis for awarding attorney fees comes from a particular section of a patent law statute: Title 35 of the US Code, Section 285, which reads:
The court in exceptional cases may award reasonable attorney fees to the prevailing party.
The Court of Appeals for the Federal Circuit (CAFC) outlined a two-step test for applying Section 285 in the 2005 Brooks Furniture case [PDF]. First, if there is "some material inappropriate conduct related to the matter in litigation" (such as unethical behavior on the part of the lawyers for a party), then legal fees can be awarded. If there isn't such misconduct, then fees can be awarded "only if both (1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless."
The two cases before the Supreme Court are arguing against the Brooks Furniture test. The first case heard was Octane Fitness v ICON Health and Fitness [PDF]. These two competing companies make, among other things, elliptical trainers. ICON holds patent 6019710 A on a particular construction of elliptical trainers. ICON sued Octane for patent infringement in 2010 and lost, later losing at the CAFC as well. On appeal, Octane, among other claims, essentially accused ICON of trolling, and asked the CAFC to overturn the lower court's refusal to award attorney fees. The CAFC rejected Octane's claim for fees, refusing to lower its standard for Section 285.
Octane v ICON
In the hearing for the Octane case, the oral arguments focused on defining the legal meaning of the word "exceptional" in the context of that section. Notably, the Supreme Court judges seemed displeased with all the arguments they heard. When Octane's counsel argued that his client should receive legal fees according to Section 285 because ICON's claims were "unreasonably weak" and "meritless," some of the justices seemed skeptical: they were dubious that the standard could be applied effectively and consistently by lower courts, and that using "unreasonably weak" and "meritless" as a standard for Section 285 would not fit better with the section's intent.
When the Assistant for the Solicitor General (acting as amicus curiae, or "friend to the court," in favor of the petitioners views) argued that Section 285 is "to prevent gross injustice," several judges argued that that phrase doesn't help clarify the section.
After opening with a weak argument based on First Amendment case law, ICON's counsel followed up by arguing that attorney fees should be awarded when a claim is brought that is "objectively baseless," which was sharply criticized by Justice Breyer. He openly mused about "send[ing] [the case] back and tell [the district court] that they were imposing a standard that was too narrow." Justice Scalia seemed sensitive to the general framework of patent trolling: "if the alternative for the defendant is either [...] spend $2 million defending or pay off the $10,000 [...] that the plaintiff demands to go away, hey, that's an easy call."
The closing, rebutting remarks of Octane's counsel urged the Court not to pick an "extreme" standard:
There is not 15 amici briefs and some of the largest technologies companies in this country before this Court if it weren't the case that there's a problem. These are companies with a self-interest in a strong patent system. They have patents; they sue. And yet they are here telling this Court to not pick an extreme standard.
The amici briefs are written by the types of organizations one would expect to be interested in this type of case. For example, the Business Software Alliance (BSA) argued that "objectively unreasonable" should be the criteria, while the Electronic Frontier Foundation suggested that "bring[ing] an objectively weak case or us[ing] the cost of defense as a weapon" should be the standard. Google and thirteen other large corporations including Facebook, Netflix, Intel, HTC, Verizon, and Cisco joined in writing one brief, which also sought to lower the standard to objectively unreasonable but not meritless:
It should be sufficient to demonstrate that a patentee lacks an objectively reasonable prospect of prevailing on his overall claims, even if there is some merit to certain portions of them.
Highmark v Allcare
The second case heard was Highmark, Inc. v. Allcare Health Management System, Inc. [PDF]. Allcare holds a software patent on a patient management system for health care organizations. Concerned about its freedom to operate in the marketplace, Highmark initiated a proceeding for declaratory judgment that it did not infringe that patent in 2003. Allcare fought back, claiming Highmark infringed its patent. Highmark won at the district court leve, and got the district court judge to order Allcare to pay Highmark for its costs and legal fees. On appeal, the CAFC refused Allcare's request to overturn the district court judges ruling on costs and legal fees.
The oral argument for the Highmark case concerned the extent to which appeals courts should respect the right of district court judges to use their discretion in making a determination of an "exceptional" case (and therefore the extent to which those determinations cannot be overturned on appeal). Again, this seems like just a procedural issue on its face. However, if a patent troll loses a case in the lower courts, is forced to pay attorneys fees, but has a chance to have the attorney fees sanction lifted on appeal, then the patent troll poses a more menacing threat to those companies willing to fight back against a troll. A victory at the district court level would seem hollow if years of appellate litigation could follow. Cutting off the ability of appellate courts to overturn a Section 285 finding could cripple patent trolls after a loss at the first trial.
None of the lawyers arguing this case fared well in front of the court either. Highmark's counsel started the session by accusing the CAFC of not properly respecting the Supreme Court's rulings on awarding attorney's fees. Counsel argued that lower courts' decisions to grant attorneys fees should be almost always upheld on appeal. Justice Ginsburg raised the concern that allowing this much discretion risks major discrepancies in the awards district courts give; counsel countered that because district courts look at the entirety of cases, rather than appeals courts, which often look only at "one piece of it," they have a better sense of what's "exceptional" than appeals courts, so there would not be major discrepancies. The strongest part of Highmark's argument was its criticism of the "objective baselessness" criterion for the Section 285 test; according to Highmark, "exceptional" requires a fact-based approach, but never a purely legal examination of the merits of the patent suit.
The Assistant for the Solicitor General, representing the US government, after arguing that letting the CAFC have broad power to review claims for attorneys fees would encourage wasteful litigation, faced harsh criticism from Justice Alito; he was left "wondering [...] whether there really is going to be any meaningful review of what district courts do in this situation" if the suggestion that broad deference should be given to district courts would be implemented.
Allcare's arguments revealed a coalition of sorts on the bench. Four justices, Breyer, Sotomayor, and Scalia, and, to an extent, Chief Justice Roberts, took stances opposite those of Ginsburg and Alito: their criticism of Allcare's legalistic approach to Section 285 revealed their sympathy for an interpretation of the section as allowing broad deference to the decision of the lower courts on attorneys fees.
In both hearings, the justices seemed dissatisfied with all of the arguments they heard; those from the petitioners, those from the Assistants to the Solicitor General, and those from the respondents. It appears that Justices Breyer, Sotomayor, and Scalia, and possibly Roberts, read Section 285 in a way that would hurt patent trolls, while Justices Alito, Ginsburg, and Kagan did not. Justice Kennedy did not reveal enough in his questions for me to predict how he'd rule, and Justice Thomas, as usual, was silent. Importantly, Chief Justice Roberts recognized that the CAFC is struggling to provide a united perspective on patent issues "they seem to have a great deal of disagreement among themselves and are going back [and] forth in particular cases, in this area specifically." A fragmented ruling from the Court is quite possible, when the Court releases its decision sometime in the next few months.