The U.S. Supreme Court issued two patent rulings that could potentially help limit the activity of so-called "patent trolls" on April 29, 2014. Although the term "patent troll" does not have a specific legal definition, it is generally used to describe businesses that do not manufacture products, but instead acquire patents and rigorously assert these patents against companies that manufacture and sell products when the case for patent infringement may be questionable.
This so-called patent troll activity has achieved significant notoriety, so much so that Congress and the President have been actively pursuing ways in which each branch can curb this activity. The Supreme Court rulings should give some relief to businesses that have been sued for patent infringement based on questionable facts, and should give some additional ammunition to companies battling these so-called "patent trolls."
SUPREME COURT RULINGS AT A GLANCE
OCTANE FITNESS, LLC v. ICON HEALTH & FITNESS, INC. (Case No. 12-1184, April 29, 2014). The Supreme Court struck down a test established by the U.S. Court of Appeals for the Federal Circuit—the Court established to hear all appeals for patent cases—for determining when the loser in a patent lawsuit should pay the winners attorney's fees.
- U.S. law (35 USC § 285) gives courts the authority to have the winning party's attorney's fees paid by the losing party in "exceptional cases."
- Before this ruling, the Federal Circuit's rule defined an "exceptional case" as one in which the inappropriate conduct affected the outcome of the case, or when the lawsuit was baseless and brought in bad faith.
- The result of this fairly restrictive test was that courts very rarely awarded attorney's fees to the prevailing party. However, the Supreme Court has now indicated that an "exceptional case" is simply a case that "stands out from others," either with respect to strength/weakness of a party's case or the unreasonable actions of one of the parties.
Not only did the Supreme Court make the test for when to award attorney's fees easier in its OCTANE FITNESS opinion, the Supreme Court also lowered the amount of proof required to pass this test.
- The Federal Circuit had previously required clear and convincing evidence to prove that a case was "exceptional," which generally meant that it was substantially more likely than not that the case was exceptional.
- However, the Supreme Court has changed the test to require a preponderance of the evidence to prove the case was "exceptional," which generally means that it is simply more likely than not that the case was "exceptional."
HIGHMARK INC. v. ALLCARE HEALTH MANAGEMENT SYSTEM, INC. (Case No. 12-1163, April 29, 2014). The Supreme Court addressed how easily the trial court's determination of attorney's fees may be overturned on appeal.
- Before this ruling, the Federal Circuit rule allowed the Federal Circuit to review the trial court's award of attorney's fees de novo, meaning that the Federal Circuit reviewed the ruling on its own with no deference to the trial court.
- However, the Supreme Court has said that the Federal Circuit will now review the trial court's award of attorneys' fees only for an abuse of discretion, which generally means that there must be some clear error in the trial court's determination, giving substantial deference to the trial court.
WHAT DO THESE RULINGS MEAN?
It appears that the U.S. Supreme Court has given companies on the receiving end of a patent infringement lawsuit stronger ammunition for obtaining attorney's fees from the losing party, so long as the losing party appears to be "abusing" the judicial system. Attorney's fees for patent lawsuits can easily extend into the million dollar range depending on the suit; these rulings may help ensure that parties with a questionable patent infringement case (i.e. “patent trolls”) think twice before bringing their lawsuit to court.