The Supreme Court thinks that if you bring a bad enough patent suit, you should have to pay for it. In a pair of rulings handed down today, the court loosened restrictions on patent lawsuit fee-shifting, in which the losing party must pay the winner's attorney's fees. It's a move that could make it harder for so-called "patent trolls" to bring frivolous lawsuits, as well as the first of a number of major patent cases expected this year.
Because of the frequency and increasing visibility of patent lawsuits, particularly those involving big names like Apple and Samsung or patent holding companies like Intellectual Ventures, the past few years have been spent debating whether the standards for issuing patents should be tightened, and whether bringing a suit should be harder. Though the definition of patent trolling varies, there's an undeniable subset of companies that bring lawsuits against small businesses using broad, tangentially related, or likely invalid patents. Victims have complained that expensive, arduous lawsuits make it cheaper to settle than to fight even an obviously bad lawsuit, and Congress is workshopping a patent reform bill meant to ease the process.
Loosening a "rigid and mechanical" framework
While it might not make the actual lawsuit easier, there's already a provision that lets courts punish people who bring bad patent claims. The Patent Act stipulates that in "exceptional" cases involving inappropriate conduct, obviously baseless claims, or clear bad faith, losers can be made to pay both parties' costs. But the option is rarely exercised, and a 2005 decision set a high bar for exceptional cases. Now, the Supreme Court has instituted a laxer interpretation, saying that the previous "rigid and mechanical" framework made it virtually impossible to apply the rules. Courts, said Justice Sonia Sotomayor in a majority opinion, should use their best judgment, defining an "exceptional" situation as "simply one that stands out from others" with regards to the strength of a company's case or the "unreasonable manner" in which they made it.
Given this new definition, the Supreme Court has sent two cases — Octane Fitness v. Icon Health and Fitness and Highmark v. Allcare Health — back to lower courts for reconsideration. In the future, the decision could tip the balance in settlement negotiations, giving companies that bring patent suits a little more to lose. It could also make it riskier to trawl for settlements by simply threatening a lawsuit. One of the complaints about patent trolls is that because they don't produce their own products, there's no way to counter-sue in a lawsuit, and this change could level the playing field. That depends, of course, on how much courts actually use fee-shifting. Judges are inclined to be conservative, especially because it can be difficult to distinguish between bad faith and simple misjudgment. "Courts are very skittish about shifting fees," says Mark Janis, director of the Indiana University Maurer School of Law's Center for Intellectual Property Research. "I think that they understand that somebody always loses, and it may look like the losing side didn't have a meritorious claim. So there's always going to be a little bit of room to say 'Oh, they knew it all along.'"
The House patent reform bill includes its own 'loser pays' model
Nonetheless, the Supreme Court's decision grants judges more leeway to crack down on baseless claims. It also moves the current system slightly closer to the one imagined by some Congressional patent reform advocates, who added a "loser pays" provision to the Innovation Act, which passed the House of Representatives last year. While supporters say it will make frivolous lawsuits less common, critics believe it could stop patent holders from bringing legitimate claims if they aren't positive they'll win. Janis thinks that today's decision could impact the Senate's patent reform debate. "This case could really change the negotiations," he says, because legislators who were previously on the fence could decide that there's no need to add an extra fee-shifting rule. For people seeking more aggressive reform, that's not necessarily ideal, but unlike the Innovation Act, the Supreme Court's decision is already a sure thing.
Today's rulings kick off a year filled with potentially important patent lawsuits. In March, the Supreme Court heard arguments for Alice Corp. v. CLS Bank, a case that could tighten the limits on controversial software patents. Nautilus v. Biosig, argued earlier this week, could rewrite the rules on ambiguous patents. Limelight Networks v. Akamai Technologies will address whether a company can be held responsible for encouraging indirect patent infringement, and Teva v. Sandoz will determine whether federal appeals courts can independently interpret the claims of a patent, or if they must rely on the district court's conclusions. The Senate Judiciary Committee is also set to mark up a patent bill brought by Senator Patrick Leahy (D-VT) next week, after a number of delays.
Matt Macari contributed to this report.