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One has to wonder if the country’s top patent judges are just not very good at law. How else to explain the series of unanimous reversals their court’s decisions have received at the hands of the Supreme Court? It happened again on Tuesday as the high court issued two more 9-0 rulings.
The cases touched on when one side has to pay some or all of the other side’s legal fees. This idea of fee-shifting is rare in the U.S., but is seen as a potentially effective way to stop a flood of weak cases that are brought by patent owners in the hope that defendants will just pay them to go away. The patent court, however, has made fee-shifting nearly impossible to obtain.
On Tuesday, the Supreme Court changed the game in a case called Octane. It ruled that the U.S. Circuit Court for the Federal Circuit, which hears every patent appeal in the country, made an error in deciding how to identify patent cases that are so exceptional that one party can recover its legal costs.
In an opinion written by Justice Sonia Sotomayor, the court explained that “exceptional” means what it normally means, and threw out what appeared to be an impossibly high hurdle imposed by the Federal Circuit (a requirement of “subjective bad faith” plus “objective baselessness”).
In a second 9-0 opinion, in a patent troll case called Highmark, Justice Sotomayor removed some of the power of the Federal Circuit judges to review how lower courts decided what was bad conduct.
For practical purposes, the two cases mean that lower courts will have more latitude to use legal fee shifting as a way to punish and deter companies that abuse the patent system.
“The Federal Circuit is well-intentioned, but it has a habit of drawing bright lines that can be impractical for lower courts,” said Rudy Telscher of the law firm Harness Dickey, who argued successfully on behalf of the appellant in the Octane case.
Telscher added that the rulings would create “real fear” among patent trolls by changing the economic incentives of trolling, which now allows trolls to extort companies with mounting legal costs — at no cost to the troll. (In the Highmark case, for instance, a lower court found that the troll’s victim had incurred over $5 million in legal and expert fees over a nonsense case.)
While Tuesday’s rulings appear to be good news for patent reform advocates, they also raise the question of whether they might undercut a major patent bill that is slated to be debated in the Senate on Thursday. The proposed law, the Innovation Act, contains rules that would make it easier for successful patent defenders to collect legal fees; the rules would also make it harder for trolls (like the one that sued Etsy and 86 others in one day alone last week) to engage in procedural abuses such as filing bare-boned complaints.
Finally, it remains to be seen how the Federal Circuit will respond to the latest rebuke from the Supreme Court. The court has already this year rebuffed opinions from two renowned judges of the 9th and 7th Circuits, providing ammunition to critics who suggest the patent court should be disbanded.
Tuesday’s decision comes as the Supreme Court is still reflecting on a major decision over whether to permit patents over software.