US Supreme Court decisions make patent trolling riskier

While the recent decision for Oracle on the copyrighting of APIs may be distressing to software developers, the Supreme Court of the US (SCOTUS) offered some comfort on a different issue a few weeks ago. The court dealt a significant blow to patent trolling.

Exhibiting an awareness of frivolous litigation plaguing the patent system, SCOTUS chose to hear oral arguments in two cases — Octane v. ICON, and Highmark v. Allcare — that focused on the awarding of legal fees for victorious defendants of weak-to-completely-baseless lawsuits for patent infringement. We looked at the cases in March.

Toward the end of April, SCOTUS made two 9–0 rulings in these cases. And these rulings will likely deter much frivolous patent litigation because they effectively create a threat of major financial loss to an unsuccessful plaintiff. For example, suppose a troll's business model relies on getting settlements of several tens of thousands of dollars from numerous defendants. If someone it threatens stands up to it, and gets a judgment that includes hundreds of thousands of dollars in lawyer's fees, that could make a major impact on the troll.

Writing for a unanimous court, Justice Sotomayor found [PDF] in favor of Octane in Octane v. ICON. The issue in the case was the standard by which a "court in exceptional cases may award reasonable attorney fees to the prevailing party." Sotomayor began by tracing the history of the rules for attorney's fee awards in patent litigation. The most recent change to the rules, Section 285 of the Patent Act, essentially inserted two words — "exceptional cases" — into those rules. Sotomayor noted that SCOTUS had previously ruled that those two words merely clarify the rules.

Following the addition of an appellate court for all patent matters in the US — the Court of Appeals for the Federal Circuit (CAFC) — in 1982, the status quo was largely upheld for over twenty years; that is, "the Federal Circuit [...] instructed district courts to consider the totality of the circumstances when making fee determinations under §285" (page 5). But when the CAFC came across a particular case nine years ago — Brooks Furniture v. Dutailier — it decided on its own to implement a new standard: a defendant could only get attorney's fees if the lawsuit was done "in subjective bad faith and [...] [it was] objectively baseless" (page 8).

The Supreme Court has now cast aside that restrictive standard. After looking at dictionary definitions of "exceptional", SCOTUS decided on this standard (pages 7–8):

Accordingly, SCOTUS reversed the CAFC's ruling, and ordered that the case go back to the lower court to resolve the attorney's fee question by following the new standard SCOTUS had established.

As the other case, Highmark v. Allcare, also dealt with attorney's fees and Section 285, the ruling [PDF] was short. The particular issue in the case was how much deference appeals courts should give to district courts that award attorney's fees in patent infringement cases. If higher courts must defer to lower courts on these rulings, it could deter frivolous litigators, because it closes off an avenue for them to keep the threat of a lawsuit alive.

The CAFC ruled that no deference should be awarded to the lower courts. Speaking again for a unanimous SCOTUS, Sotomayor reversed this decision in light of the Octane ruling: "Because §285 commits the determination whether a case is 'exceptional' to the discretion of the district court, that decision is to be reviewed on appeal for abuse of discretion" (page 4). This effectively means that a higher court reversing an award of attorney's fees will become quite uncommon. As with Octane, SCOTUS ordered the case back to the lower courts, and for those courts to apply the SCOTUS ruling.

These rulings have already sent some waves through the patent-litigation world. Several experienced patent litigators have expressed a belief that the anti-patent-troll bill before the US Senate will now likely die because it also centered around the issue of attorney's fee awards. Some have suggested that, with the broad discretion now clearly granted to them, district courts will feel much more confident in awarding attorney's fees to successful defendants of frivolous patent litigation. Kristen Fries, an experienced patent attorney, stated on the popular patent blog "Anticipate This" that the rulings "may aid in thwarting certain 'patent trolls' from asserting patent claims that are meritless or brought in bad faith."

The US software industry may be able to relax a little. After these rulings, some potential malicious litigators may need to rethink their strategy. That could lead to fewer weak patent suits, which would at least be a step in the right direction.