Legislation introduced last week aimed at curbing patent litigation abuse by so-called “patent trolls” has been well received by the public and by much of the Congress. But in private, many members of the patent bar are wary of Congress making laws that could affect patent litigation, saying it’s a task that should remain in the hands of the judiciary.
In fact, Federal Circuit Judge Kathleen O’Malley said in a recent speech to the Intellectual Property Owners Association that if Congress proceeded with its proposed reforms, it risked overstepping its authority, threatening the separation of powers and undermining an independent judiciary. Congress’s proposed reforms to the patent system, she said, would be analogous to “ swatting a fly with a grenade—there will be collateral damage.”
But patent lawyers and judges actually have little to fear, observers say. Most of the key features of the anti-patent troll bill introduced by House Judiciary Committee Chairman Bob Goodlatte, dubbed the “Innovation Act of 2013” [PDF], could actually end up duplicating moves made by the judiciary, including two decisions by the U.S. Supreme Court and changes to the Federal Rules of Civil Procedure, which govern all federal civil litigation.
“Almost all of the litigation-related changes in the Goodlatte bill are already being addressed by the courts, including at the Supreme Court, and through the Federal Rules Committee, said Andrew Baluch, an attorney at Foley & Lardner who previously served in the White House Office of the IP Enforcement Coordinator and as expert advisor to the U.S. Patent and Trademark Office’s director and deputy director.
Goodlatte has been leading a bipartisan effort to address patent litigation abuse—seeking ways to impede companies whose principal business model is to assert patents as their main source of revenue (aka, “patent trolls”). Prior to introducing the bill that targets these entities, the Republican Congressman from Virginia held several hearings, released two draft measures, sought input form the PTO, and asked for feedback from the White House.
The resulting bill, which is co-sponsored by at least 10 congressman, not only has the support of the Obama administration, but also of representatives from both sides of the aisle, who share a widespread belief that these patent assertion entities are hurting innovation. And while a few modifications may be necessary to get everyone on board, it is now generally believed that even in a gridlocked Congress, the momentum exists to get a new patent reform bill passed.
But by the time the bill wends its way through Congress and lands on the President’s desk, the judiciary may have already independently addressed some key provisions of the bill. “The courts are actually going to move faster than Congress,” Baluch said.
One section of the proposed legislation, for example, deals with “fee shifting”—allowing the courts to award reasonable attorney fees to the prevailing party in a patent lawsuit, unless the loser was justified in bringing the suit or special circumstances make the award unjust. This idea incorporates some of the SHIELD Act introduced by Reps. Peter DeFazio (D-OR) and Jason Chaffetz (R-UT), and is almost identical to a bill introduced by Sen. John Cronyn (R-TX). The White House has also stated in its “Legislative Recommendations” that the administration favors “more discretion in awarding fees to the prevailing parties in patent cases.”
But the Supreme Court appears ready to weigh in on the issue of “fee shifting” during its current session, having agreed to hear two cases that touch upon the concept.
In one, a company called Octane Fitness is seeking more than $1 million in legal fees after defeating a patent lawsuit brought by ICON Health & Fitness Inc. The Federal Circuit in 2012 unanimously affirmed a ruling by the district court rejecting a claim by Icon Health that several of Octane Fitness’s elliptical exercise machines infringed two of its patents. But it denied Octane an award of attorneys’ fees, saying the case did not meet the “exceptional” standard for such awards, which requires that a lawsuit be “objectively baseless and be brought in subjective bad faith.”
Octane argued that the Federal Circuit’s interpretation of Section 285, requiring subjective bad faith, is too narrow and too difficult to satisfy. In fact, Octane wrote in its Supreme Court petition that the interpretation of “exceptional” has become a “rigid and virtually insurmountable test,” which “encourages overly aggressive and unscrupulous patent owners to assert weak patent claims to coerce patent settlements or otherwise gain unfair competitive advantage.” The company wants the Supreme Court to find that trial judges should be able to award fees when a patent holder “unreasonably pursues a case having an objectively low likelihood of success.”
Baluch, who previously served as a law clerk to Judge Richard Linn of the Federal Circuit, said many patent attorneys anticipate that the Court will agree with Octane—especially because Justices Ruth Bader Ginsburg and Antonin Scalia both ruled as D.C. Circuit judges that the identical phrase “exceptional case” in the 1946 trademark statute the Lanham Act does not require bad faith.
If the justices do decide for Octane, it would become easier for defendants who prevail in patent suits to convince judges to order plaintiffs to pay their legal fees—a move many believe would discourage patent trolls. It also may make the fee-shifting portion of the Goodlatte bill redundant.
In the other case, Highmark Inc. v Allcare Health Management Systems, the Supreme Court has been asked to decide whether the Federal Circuit must give deference to a lower court award of legal fees. The question stems from a case in which Highmark prevailed in district court and was actually awarded fees after the court found that the lawsuit was baseless and brought in bad faith—the standard for an “exceptional” case. But a Federal Circuit panel reversed the district court decision on the fee award and denied rehearing en banc by a vote of six to five.
“Just by taking these cases, the Supreme Court is renewing interest in the ‘exceptional’ doctrine, which has rarely been invoked in recent years,” said Bijal Vakil, a partner at White & Case who specializes in intellectual property.
In fact, district courts awarded attorneys’ fees in only about 43 patent cases out of the roughly 10,000 that were filed in the U.S. over the past three years, according to Vakil. “It is extremely rare to prevail on this issue,” he said.
But a Supreme Court ruling in either or both of these cases would reduce a patent troll’s incentive to file patent claims that could be deemed baseless. And a ruling by the Court would serve as a more powerful deterrent than legislative measures, Vakil said.
The possibility that a patent troll might have to pay legal fees is not the only potential deterrent included in Goodlatte’s bill. Another provision would require a plaintiff to list each product or feature that allegedly infringes the patent being asserted, and explain how the asserted claim corresponds with the accused function “with detailed specificity.” It also would require a description of the plaintiff’s principal business and right to assert the patent, and a list of every other suit in which the patent has been asserted.
Troll-fighting groups such as the Electronic Frontier Foundation and the Consumer Electronics Association back this legislative measure. But the rule-making body that governs civil procedure—a part of the judiciary branch of government—is expected to adopt an amendment to the Federal Rules of Civil Procedure that will also heighten pleading standards in patent suits. Under the revised rules, plaintiffs alleging patent infringement would have to provide more information in their initial complaints.
To be sure, there are provisions in the Goodlatte bill that have not been addressed by the judiciary. Extending the PTO’s review program for business method patents to other types of patents, for example—a move also backed by the White House—is unique to the Goodlatte bill and could have a huge impact on patent trolls.
But broad concerns that the legislative branch of government is meddling in the affairs of the judiciary seem to be unfounded, since both branches appear to be addressing the patent troll problem and even duplicating effort.
“It’s not a coincidence that different branches of government are trying to remedy this situation,” said Julie Samuels, a senior staff attorney at the Electronic Frontier Foundation. “The different branches of government recognize this is a real problem and they are working with the tools they have to fix it.”
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