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NPEs under the cosh as the Supreme Court takes on patents in 2014

Late last year this blog reported that the US Supreme Court will look at the patentability of software after agreeing to consider CLS Bank v Alice Corp. The court has continued to give a clear indication of the importance it currently attaches to patent issues by granting certiorari to six patent cases this term. These look at the fundamental principles of vicarious liability for infringement, indefiniteness, and fee shifting. The first of the cases, Medtronic Inc v Boston Scientific Corp, was decided just this week. IAM has asked members of the Patent 1000 to explain why the outcomes in these cases are of importance to patent owners.

The issue before the court in Medtronic was whether the burden of proof in a declaratory judgment action should be on the patent owner or on the accused infringer.  Usually, the patent owner must prove infringement; however, in Medtronic the Federal Circuit created an exception for “MedImmune-type” cases. This week the Supreme Court unanimously reversed that decision. This matters to both patent holders and licensees because it clarifies that a patentee always bears the burden of proving infringement, even when it is the defendant in an action seeking a declaration of non-infringement. “To shift the burden depending on the form of the action could create post litigation uncertainty about the scope of the patent,” says Baker Botts partner, Rob Scheinfeld. He explains that had the Federal Circuit opinion been left to stand future licensees would have to prove a negative and, if the licensee lost a lawsuit, it could simply continue to infringe, which would force the patent owner to sue and re-litigate the same issues again. A return to the norm therefore benefits the IP community at large.

In Limelight Networks v Akamai Technologies, the court will decide whether a company can be found liable for inducing patent infringement when no single entity has infringed on the patent. This case creates a new category of potential defendants including third-party users, consumers and customers. Michael P Sandonato, partner at Fitzpatrick, Cella, Harper & Scinto, told IAM that the Federal Circuit’s decision surprised many, particularly technology companies. “They tend to be the target of NPEs and are concerned about this because it opens them up to liability for infringement based upon the actions of what they view to be an unlimited number of participants. The Federal Circuit’s decision is certainly pro-NPE in its effect, and in that sense it goes against the more recent trend of anti-NPE sentiment that we have seen since the President’s comments last year.” While it remains unclear which way the Supreme Court will rule in Akamai, the technology community will eagerly await the court's guidance on this issue.

Meanwhile, the case of Nautilus v Biosig Instruments will consider the Patent Act’s requirement that patent claims be clear and distinct. Patents adjudged to be vague – especially those for software – have been labelled as the favourite tool of “patent trolls” by some groups who see this case as a way to diminish the effectiveness of such entities. James Barney, partner at Finnegan, Henderson, Farabow, Garrett & Dunner LLP, says: “If Nautilus results in a more stringent standard for indefiniteness, the net result will be that it will be easier to invalidate patents on this ground.  And since the indefiniteness inquiry is closely tied to claim construction, more defendants will likely seek summary judgment of indefiniteness during the Markman phase, or shortly thereafter.” Nautilus has garnered a lot of interest from the software community, with amici briefs filed in support of Nautilus by a number of companies including Amazon, Google, Newegg, Garmin and JC Penney, as well as non-profits such as Public Knowledge and the Electronic Frontier Foundation (EFF).

Finally, the cases of Highmark Inc v Allcare Management Sys Inc and Octane Fitness v Icon Health provide the court an opportunity to weigh in on an issue that has recently been the subject of a number of bills brought before Congress – fee shifting in patent litigation. The Innovation Act purports to reduce “frivolous patent litigation” by including a fee shifting provision that allows a winning party to recover its legal fees, something the EFF see as crucial in “taking the fight back to the trolls”.

“Although these appeals have not been consolidated, there is certainly interplay between the two”, says Sandonato, “with Octane addressing the question of what test a district court should use to determine whether an award of attorney fees is appropriate and Highmark addressing the question of what sort of deference the Federal Circuit should give to the district court’s determination.” He suggests changes to US fee shifting law will be detrimental to NPEs because they “would need to put more skin in the game”. Admitting that while it is hard to predict what the Supreme Court will decide, Sandonato says that with the Innovation Act passed by the House, there may be change in fee shifting rules at the legislative level anyway. “One way or the other, we may well see movement towards making it easier for a prevailing defendant to recover legal fees,” he says. Although, as this blog has previously highlighted, fee shifting is already available, while the Innovation Act’s proposals will make it more difficult for patent owners to enforce their rights.

Although  the Supreme Court does not agree to hand down judgment in all the patent suits it is asked to (recently refusing to hear the high-profile Soverain v Newegg case, for example)  the number it has accepted is an indication of the importance that it attaches to the US patent regime in today’s high tech economy. The court’s justices are clearly ready and willing to get involved in both high level conceptual aspects of patent law and its nuts-and-bolts aspects. Whether they are able or not, we shall have to wait to see. Rights owners – and NPEs in particular – should watch these cases closely.


John van der Luit-Drummond
IAM Magazine
24 January 2014

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