Article

Whack-a-Troll: Supreme Court beats Congress to the punch on patent reform

Patent troll suits will still pop up, but the ATM industry now has a better chance of beating them.

June 26, 2014

by Ralph Jocke
Walker & Jocke Co. LPA 

Rarely does the U.S. Supreme Court decide patent cases. However, with Congress gridlocked on how to address the growing problem of "patent trolls," the Supreme Court recently decided three cases that give companies new weapons to fight patent trolls.

Patent trolls, which are alternatively referred to as nonpracticing entities or patent assertion entities, acquire patents solely for the purpose of bringing lawsuits and collecting royalties. Many of the patents asserted by patent trolls were filed by now-defunct companies during the dot-com boom of the late 1990s. A large percentage of these patents cover computer-implemented business methods.

The Supreme Court reviewed a patent that covered a computer implemented business method for reducing risks of nonperformance in multiparty financial transactions. The court held that the patent was invalid, because its claims were directed to nothing more than an "abstract idea."¹

The court held that abstract ideas, like laws of nature and natural phenomenon, cannot be protected by patents. The court ruled that the patent covered the "abstract idea" of using an intermediary party to assure that all the other parties performed as required.

Even though some of the claims in the patent were directed to operation of computers and storage media for computer programs, the court held that these were conventional and did not result in any technological innovation beyond the "abstract idea." As a result, the patent was invalid.

This decision will likely cause courts to invalidate a large number of patents currently being asserted by patent trolls.

It is common for patent trolls to file suits over patents that have claims that are vague and virtually impossible to understand. It is easier to claim infringement of patents of this type, and the indefinite scope of the claims makes it harder for an accused infringer to defend. The Patent Office is supposed to make sure that it only grants patents that have claims that are clear and definite. However, bad patents are sometimes issued.

The court of Appeals for the Federal Circuit, which decides all initial appeals in patent cases, had held that patents could not be invalid due to being indefinite unless the claims were "insolubly ambiguous" and not capable of being construed.

The Supreme Court rejected this stringent test and instead held that a patent is invalid if its claims fail to inform, with reasonable certainty, as to the scope of invention.²

As a result, patents with claims that cannot be interpreted are more likely to be invalidated.

In the United States, the general rule is that if there is a lawsuit, each party must pay its own attorneys fees. U.S. patent law includes a provision that requires the losing side to pay the winner its attorney's fees, but only in "exceptional cases."

The CAFC held that a party wrongfully accused of infringing a patent could recover its attorney's fees only if the infringement allegations were objectively baseless and brought in subjective bad faith. Alternatively, attorney's fees could be awarded where the party bringing the case had engaged in material inappropriate conduct.

Because the CAFC test required proving that the claim had been brought with subjective and knowing bad faith, attorneys fees were seldom awarded to a prevailing defendant.

The Supreme Court held that the CAFC standard for an award of attorney's fees was too limited. Instead, a defendant who wins should be able to recover its attorney's fees if the case is "exceptional," in that it stands out from others in terms of the plaintiff having a weak case, or the plaintiff acting in an unreasonable manner.³

The Supreme Court held that whether a patent case is "exceptional" and attorney's fees should be awarded, is decided on a case-by-case basis in view of all the circumstances. As a result, a patent troll with an unreasonably weak case now risks an award of attorney's fees if it loses.

This should make patent trolls, and their counsel, more careful when bringing suits or deciding to engage in tactics that cause unreasonable expense to the party defending the suit.

The Supreme Court has provided companies that are sued by patent trolls with new weapons to help to defeat infringement claims. These decisions, along with the new procedures available in the Patent Office for challenging the validity of patents, help companies to level the playing field in the fight against patent trolls.

1. Alice Corporation Pty. Ltd. v. CLS Bank International, et al., Case No. 13-298. Decided June 19, 2014.
2. Nautilus, Inc. v. Biosig Instruments, Inc., Case No. 13-369. Decided June 2, 2014.
3. Octane Fitness, LLC v. Icon Health & Fitness, Inc., Case No. 12-1184. Decided April 29, 2014.

​photo: jeffrey kontur