A Multibillion-Dollar Patent War Over Semantics

The Supreme Court heard arguments for two cases Wednesday dealing with attorney’s fees during patent-infringement lawsuits, with arguments on all sides rooted firmly in a jargon-laced war over the meaning of words.

National Journal
Dustin Volz
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Dustin Volz
Feb. 27, 2014, midnight

What’s the dif­fer­ence between “mer­it­less,” “base­less,” and “ob­ject­ively un­reas­on­able”?

If you can an­swer that, you might be able help the Su­preme Court de­cide how to rule on a pair of pat­ent cases it heard Wed­nes­day.

As at­tor­neys at­temp­ted to sway the judges dur­ing back-to-back or­al ar­gu­ments on suits over ar­cane, dec­ades-old pat­ent law, the dis­pute hinged largely on se­mantics, with the justices at­tempt­ing to parse through a com­plic­ated fight over leg­al fees.

Spe­cific­ally, the dis­agree­ment is fo­cused on when it is ap­pro­pri­ate to make losers pay the win­ner’s fees in a pat­ent in­fringe­ment case. Tra­di­tion­ally, both parties in a leg­al dis­pute — win or lose — pony up their own leg­al fees. But a wide swath of busi­nesses and en­tre­pren­eurs want to make it easi­er for a fed­er­al judge to or­der that a plaintiff pay a win­ning de­fend­er’s fees if a de­term­in­a­tion can be made that the in­fringe­ment suit qual­i­fies as “ex­cep­tion­al.”

What does “ex­cep­tion­al” really mean? There has nev­er been a clear, uni­form stand­ard since the lan­guage was ad­op­ted in the 1952 Pat­ent Act.

But the stat­ute has earned re­newed in­terest in re­cent years due to the enorm­ous growth of “pat­ent trolling,” a term used to de­scribe com­pan­ies that pur­chase cheap pat­ents with the sole in­ten­tion of us­ing them to threaten ques­tion­able in­fringe­ment suits against oth­ers in hopes of lever­aging their claims in­to luc­rat­ive set­tle­ments. Trolling costs the eco­nomy tens of bil­lions of dol­lars an­nu­ally, ac­cord­ing to an oft-cited study from Bo­ston Uni­versity re­search­ers.

Those suits can some­times cost mil­lions of dol­lars to fight off, but un­der cur­rent law, fees are rarely shif­ted — a real­ity that crit­ics ar­gue makes trolling a cheap and en­ti­cing busi­ness mode.

So what are the justices say­ing?

In the first case heard on Wed­nes­day, Octane Fit­ness v. ICON Health & Fit­ness, sev­er­al justices im­me­di­ately began ques­tion­ing what “ex­cep­tion­al” meant and wheth­er syn­onyms offered in the case lit­er­at­ure could clear away some of the fog.

Chief Justice John Roberts quickly at­temp­ted to poke holes in the concept that his Court can in­ter­pret the stat­ute with any sort of defin­it­ive­ness.

“We’re deal­ing with a term that could be read in many dif­fer­ent ways: ex­cep­tion­al,” Roberts said. “Maybe that means one out of a hun­dred, maybe it means 10 out of a hun­dred.”

Roberts used the word de­bate to of­fer guid­ance on the in­ter­weav­ing second case, High­mark Inc. v. Allcare Health Man­age­ment Sys­tems, ar­gued be­fore the Court, which deals prin­cip­ally with what amount of de­fer­ence the fed­er­al Ap­peals Court should give to a lower court’s fee-shift­ing rul­ing.

“Since we’re just “¦ deal­ing with ad­ject­ives — mer­it­less, frivol­ous, ex­cep­tion­al — why not give some de­fer­ence to their judg­ment?” he ad­ded.

And Justices Ant­on­in Scalia, An­thony Kennedy, and So­nia So­to­may­or echoed Roberts’s ad­jectiv­al con­cerns. But they also ac­know­ledged the real fin­an­cial dangers of un­pun­ished pat­ent trolling as something that the cur­rent jur­is­pru­dence does not prop­erly guard against.

“I would give the same ad­vice [to pat­ent-hold­ing com­pan­ies]: Bring the suit,” Scalia ad­mit­ted. “This guy is a pos­sible com­pet­it­or? Sue him.”

Ad­voc­ates of pat­ent re­form may draw op­tim­ism from Justice Steph­en Brey­er’s com­ments on the prob­lems of overly broad pat­ents be­ing gran­ted, es­pe­cially in the soft­ware world. He noted that while pat­ent own­ers may rep­res­ent a “small slice of lit­ig­a­tion” that Dis­trict Courts see, it is nev­er­the­less a slice that “costs a lot of people a lot of money.

On the is­sue of how to de­term­ine when an in­fringe­ment case rises to the level of “ex­cep­tion,” Brey­er opined:

Why does it al­ways have to be ob­ject­ively based? I’ve read enough cases in this area to be able to ap­proach it as a Dis­trict Court judge who’s not ex­pert. I pat­ent the fol­low­ing: For a com­puter, enter some­body’s name. Ask phone num­ber. And they’ll give you the phone num­ber if you put in the right city. That puts a list in the com­puter. They can pat­ent that? Well, you add a couple of things and they ap­par­ently you can have an ar­gu­ment that they can pat­ent it. Okay? Be­cause it’ll be very ab­stract lan­guage. It will be able to pat­ent al­most any­thing.”¦ Pat­ent at­tor­neys are very bril­liant at fig­ur­ing out just how to do this. So we’re nev­er go­ing to have at­tor­neys’ fees in a suit if that’s your stand­ard.

Ma­jor tech firms, in­clud­ing Apple, Google, IBM, and Mi­crosoft, are fol­low­ing the in­ton­a­tions of the Court closely, as all have large fin­an­cial in­terests in how the ju­di­ciary and Con­gress may re­draw the lines in pat­ent dis­putes.

And then there was Con­gress

As the Su­preme Court weighs the true mean­ing of sev­er­al syn­onyms, Con­gress is con­sid­er­ing wheth­er, and to what ex­tent, it wants to ad­dress fee-shift­ing. Last year, the House passed the In­nov­a­tion Act with a large bi­par­tis­an ma­jor­ity. The om­ni­bus meas­ure’s fee-shift­ing pro­vi­sion would re­quire fees to be awar­ded to the vic­tor un­less it could be proven that the party claim­ing in­fringe­ment was “reas­on­ably jus­ti­fied in law and fact.”

If the Sen­ate chooses to ad­opt sim­il­ar lan­guage, the Su­preme Court’s de­cisions on Octane Fit­ness and High­mark could be moot — a wrinkle the justices made it clear on Wed­nes­day that they are aware of. But a quar­tet of dis­par­ate pat­ent-re­form bills are cur­rently lan­guish­ing in the Sen­ate Ju­di­ciary Com­mit­tee, leav­ing re­form ad­voc­ates to won­der when, or if, the up­per cham­ber plans to strike.

A Ju­di­ciary aide con­firmed that a num­ber of staffers were present dur­ing Wed­nes­day’s or­al ar­gu­ments.

The Su­preme Court has oth­er pat­ent cases on its dock­et this term, in­clud­ing on March 31 the much-an­ti­cip­ated Alice Corp v. CLS Bank In­ter­na­tion­al, which will deal dir­ectly with soft­ware pat­ents.

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