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.

Supreme Court Justices, Chief Justice John Roberts, Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan applaud before President Barack Obama's State of the Union address during a joint session of Congress on February 12, 2013 in Washington, D.C.
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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