Supreme Court considers award of patent legal fees

For the first time, the U.S. Supreme Court will decide whether a prevailing party in a meritless patent infringement case may be awarded legal fees. The case can impact a pending case involving Apple, Google and a Minnesota manufacturer that is also a party in this case.

A White House report found that businesses, with the sole purpose of extracting royalty revenue, threatened over 100,000 companies with patent infringement suits. Critics label these companies as patent trolls. Apple and Google have been sued several times in recent years by so-called “patent assertion” companies that turn a profit by enforcing even weaker or suspect patent rights, according to a frim with expertise in the issue.

The Supreme Court is reviewing a case involving Minnesota-based Octane Fitness, LLC, which defeated a patent suit and is seeking fees of $1.8 million. Another exercise equipment manufacturer, Icon Health & Fitness, Inc., unsuccessfully sued Octane over an elliptical machine component. Octane challenged a standard set by the Fifth Circuit U.S. Court of Appeals in 2005 allowing these fees where a suit is “objectively baseless” and “filed in bad faith.” Companies claim that this standard is too high and encourages patent litigation.

The Justices are examining the U.S. Patent Office standard allowing fees in exceptional cases. During the Feb 26 oral argument, Justice Stephen Breyer said that weak patent owners take advantage of high litigation costs in these business disputes to extract cheap and easy settlements under the current standard but that describing a new precise standard is challenging. Justice Antonin Scalia, however, stated that large businesses can engage in unfair competition by using their patents to force smaller competitors out of a market.

Federal law does allow the imposition of sanctions for filing a frivolous lawsuit. Legislation was also introduced in Congress that would compel the losing party in this type of litigation to pay fees to the prevailing party unless the court determines that doing so would be unfair.

Regardless of the outcome of this precedent setting case, it will have a significant impact in intellectual property disputes and govern the filing and resolution of these cases. Companies will need guidance both on patents and legal challenges to those patents.

Source: Saint Louis Post-Dispatch, “Patent fees weighed in Supreme Court case watched by Apple,” Susan Decker and Greg Stohr, Feb. 26, 2014

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