Supreme Court limits patent lawsuits

In two unanimous decisions, the U.S. Supreme Court ruled on the side of prevailing parties in patent cases and made it easier for them to recover legal fees from the losing party. Technology companies welcomed these decisions and claimed that the rulings would fight abusive and coercive lawsuits by companies, known as patent trolls, that buy patents solely to collect royalties and damages.

The first case was discussed in a recent blog posting. An exercise manufacturer and Minnesota company, Octane Fitness, successfully defended a patent violation lawsuit from a larger maker of exercise equipment after paying $1.3 million in legal fees. Octane asked the lower courts to order Icon Health & Fitness to reimburse it for these fees.

Fee shifting is allowed in exceptional cases under federal patent law. A court specializing in patent cases, the U.S. Court of Appeals for the Federal Circuit, found that this was a high standard and applied when the suit in question involved misconduct or was brought in subjective bad faith and is objectively baseless.

Justice Sonia Sotomayor, for the Supreme Court, wrote that this standard was unduly rigid. According to the majority opinion, fees may be awarded where the winning side shows that the case was exceptional because it stood out from other lawsuits because of the strength of the losing side’s position or its conduct in litigation.

The Court also ruled that winners are not always required to prove both that their adversaries acted in subjective bad faith and that the losing side’s claims were objectively baseless. The prevailing party does not have to prove entitlement to fees by the demanding level of proof comprised of clear and convincing evidence, according to the Court.

In a footnote, Justice Sotomayor indicated that Icon officials acted with subjective bad faith. The case was remanded to the lower courts for applications of the standards enunciated in its ruling.

The Court also ruled in another patent case that appeals courts should not casually question trial court decisions awarding legal fees in patent disputes. Justice Sotomayor also issued this unanimous decision.

Intellectual property disputes require substantial technical and legal expertise. As these Supreme Court rulings show, these commercial disputes can have serious financial repercussions for the party that loses and files lawsuits lacking merit.

Source: The New York Times, “Two rulings may curb lawsuits over patents,” Adam Liptak, April 29, 2014

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