We recognize that patent litigation abuse remains a concern that impacts a range of companies. When small retailers face abusive demand letters seeking large settlements based on low quality patents, there is certainly a role for courts and, potentially, Congress to take action. But the solution must fit the problem, and it must take into account that major changes have occurred in the patent litigation landscape in recent years.
The Supreme Court has already addressed several key issues considered by Congress. Below we present the following Supreme Court cases to demonstrate why we firmly believe patent legislation, such as the Innovation Act, is completely unnecessary.
Alice Corp. v. CLS Bank Int’l:
For the fourth time in as many years, the Supreme Court held that an invention was not eligible for patent protection under 35 U.S.C. § 101 because the invention was directed to the “laws of nature, natural phenomena, [or] abstract ideas.” The patent at issue claimed methods and systems for mitigating settlement risk in financial transactions using a computer as a third-party intermediary or “clearing house.” The Court applied the two-step framework that it laid out in Mayo Collaborative Services v. Prometheus Laboratories, Inc. for determining when a patent claims ineligible subject matter. At the first step, the Court held that the patent was drawn to the idea of intermediated settlement, which is a “fundamental economic practice” and, therefore, an un-patentable abstract idea. At the second step, the Court held that implementing an abstract idea on a computer does not, by itself, transform an abstract idea into a patentable invention. Here, the patent did no more, in effect, than take an abstract idea an add the words “apply it with a computer.”
Octane Fitness, LLC v. Icon Health & Fitness, Inc.
The Patent Act authorizes courts to award attorneys’ fees to the prevailing party “in exceptional cases.” 35 U.S.C. § 285. The Federal Circuit had previous held that a case is “exceptional” only “when there has been some material inappropriate conduct” or when the case is both “objectively baseless” and “brought in subjective bad faith.” Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378, 1381 (2005). The Supreme Court overturned the Brooks Furniture framework and held that “an ‘exceptional’ case is simply one that stands out from other with respect to the substantive strength of a party’s litigating position... or the unreasonable manner in which the case was litigated.” The determination of whether a case is exceptional is left to the sound discretion of the district court, considering the totality of the circumstances.
Highmark, Inc. v. Allcare Health Management System, Inc.
Under existing Federal Circuit precedent, the award of attorneys’ fees under 35 U.S.C. § 285 is reviewed de novo. Having decided in Octane Fitness that the award of attorneys’ fees is left to the sound discretion of the district court, the Supreme Court held that, on appeal, such awards should be reviewed only for abuse of discretion.
Nautilus, Inc. v. Biosig Instruments, Inc.
The Federal Circuit had held that a claim is indefinite only if it is “not amenable to construction” or “insolubly ambiguous.” The Supreme Court rejected the Federal Circuit’s formulation of indefiniteness because it is too permissive, allowing claims that “lack the precision §112, ¶ 2 demands.” The Court held that the proper test for indefiniteness is whether the claim, when read in light of the specification and the prosecution history, “fail[s] to inform, with reasonable certainty, those skilled in the art about the scope of the invention.”
In addition, in October 2014, the Judicial Conference of the United States accepted changes to the Federal Rules of Civil Procedure that institute heightened pleading standards for all federal patent cases. The Judicial Conference also adopted rules that will ensure that discovery in patent litigation will be “proportional to the needs of the case.” This will reduce the ability of patent plaintiffs to use unnecessary discovery requests, which often drive up costs for defendants. Reducing the ability of patent plaintiffs to drive up costs through discovery will reduce unwarranted settlements that are made to simply avoid the high cost of litigation.
These Supreme Court cases and judicial rule changes largely make legislation such as the Innovation Act unnecessary. Those urging Congress to dramatically weaken patent protections in order to address "patent trolls" are looking for Congress to limit the value of intellectual property which they want to take freely to integrate into their own products and services.