Supreme Court Just Made It Easier For Patent Trolls

from the wrong-direction,-guys dept

As we’ve noted over the past decade or so, the Supreme Court has been smacking down the Court of Appeals of the Federal Circuit (CAFC) over and over and over again on issues related to patent law. And on Monday, the Supreme Court did it once again — but this time in a way that actually might not be good.

The key issue in the case (which is actually a combination of two separate cases that the Supreme Court put together) — Halo v. Pulse and Stryker v. Zimmer — concerns when it is and when it’s not appropriate to triple damages in patent infringement cases. Basically, for centuries, the patent system has allowed for treble damages, but basically made it optional and a tool only for egregious violations of clear copying for most of that time. In 2007, CAFC created a specific two part test for awarding treble damages. First, an “objective recklessness” standard defined as “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent….” Second, it must be shown that the risk of such infringement “was either known or so obvious that it should have been known to the accused infringer.”

The unanimous ruling does state that it shouldn’t be easy to get treble damages, and that it is fitting that it only applies in the most extreme cases — but then says that the test above, called the Seagate test since it was first articulated in a case involving Seagate — is “unduly rigid.” And the Justices’ main concern is that such a rigid test might leave out other kinds of egregious behavior that deserve punitive damages awards:

The principal problem with Seagate?s two-part test is that it requires a finding of objective recklessness in every case before district courts may award enhanced damages. Such a threshold requirement excludes from discretionary punishment many of the most culpable offenders, such as the ?wanton and malicious pirate? who intentionally infringes another?s patent?with no doubts about its validity or any notion of a defense?for no purpose other than to steal the patentee?s business…., a district court may not even consider enhanced damages for such a pirate, unless the court first determines that his infringement was ?objectively? reckless. In the context of such deliberate wrongdoing, how- ever, it is not clear why an independent showing of objective recklessness?by clear and convincing evidence, no less?should be a prerequisite to enhanced damages.

Conceptually, this argument makes sense. The court points to the important Octane Fitness ruling from a couple years ago that tossed out a similarly “rigid” standard, but that one was over the question of when to award attorneys’ fees for egregious behavior by patent holders. The court notes that this is a similar issue, though one more likely to negatively impact defendants, rather than plaintiffs in patent cases.

And I certainly see the logical consistency there, especially in allowing flexibility to the courts in deciding what’s truly egregious behavior. But, of course, this somewhat ignores the reality of the patent landscape today, where so much activity is really in the shakedown process, where the final outcome is unlikely to be via a court ruling. Instead, it’s all about the shakedown threats — and this ruling can be seen as giving trolls even greater leeway in insisting that someone they’re threatening has much greater liability on the line. I can almost guarantee that we’ll start hearing of threat letters from patent trolls that point to this ruling in Halo as providing support for massive punitive damages.

So, in the end, I don’t necessarily think this is the wrong decision. There’s certainly a legal consistency there (especially one that says “damn, CAFC gets everything wrong…”). But that doesn’t mean we should be concerned about the overall impact. Perhaps it won’t matter that much — as any competent patent attorney will let many people facing a shakedown know that the treble damages argument is unlikely to meet any reasonable standard used by any court. But lots of people are scared into just settling when they see the potential losses they face, and it seems like this might embolden patent trolls some more.

At least some of the Justices seem to understand this. Even though they signed onto the unanimous opinion, Justices Breyer, Kennedy and Alito added a concurrence (written by Breyer, who is usually quite good on patent issues) that at least raises the issue of patent trolling behavior. Breyer uses the concurrence to basically try to prevent the case from being misused (something that it might not succeed at, as it holds no weight at all as case law). He reiterates that treble damages should only be used in the most extreme cases, and nothing in this ruling changes that. He also notes that not checking with a patent lawyer before creating a product is not evidence of willful infringement. And, finally, he notes that such “enhanced” damages should have a “limited” role, as they have a high likelihood of impeding, rather than enabling, innovation.

To say this is to point to a risk: The more that businesses, laboratories, hospitals, and individuals adopt thisapproach, the more often a patent will reach beyond itslawful scope to discourage lawful activity, and the moreoften patent-related demands will frustrate, rather than ?promote,? the ?Progress of Science and useful Arts.?

One hopes that this concurrence helps stop the ruling from being abused, but that may be too optimistic.

At the very least, this seems like an argument for Congress to finally stop sitting around and doing something to fix the patent troll problem.

Filed Under: , , , , , , ,

Rate this comment as insightful
Rate this comment as funny
You have rated this comment as insightful
You have rated this comment as funny
Flag this comment as abusive/trolling/spam
You have flagged this comment
The first word has already been claimed
The last word has already been claimed
Insightful Lightbulb icon Funny Laughing icon Abusive/trolling/spam Flag icon Insightful badge Lightbulb icon Funny badge Laughing icon Comments icon

Comments on “Supreme Court Just Made It Easier For Patent Trolls”

Subscribe: RSS Leave a comment
That One Guy (profile) says:

Another example of ignorance being beneficial

He also notes that not checking with a patent lawyer before creating a product is not evidence of willful infringement.

In fact as I understand it not checking, far from being evidence of willful infringement is actually the smarter choice, as it makes it much less likely to be charged with willful infringement, which is treated more harshly than accidental infringement.

If you check beforehand and either miss the patent used against you, or didn’t think that a given patent applied and ‘infringe’ on it anyway you’re on the hook for a hefty sum for ‘willful infringement’, because you knew or should have known and went ahead anyway.

If you don’t check on the other hand then any infringement is accidental, which carries much lighter potential penalties, as you couldn’t have been reasonably expected to know about any potential infringement.

Steerpike (profile) says:

Re: Re: Another example of ignorance being beneficial

You’re better off not looking, in one sense, not because a bad search result can’t be dealt with, but because they’re a pain to deal with (requiring putting in place formal opinions of non-infringement, for example). I generally discourage a search unless there is a compelling reason to have one done.

Steerpike (profile) says:

Re: Another example of ignorance being beneficial

I don’t think checking with a patent lawyer and nevertheless missing a patent is going to hurt you. That’s not going to be a sufficient basis for willful infringement.

If a patent is found that might be a problem, but your counsel concludes that it is not a problem and also writes you a competent opinion that it is not a problem, you’ll also be protected from willful infringement.

PRMan (profile) says:

Re: Another example of ignorance being beneficial

The entire case law around patents is completely backward. They were originally created (as public documents) in order that people CAN build on each other’s work, and forced settlements were the remedy.

Now, we are trying to treat intentionally public documents, which were created in order to further progress because other people can get up to speed on the state of the art, as if they are somehow supposed to be private trade secrets.

Anonymous Coward says:

Why doesn’t this surprise me. Good old Mike Masnick misrepresenting the facts again. The Supreme Court decision will NOT make it easier for patent trolls. Unless good old Mike considers any “patent holder” to be a patent troll. If he thinks that, then he seriously needs to seek professional help.

I consider a patent troll as someone who purchases the rights to a patent but doesn’t use that patent in any products produced by his or her company.

According to the Arstechnica article:

” … the justices said that enhanced damages should not be granted in “garden-variety cases.” Because of that, the court noted, patent trolls won’t flourish under today’s holding … “

Seriously, Mike, get your facts straight. Sounds like you assumed that the decision would help patent trolls without actually doing any further research on the decision.

“Respondents and their amici are concerned that allowing district courts unlimited discretion to award up to treble damages in infringement cases will impede innovation as companies steer well clear of any possible interference with patent rights. They also worry that the ready availability of such damages will embolden “trolls.” Trolls, in the patois of the patent community, are entities that hold patents for the primary purpose of enforcing them against alleged infringers, often exacting outsized licensing fees on threat of litigation. Respondents are correct that patent law reflects “a careful balance between the need to promote innovation” through patent protection, and the importance of facilitating the “imitation and refinement through imitation” that are “necessary to invention itself and the very lifeblood of a competitive economy.” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U. S. 141, 146 (1989). That balance can indeed be disrupted if enhanced damages are awarded in garden-variety cases. As we have explained, however, they should not be.”

Mike Masnick (profile) says:

Re: Re: Re:

…. and looks like I’m not the only one concerned about this. Here’s the group United for Patent Reform’s statement:

“The court has made it much easier for plaintiffs, including patent trolls, to receive far larger damage awards,” said United for Patent Reform co-chair Beth Provenzano, vice president for federal government relations at the National Retail Federation. “This will incentivize patent trolls to file more lawsuits and only worsen the already critical problem of patent litigation forum shopping. With this ruling, the Supreme Court has encouraged plaintiffs to seek out the forums that are most likely to award enhanced damages. We already live in a world where nearly half of all patent cases are filed in the Eastern District of Texas. This situation will only get worse.

Court rulings like this make it much more urgent for Congress to pass patent litigation reform legislation this year.”

Just because the Supreme Court says that it won’t help patent trolls doesn’t mean it won’t.
Patent trolls take advantage of structural imbalances and high costs in the patent litigation system

to obtain unjustifiable settlements. By making enhanced damages easier to obtain, the Supreme

Court has provided additional financial incentives for patent trolls, which will inexorably lead to

more meritless patent infringement suits.

Anonymous Coward says:

Re: Re: Re: Re:

So much FUD about the “trolls”! Always doom and gloom, with no mention of any possible bright side.

That your side will throw out this FUD anytime you want to attack and weaken the exclusive rights of all inventors becomes clearer to me each day.

The simple fact is that you just hate IP. It doesn’t run any deeper than that. It’s that simple.

Ninja (profile) says:

Re: Re: Re:2 Re:

Wait, wait. Let me try to place the bright side in text form:


I mean, if you can see anything bright with companies that produce absolutely nothing, contribute nothing to the progress of science and actually kill newborn companies that are actually doing things that benefit humanity in any ways just because they own a couple of overly broad, badly written patents then please share with us. Kind of hard to see such side.

Or maybe you refer to the brightness of all the money sent your way to shill for such absurdity? If that’s the case please excuse me.

Whatever says:

I think the problem here is that you take patent trolling as the big end of the patent business, when it’s really just the nasty little red light district in one small part of the patent world. It’s easy to suggest it’s bigger than it is, but in reality is mostly small potatoes.

Look, 329 BILLION of patent licensing and such, and patent trolling total in the US comes up to what, a hundred million a year? That’s 0.1% of all the patent world, perhaps it’s time to calm down a bit on patent trolling because it’s just not that big of a deal overall.

Add Your Comment

Your email address will not be published. Required fields are marked *

Have a Techdirt Account? Sign in now. Want one? Register here

Comment Options:

Make this the or (get credits or sign in to see balance) what's this?

What's this?

Techdirt community members with Techdirt Credits can spotlight a comment as either the "First Word" or "Last Word" on a particular comment thread. Credits can be purchased at the Techdirt Insider Shop »

Follow Techdirt

Techdirt Daily Newsletter

Techdirt Deals
Techdirt Insider Discord
The latest chatter on the Techdirt Insider Discord channel...