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: cafc, damages, extraordinary damages, patent trolls, patents, rigid rules, supreme court, treble damages


Reader Comments

Subscribe: RSS

View by: Time | Thread


  • icon
    That One Guy (profile), 14 Jun 2016 @ 3:49pm

    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.

    reply to this | link to this | view in chronology ]

    • icon
      crade (profile), 14 Jun 2016 @ 4:41pm

      Re: Another example of ignorance being beneficial

      checking with a patent lawyer beforehand is pointless. There are too many patents, and too many wouldn't stand up to scrutiny. They just aren't going to be able to tell you anything useful.

      reply to this | link to this | view in chronology ]

    • icon
      OldMugwump (profile), 14 Jun 2016 @ 4:53pm

      Re: Another example of ignorance being beneficial

      Yes.

      When I worked in the R&D group at a large technology company, that is exactly what the lawyers told us.

      reply to this | link to this | view in chronology ]

      • icon
        Steerpike (profile), 14 Jun 2016 @ 4:56pm

        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.

        reply to this | link to this | view in chronology ]

    • icon
      Steerpike (profile), 14 Jun 2016 @ 4:54pm

      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.

      reply to this | link to this | view in chronology ]

    • icon
      PRMan (profile), 14 Jun 2016 @ 5:27pm

      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.

      reply to this | link to this | view in chronology ]

  • identicon
    Larry McClellan, 14 Jun 2016 @ 3:51pm

    Hillary's book

    Why would you list Hillary's "autobiography" as non-fiction?

    reply to this | link to this | view in chronology ]

  • icon
    crade (profile), 14 Jun 2016 @ 4:44pm

    Is this going to make the jurisdictional problem worse? Is it likely some (unnamed, definitely not utterly corrupt or anything) jurisdictions will be more likely to award triple damages than others?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 14 Jun 2016 @ 4:50pm

    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.

    http://arstechnica.com/tech-policy/2016/06/supreme-court-says-win-for-patent-holders-wont-em bolden-patent-trolls/

    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."

    reply to this | link to this | view in chronology ]

    • icon
      Mike Masnick (profile), 14 Jun 2016 @ 5:36pm

      Re:

      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.

      Sounds like you read the headline without reading what I wrote in the actual post explaining the concerns.

      reply to this | link to this | view in chronology ]

      • icon
        Mike Masnick (profile), 14 Jun 2016 @ 10:12pm

        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.

        reply to this | link to this | view in chronology ]

        • identicon
          Anonymous Coward, 15 Jun 2016 @ 4:23am

          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.

          reply to this | link to this | view in chronology ]

          • icon
            Ninja (profile), 15 Jun 2016 @ 5:06am

            Re: Re: Re: 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.

            reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 15 Jun 2016 @ 6:23am

            Re: Re: Re: Re:

            FUD?

            reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 15 Jun 2016 @ 8:39am

            Re: Re: Re: Re:

            Right, because it's not like non-practicing entities have been using IP to harass and intimidate smaller companies into paying money they never deserved or anything.

            reply to this | link to this | view in chronology ]

          • identicon
            Anonymous Coward, 15 Jun 2016 @ 4:36pm

            Re: Re: Re: Re:

            Wow, what a convincing argument!

            reply to this | link to this | view in chronology ]

          • identicon
            Wendy Cockcroft, 16 Jun 2016 @ 5:52am

            Re: Re: Re: Re:

            I used to be more in favour of IP and used to try to persuade people to respect it. These days I just want to jump on it again and again till it dies because people like you won't admit to what a problem trolling is.

            reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 14 Jun 2016 @ 5:57pm

      Re:

      Log back in, Whatever.

      reply to this | link to this | view in chronology ]

      • icon
        Whatever (profile), 14 Jun 2016 @ 10:56pm

        Re: Re:

        I am logged in numnuts. Just your fearless leader doesn't let my posts appear. Complain to management - and no, I am not the anonymous coward posting (I always log in, even if Mike and his Minions send me to purgatory on every post).

        reply to this | link to this | view in chronology ]

  • icon
    Whatever (profile), 14 Jun 2016 @ 10:59pm

    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.

    http://www.progressive-economy.org/trade_facts/u-s-share-of-world-intellectual-property-rev enue-39-percent/

    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.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 15 Jun 2016 @ 6:34am

    Editing...

    Who edits this crap? Is it treble damages or triple damages...smh

    reply to this | link to this | view in chronology ]

  • identicon
    Peter Williams, 15 Jun 2016 @ 7:07am

    Fixing the patent troll problem.

    IT companies are the worst affected. Congress is no mood to fix it. If it had, then they would have fixed it way back. Loopholes needs a fix right way, but it seems too optimistic.

    reply to this | link to this | view in chronology ]

    • icon
      John Fenderson (profile), 16 Jun 2016 @ 4:10pm

      Re: Fixing the patent troll problem.

      "Congress is no mood to fix it."

      Congresspeople got paid a lot of money to ensure those "loopholes" were there.

      reply to this | link to this | view in chronology ]


Add Your Comment

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



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Remember name/email/url (set a cookie)

Close

Add A Reply

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



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Remember name/email/url (set a cookie)

Follow Techdirt
Techdirt Gear
Shop Now: Techdirt Logo Gear
Advertisement
Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Chat
Advertisement
Report this ad  |  Hide Techdirt ads
Recent Stories
Advertisement
Report this ad  |  Hide Techdirt ads

Close

Email This

This feature is only available to registered users. Register or sign in to use it.