Barton Blogs

SUPREME COURT AGREES TO HEAR THREE INTELLETUAL PROPERTY CASES

The Supreme Court has recently agreed to rule on three cases of substantial importance, two of which arise under patent law and one under copyright law. The two patent cases relate to the issue of when attorneys’ fees can appropriately be awarded to the prevailing party. The copyright case relates to the application of laches to claims of copyright infringement in circumstances where the statute of limitations does not bar claims which arose many years before.

  1. Copyright Laches: Petrella v. Metro-Goldwyn-Mayer, Inc. (http://www.scotusblog.com/case-files/cases/petrella-v-metro-goldwyn-mayer-inc/) involves a dispute over one of the modern classics, “Raging Bull”.  Frank Petrella collaborated with Jake LaMotta to produce a book and two screenplays about LaMotta’s life, which became the basis for the movie “Raging Bull”.  After Frank Petrella’s death, his daughter Paula Petrella, inherited his rights to the book and screenplays and renewed the copyright rights 1991. It was not until 1998 that Paula alleged that “Raging Bull” infringed her copyright, and she did not bring a lawsuit until 2009.  The district court ruled that her claims were barred by the equitable doctrine of laches. Paula appealed to the Ninth Circuit which upheld the district court’s judgment.

Paula appealed to the Supreme Court to determine if the defense of laches can bar copyright claims filed within the three year statute of limitations. Paula argues that the three year statute of limitations accrues for each separate act of infringement, even in cases of serial acts of infringement. Paula’s argument is consistent with the long-held view among most  copyright practitioners that a copyright owner can always get at least three years of damages for ongoing serial infringements even if the copyright owner waited many years to bring suit to enforce its rights. There is a split among the circuit courts on this issue, and more generally on how the three year statute of limitations under copyright law should be applied. Many argue that the copyright law statute of limitations preempts state common law laches and estoppels theories.  The lack of clarity in how the statute of limitations is supposed to operate under copyright law has been a difficult issue for many years and practitioners would welcome clarification by the Supreme Court.  Many practitioners are concerned that if the 9th Circuit’s decision is upheld and the doctrine of laches is deemed applicable to federal copyright suits, copyright owners will be forced to litigate their claims long before they otherwise would do so in order to avoid waiver or abandonment of their rights. This could lead to a proliferation of litigation in matters that are routinely resolved through private negotiations.

  1. Patent Cases—When Is A Case Exceptional So As To Justify An Award Of Attorneys’ Fees?— Section 285 of the Patent Act states that a “court in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285.  The Federal Circuit has applied a two-part test to determine if an “exceptional case” exists.  First, they must show by clear and convincing evidence that the case is exceptional.  Second, if the case is exceptional, the court determines if awarding attorneys’ fees is appropriate. For an accused infringer, generally they will recover attorneys’ fees for frivolous claims, inequitable conduct before the PTO, or misconduct during litigation. The Federal Circuit standard for frivolous requires that the patent owner’s case be objectively baseless and brought in subjective bad faith. For the patent owner to get attorneys’ fees, they need to show the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.  The Supreme Court has agreed to consider whether the Federal Circuit has applied the correct standard in a pair of companion cases.

In Octane Fitness, LLC v. ICON Health & Fitness, Inc., (http://www.scotusblog.com/case-files/cases/octane-fitness-v-icon-health-and-fitness/), ICON owned a patent covering elliptical machines with adjustable stride lengths and claimed that Octane’s elliptical machines infringed on ICON’s patent.  After holding a Markman hearing to define the meaning of certain key words in the patent claims, the district court ruled that Octane did not infringe ICON’s patent and declined to award Octane its attorneys’ fees because it did not find the case to be “exceptional”. Both parties appealed to the Federal Circuit. Icon argued that the district court erred in finding no infringement and Octane complained that the district court applied an overly restrictive standard to determine if the case was “exceptional”.  The Federal Circuit disagreed and affirmed the lower court’s judgment.

Octane appealed to the Supreme Court to determine if the Federal Circuit’s two-part test for determining whether a case is “exceptional” improperly impinges upon a district court’s discretion to award attorneys’ fees, goes against the intent of 35 U.S.C. § 285, and goes against Supreme Court precedent.  Octane claims that one intent of 35 U.S.C. § 285 was to function as a system to “restrain abusive patent litigation practices” by non-practicing entities who do not invent or bring to market the inventions covered by their patents.  Octane further argues that the Federal Circuit’s current two-part test is unfair because it creates a much higher standard for a prevailing accused infringer versus a lower standard for a prevailing patent owner. To bolster its theory, Octane points to Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994), a copyright case that held prevailing plaintiffs and prevailing defendants must be treated alike for purposes of awarding attorneys’ fees.  Octane believes that Fogerty should be extended to cover patent cases and thus the Federal Circuit’s standard should be struck down because it treats prevailing patent owners more favorably than prevailing infringers.

The second case is Highmark Inc. v. Allcare Health Management Systems, Inc. (http://www.scotusblog.com/case-files/cases/highmark-inc-v-allcare-management-systems-inc/). In this case, Allcare owned a patent covering managed health care systems.  Highmark, an insurance company,  proactively sought a ruling via declaratory judgment that it did not infringe Allcare’s patent.  Allcare countered with infringement claims against Highmark. The district court concluded there was no infringement, found the case to be exceptional and awarded attorneys’ fees and costs to Highmark. Allcare appealed to the Federal Circuit, which found that parts of the case were exceptional and parts were not, and sent the case back to the district court to apportion attorneys’ fees appropriately.

Highmark appealed to the Supreme Court to determine whether a district court’s determination that a case is exceptional for purposes of 35 U.S.C. § 285 is entitled to deference. Highmark argues that the Federal Circuit has a established a review standard that conflicts with Supreme Court case law and splits with all the other federal circuit courts of appeal. Highmark, like Octane, also claims that awarding of attorneys’ fees to the prevailing party should be used as a punishment against “patent trolls” and their abusive patent litigation.

There has long been a well-accepted disparity in the circumstances under which a prevailing patent owner and prevailing defendant can obtain awards of attorneys’ fees in patent cases. Patent owners who prove willful infringement have always had the upper hand in proving that a case is exceptional under Section 285, because willfulness has per se been deemed sufficient to justify an award of both treble damages and attorneys’ fees. Prevailing defendants, on the other hand, have always had a much more difficult time establishing that it was objectively unreasonable for a patent owner to bringing the infringement action, and that such claims were pursued with subjective bad faith. After all, patents are presumed valid and at the core of our patent system is a legal framework that encourages patent owners to seek legal redress against infringers. The suggestion that Fogerty, a decision arising under copyright law, should be extended to exceptional case jurisprudence under patent law, may be seen as troubling to many traditional members of the patent litigation bar because it may tilt the balance significantly in favor of prevailing defendants in a system predicated on the presumption that patents duly issued after examination by the U.S. patent office are valid.

It is significant that the Supreme Court has accepted these cases for review at a time when controversy rages about the role of non-practicing entities “NPE’s” (sometimes called patent “trolls”) in our patent enforcement system.  This may provide the Court an opportunity to clarify its jurisprudence concerning when sanctions may be appropriately awarded against an “NPE” or “patent troll”. Many practitioners are concerned that the delicate balance underlying exceptional case jurisprudence in Section 285 may be altered in favor of accused infringers in a manner that may reduce the value of patents by inhibiting all but the biggest and most successful companies from enforcing their patent rights in litigation. At present, awards of attorneys’ fees to prevailing accused infringers are rare and “exceptional” (the language of the statute), but adoption of the Fogerty approach from copyright jurisprudence might alter the balance between patentees and accused infringers by making awards of attorneys’ fees to prevailing accused infringers more common in patent cases.

Nonetheless, it is far from clear that the Supreme Court will apply Fogerty to Section 285 of patent law. Whereas copyright law gives district courts broad discretion to award attorneys’ fees to the prevailing party, Section 285 of the patent law requires a threshold finding by the district court that a case is “exceptional” before attorneys’ fees may be awarded.  Thus, district courts have less discretion in patent cases to award attorneys’ fees than in copyright cases—prevailing party attorneys’ fees in copyright cases are not limited to “exceptional cases”. It seems doubtful, therefore, that Fogerty will control the outcome of these companion appeals. Nonetheless, the Supreme Court could issue a landmark opinion on these issues in this term which could significantly alter the balance between patent owners and accused infringers.