The Lawletter Vol 39 No 4
Some owners of patents that have little or no commercial value in and of themselves exploit those patents to promote litigation and thus force patentees who are practicing their inventions to compromise and settle infringement claims as an alternative to running up ruinous fees and costs to defend their patents. This practice has become known as "patent trolling." It is the bane of the patent bar.
In Highmark, Inc. v. AllCare Health Management System, Inc., 134 S. Ct. 1744 (2014), the district court had entered summary judgment in favor of Highmark, which had sought a declaration that its patent was noninfringing. Highmark, Inc. v. AllCare Health Management System, Inc., 706 F. Supp. 2d 713 (N.D. Tex. 2007). Highmark then moved for an award of fees and costs under 35 U.S.C. § 285, arguing that the case was "exceptional."
The district court granted Highmark's motion, reasoning that Allcare had engaged in a pattern of "vexatious" and "deceitful" conduct throughout the litigation. Specifically, it found that Allcare had "pursued this suit as part of a bigger plan to identify companies potentially infringing the [patent in suit] under the guise of an informational survey, and then to force those companies to purchase a license of [U.S. Patent No. 5,301,105] under threat of litigation." Id. at 736-37. The court found that Allcare had "maintained infringement claims [against Highmark] well after such claims had been shown by its own experts to be without merit" and had "asserted defenses it and its attorneys knew to be frivolous." Id. at 737.
In a subsequent opinion, the district court fixed the amount of the award in favor of Highmark at $4,694,727.40 in attorney's fees and $209,626.56 in expenses, in addition to $375,400.05 in expert fees. On appeal, 687 F.3d 1300 (Fed. Cir. 2012), the Federal Circuit affirmed in part and reversed in part. The Federal Circuit concluded that because the determination of whether a party's litigating position is "objectively baseless" is an issue of law, it was free to review the merits of the district court's judgment de novo.
Justice Sotomayor, writing for a unanimous Court, disagreed and concluded that the review of the district court's determination under § 285 should instead be subject to review under the standard of abuse of discretion. That provision authorizes fee shifting, whereby a party's fees and costs may be awarded if the case is found to be "exceptional." She reasoned that as a matter of the sound administration of justice, the district court is better positioned to decide whether a case is exceptional, because it lives with the case over a prolonged period of time. As a practical matter, rarely will a district court's finding be reversed on appeal.
Rarely does the Supreme Court review decisions of the Federal Circuit in patent cases, much less reverse that court's judgments, since the Federal Circuit is recognized as having unique knowledge and insight into technical fields such as patent law. The two courts, however, have been at odds over the Federal Circuit's apparent reluctance to authorize the district courts to act proactively in deterring patent trolling. The Supreme Court, however, has made it clear that the district courts should be vigilant in taking action to deter litigants from bringing cases that the Court is persuaded do not belong in federal court. See Pierce v. Underwood, 487 U.S. 552, 559 (1988) (determinations whether a litigating position is "substantially justified" for purposes of fee shifting under the Equal Access to Justice Act are to be reviewed for abuse of discretion); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990) (sanctions under Federal Rule of Civil Procedure 11 are to be reviewed for abuse of discretion). In that respect, Highmark is part and parcel of the Supreme Court's broader policy of limiting cases to be heard in federal court to those that are at least facially plausible, even if not ultimately meritorious. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) (to survive a motion to dismiss, respondents need only allege "enough facts to state a claim to relief that is plausible on its face").