Judges, Justices, and Patent Trolls

Law360 does a fine job of covering intellectual property, including the attention patent trolls are getting from agencies and government officials. Most recent stories have focused on legislative proposals in Congress, efforts in Vermont and Nebraska, and at the ITC and FTC. So two articles reporting on speeches by federal appellate judges deserve special mention for their impact on the subject. And almost in answer, the Supreme Court granted certiorari on two appeals which could increase the litigation risks for trolls.

 “Fed. Circ.’s Reign Over Patents Should End, Judge Says” in the September 27 issue quotes remarks by Judge Diane P. Wood of the Seventh Circuit saying that patent appeals should be distributed among the regional courts of appeal while keeping the Federal Circuit as one of those courts. Since 1982, the Federal Circuit has had exclusive jurisdiction of all appeals from federal district courts’ final decisions “relating to patents or plant variety protection. 28 USC §1295 (a)(1). The harm done to businesses by troll has occurred on their watch.

 The September 30 issue in “Troll Bills Would Usurp Courts’ Power, Fed. Circ. Judge Says” reported on remarks by Federal Circuit Judge Kathleen O’Malley that bills introduced in Congress to combat patent trolls could weaken the federal courts by violating the separation of legislative and judicial powers under the Constitution and intruding into the court’s rule-making authority recognized in the Rules Enabling Act (1934). It gives the Supreme Court “power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts” provided the rules do not “abridge, enlarge or modify any substantive right.” 28 USC §2072 (a) & (b).   

Judge Wood noted that sending all patent appeals to one court of appeals eliminates a major source of cases decided by the Supreme Court, “splits” in authority where one circuit court applies a legal analysis to reach its conclusion on certain facts while another circuit court reaches a different conclusion using a different legal analysis applied to essentially the same facts. The splits reflect a judicial laboratory in which different approaches are found persuasive in different courts of appeal, not unlike the laboratory of state legislative approaches.

One example that stays with me is when the Supreme Court adopted in Grokster the reasoning of Judge Posner in the Seventh Circuit’s Aimster decision and rejected the Ninth Circuit’s reasoning in the Napster opinion. In re: Aimster Copyright Litigation 334 F.3d 643 (7th Cir. 2003); A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001); MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005). Judge Posner would not allow a music recording file-sharing service to “willfully turn a blind eye” to how their software and service were being used to distribute unauthorized copies of copyrighted works.

Although Judge O’Malley spoke about rule-making rather than applying rules or statutory remedies, and with no split in circuits to resolve, the Supreme Court just granted certiorari taking up two more Federal Circuit decisions. It has been doing this throughout the Roberts era and reversing the Federal Circuit on applying rules and statutes against the tide of the other circuits. The decisions seem to say what Judge Wood said, patent appeals are not all that more difficult than intellectual property and complex litigation issues handled by the other circuits daily.

Without different circuits developing different legal approaches, the innovators on patent issues must be district courts, litigants and coalitions of judges on the Federal Circuit. The coalitions were on view in Highmark Inc. v. Allcare Health Management Systems Inc., Case No. 12-1163  (Sup. Cit.) where the issue is the Federal Circuit’s refusal to give deference to district court decisions ordering sanctions for “objectively baseless” patent suits. Highmark argues this encourages patent trolls instead of deterring them. Federal Circuit judges voted 7-5 against rehearing the case en banc. That’s a sizeable split.

Octane Fitness LLC v. Icon Health & Fitness Inc., case no. 12-1184, involves the Federal Circuit’s standard for awards of “reasonable attorneys’ fees” under Section 285 of the Patent Act.  Other than legal misconduct, it requires defendants to prove claims against them were both “objectively baseless” and “brought in subjective bad faith. The hurdles are all but impossible to jump. Octane’s certiorari petition highlights how the rule plays into the hands of patent trolls.

Not speaking as a scholar, the Federal Circuit’s “no deference” standards seem like a burden it assumed because of its exclusive patent appeals jurisdiction and the lack of region by region experimentation. If it defers to a sanction award by a judge in the Southern District of Indiana, and an award by a judge in the Central District of California, there’s a decent chance each has different views of what is frivolous litigation.

The Federal Circuit’s understanding of its exclusive role seems to have moved it to strive for national uniformity on inherently discretionary judgments. Sanctions awards in copyright and trademark cases reflect regional differences about how much to tolerate from aggressive clients and lawyers. In nearly all federal litigation except patents, if a judgment call on fees or sanctions is shocking, there’s a regional circuit court of appeals that can hear an appeal and knows the judge who made it.

The motivations of the distinguished judges’ reported remarks and the Supreme Court’s grants are unknown, but it is plausible that the real abuses of patent trolls are in there somewhere. Meanwhile, if you’re a patent troll or patent troll representative, you can add many federal judges to the list of members of Congress, the President, the FTC, and state attorney’s general all trying to do something about your business model. This isn’t all just blowing over.

About Craig Pinkus

Craig Pinkus is a partner in the Intellectual Property Group. He also is a member of the Litigation and the Sports, Entertainment and Media Groups. He assists clients with a broad range of disputes and transactions involving all areas of intellectual property, entertainment, and other complex business arrangements. He has conducted trials and arbitrations throughout the United States and has argued appeals before the Seventh, Sixth and Federal Circuit Courts of Appeal, the Indiana appellate courts, and United States Supreme Court.
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