Clamping Down on Patent Litigation as a Business Tactic Among Competitors

In the years leading up to the Wall Street collapse of 2008, I spent a fair amount of my time defending smaller tech and similar companies against intellectual property suits, including patent suits and preliminary injunction proceedings, often involving infringement claims that were, in my book, specious at best. Interestingly to me at the time, these were not suits brought by what have since come to be known, quite pejoratively and perhaps sometimes accurately, as patent trolls. Instead, they were brought by larger and more well-funded competitors in the marketplace, in a clear tactical decision to try to drive out smaller rivals by pursuing questionable claims of infringement. These were really just suits brought as business tactics, as the parties moved from competing in the marketplace to competing in the courtroom as well, a phenomenon I once summed up in the phrase “much as war is the continuation of politics by other means, patent litigation is the continuation of a business dispute by other means.” Interestingly, this dropped off substantially, at least among smaller companies, once the Great Recession hit, as companies became a lot more concerned with staying in business than with spending funds to sue competitors as a business tactic.

It’s interesting to note, though, that this has clearly picked up again over the past few years, even among smaller companies and separate from the similar attempts to gain business advantage in the courtroom pursued by large companies, such as Apple and Samsung, who are not so sensitive to the boom/bust cycle in pursuing such tactics. Given that the last time I saw this, the stock market dropped a gazillion points not long afterwards, one might want to ask whether this uptick is a sign of yet another stock market bubble.

But no matter, as that is a topic for another day, and events themselves will establish it one way or the other. Of more interest to me, and the reason I write today, is that, while everyone else is focused on the impact on patent trolls of the Supreme Court’s recent decision in Octane Fitness, LLC v. ICON Health and Fitness, Inc., which makes it easier for a wrongfully accused defendant in a patent action to recover fees from a plaintiff, I am more interested in whether this same new decision will make it a little less likely that a wealthier company with a questionable patent will take to the courts to try to shut down a comparatively less wealthy competitor or, if not shut them down, to at least bog them down in litigation they cannot afford except by shortchanging their business operations. That alone would be the most pro-business result I could imagine from a court known for issuing such decisions.

Under the patent act, attorney’s fees can be awarded in “exceptional cases,” and, as Porter Wright’s Melissa Barnett explained, the Supreme Court has now made it easier to satisfy that standard, holding that:

the term “exceptional” should be construed within its ordinary meaning, which the opinion states means “uncommon,” “rare” or “not ordinary.” (pg. 7). The court went on further to state that an “exceptional” case should be determined on a case-by-case basis and “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position” or “the unreasonable manner in which the case was litigated.” (pg. 7-8). The requirement that patent litigants establish entitlement to fees under §285 by “clear and convincing evidence” also was rejected by the Supreme Court. The court held that “nothing in §285 justified such a high standard of proof,” but rather “demanded a simple discretionary inquiry.” (pg. 11).

To me, with regard to the issue I raised above, the question is whether courts will become more willing to grant attorney’s fees on a regular basis in circumstances where the plaintiff is not a patent troll, but instead a competitor who is pressing a questionable claim simply or predominately as a business tactic. If so, that risk would have to be factored into the cost benefit analysis of any company considering such a strategy, even one that is in the business of manufacturing or selling the product in question and is not a patent troll, and might well lead to less filing of infringement suits of the “patent infringement claim as business tactic” kind.

However, I am concerned that federal trial courts may well read the Supreme Court decision, given the environment in which it was issued – where all the focus is on trolling – as simply license to whack trolls, when a court views a patent infringement suit as nothing more than trolling for licensing fees. Time will tell as to whether it will also be used to reign in the type of cases I am describing here, but I was encouraged in this regard by something that Barnett wrote in her excellent blog post on the Supreme Court decision setting the new standard for awarding attorneys’ fees. She noted the existence in the case of “an email exchange between ICON executives that the suit was brought as a ‘matter of commercial strategy’ ” and, in fact, when you read the Supreme Court opinion, there is substantial documentation to this effect. The impact of this type of evidence on the question of whether to award fees in a case where a competitor uses patent infringement litigation as a business tactic is not fully developed in the Supreme Court opinion, but the reference in the decision to this type of evidence certainly opens the door for much more substantial consideration of this issue by lower courts in future cases.

As one who thinks that the proper place for business competitors to prove the worth of their products is – other than in the case of significant evidence of infringement – the marketplace, not the courtroom, I hope that turns out to be the case.