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Supreme Court Could Give Businesses Weapon Against Patent Trolls

October 7, 2013
URL: http://www.entrepreneur.com/article/229281

The Supreme Court could give business owners a powerful weapon to fight back against patent trolls.

The High Court began its term today, with the usual packed docket of cases that could have a direct impact on American business.

One case stands out for its potential impact on innovation. In a relatively late move, the Court decided last week to hear arguments this term over whether companies who prevail against trolls can be reimbursed for their legal expenses.

Trolling is widespread and insidious for companies that rely on intellectual property. Generally, trolls sue startups and other companies, claiming infringement on intellectual property and demanding outsized licensing fees. The trolls don't actually use the patents involved. Rather, they are typically organized into holding companies that do nothing but threaten lawsuits.

It is a major shakedown, with some estimates putting the loss to companies at more than $80 billion each year.

Some companies fight back, but that is often expensive – far more so than just settling.

Related: Angry Business Owner Wages War on 'Troll'

What's more, there is a provision in federal patent law that makes it even pricier to not fight back. Even if companies beat the patent trolls, they find it hard to recoup their attorney fees because U.S. patent law only allows such payments under "exceptional" circumstances.

Attorney fees are no small matter. In the case the Supreme Court will hear this term, Highmark, a Blue Cross Blue Shield health plan, was sued by a company called Allcare, claiming Highmark's transaction-processing systems infringed on an Allcare patent. Allcare has no business, except for managing a patent that covers health management systems.

Allcare threatened a lawsuit, but Highmark decided to fight back. It took six years, but the lower court sided with Highmark, saying Allcare's actions "align with the sort of conduct that gives the term 'patent troll' its negative connotation."

Originally, Highmark was awarded attorney fees, but an appeals court overturned that. In fact, it is very hard to get legal costs reimbursed because patent law forces defendants to prove that allegations are objectively baseless and there is evidence of bad faith.

That's too narrow, Highmark argued in getting the Supreme Court to hear the case. "Litigation by patent assertion entities, sometimes called 'patent trolls,' now accounts for a majority of all patent cases," Highmark wrote. "The threat of an exceptional-case finding is a crucial deterrent to meritless suits designed to extort licensing fees."

In a companion case, the defendant never got the chance to get fees at all. In that case, Octane Health, a fitness company, was sued by a company called Icon, claiming its elliptical workout machine violated patents. Icon had never used those patents in its equipment, and admitted in emails it only wanted to sue for the license fees.

The court quickly found in favor of Octane, but denied the payment of attorneys' fees of $1.3 million, saying the exceptional-case standard wasn't met.

It is unclear when the Supreme Court will hear arguments for these two cases.

Related: FTC Recommends Sweeping Investigation of Patent Trolls