Is SCOTUS less patent-friendly than lower courts?

Several recent US patent cases may reveal dissent between the Supreme Court and the lower courts over what constitutes an abuse of the patent system, said speakers at the Fordham Intellectual Property Law Institute’s 22^nd Annual IPLJ Symposium.

During a session on The Supreme Court, the Federal Circuit and What the Future May Hold, speakers predicted what high-profile cases such as Actavis, Bowman v Monsanto, Myriad, Highmark and Octane might mean for patent law.

The panel discussed what influence the rule of reason may have in reverse payment cases, in which IP law and antitrust law intersect. Reverse payment or pay-to-delay deals became common as the result of a loophole in the Hatch-Waxman Act, which aimed to lower the cost of drugs by incentivising generic manufacturers to sue brand name pharmaceuticals.

In June, the Supreme Court ruled in FTC v Actavis that reverse payment settlements between brand name and generic drug companies are not presumptively unlawful, but should be subject to scrutiny under the rule of reason.

The effect of the decision is that parties wanting to settle will bear the burden of proving that reverse payment settlements have legitimate business justifications and comply with antitrust law.

The decision overturned a ruling by the Court of Appeals for the Eleventh Circuit, which concluded that reverse payments are legal as long as they do not keep competitors off the market for longer than the term of the patent covering the drug.

The Supreme Court decision was split 6-3. Chief Justice Roberts, dissenting, said the majority opinion “departs from the settled approach separating patent and antitrust law” and “weakens the protections afforded to innovators by patents”.

“I think this tells us that the Supreme Court is not as enamoured with patents as the Federal Circuit, patent owners and the USPTO,” said panellist Steven Lee, a partner of Kenyon & Kenyon (left).

He said that in some cases, a generic version of a drug may not have been available to the public at all if a settlement had not been reached between brand name and generic pharmaceutical companies.

But Professor John Thomas, of Georgetown University of Law (above right), was sceptical of the idea that the tides may be turning against patent holders in the highest court in the US.

“I don't think the Supreme Court is anti-patent,” he said. “You have Bowman v Monsanto, which could obviously have gone the other way.”

The subject of tension between those hoping to expand IP laws and those aiming to curtail them also came up during a discussion on fee-shifting, which has been suggested by some lawyers and politicians as a means to curb patent trolls.

Unlike most countries, the US generally expects both sides to pay their own attorneys fees irrespective of the outcome of the case. There are exceptions, however – for example, when one party is found to have abused the court system, they may be ordered to pay their opponent’s costs.

The Supreme Court recently agreed to hear two cases raising the question of who should pay attorneys fees in patent infringement claims: Highmark v Allcare Health Management, and Octane Fitness v Icon Health and Fitness.

In Octane Fitness v Icon Health and Fitness, Octane asked the Supreme Court to consider whether the Federal Circuit's “rigid and exclusive two-part test” for determining whether a case is exceptional “improperly appropriates a district court’s discretionary authority to award attorney fees.” Octane argued that by imposing this test, the Federal Circuit raised the standard for accused infringers – but not patent holders – to recoup fees. This, Octane claimed, encouraged patent trolling.

The Supreme Court agreed to hear the case on October 1.

“This is a fundamental debate about whether patents are being used improperly and whether patents – which are, after all, an economic tool – have become counter-productive and are in fact impeding innovation,” said panellist Nicholas Groombridge of Paul, Weiss, Rifkind, Wharton & Garrison (below, left).

Speaker John Richards, a partner of Ladas and Parry (right), said that in its petition for certiorari, Octane had carefully chosen language that echoes previous points of contention between the Federal Circuit and the Supreme Court. For example, in Bilski the Supreme Court struck down the Federal Circuit’s machine-or-transformation test as a “dispositive test”, criticising it as “rigid and exclusive”.

The possibility of fee-shifting in patent cases dates back to 1946, when a provision was created under 35 USC § 285 to allow district courts ruling on patent cases to have discretion as to whether to award attorneys fees.

The law was amended in 1952 to read that fees should only be awarded in “exceptional” cases.

“The idea that courts should have total discretion over attorneys fees seems unlikely to go anywhere because that was the original wording in the 1946 law, which was altered,” said Richards.

Politicians have proposed various bills this year in an effort to combat patent trolls. Some, such as the Innovation Act, the SHIELD Act the Patent Abuse Reduction Act, propose giving courts discretion to order losing patent infringement plaintiffs to pay their opponents’ fees, subject to certain conditions.

But fee-shifting may have the unintended effect of providing corporations with an unfair advantage in litigation against a small company or individual, said Lee.

“If we have fee-shifting, it’s really going to benefit the Goliaths more than the Davids,” he said. “If you have a particularly large business, the fees are not really going to matter.”

He also argued that in cases involving amounts under $1 million, attorneys fees could end up far exceeding the amounts under dispute, which could have the unintended effect of having such cases thrown out of court.

Richards pointed out that in countries such as the UK which uses a loser pays system across the board, small companies commonly settle with larger adversaries to avoid the ruinous risk of paying both sides’ legal fees.

Vermont recently adopted the Bad Faith Assertions of Patent Infringement law (H.R. 299), which aims to curb patent infringement demand letters sent in “bad faith”.

But Groombridge said that since a plaintiff’s intentions may be difficult to prove, a better test might be whether a defendant should have known that the case had no chance of success in court.

“That’s much easier to prove and I think that’s what the courts will do,” he said.