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Supreme Court Gives More Leeway to Lower Courts on Patents and Copyright: Will Lower Courts Champion Innovation?

DEEPLINKS BLOG
June 27, 2016

Supreme Court Gives More Leeway to Lower Courts on Patents and Copyright: Will Lower Courts Champion Innovation?

The Supreme Court decided two patent cases and one copyright case this month. If the three cases have a unifying theme, it is that the Supreme Court gave more deference to fact-finding tribunals, whether that is the Patent Office or district courts. We discuss each of the three rulings below.

Halo Electronics v. Pulse Electronics

TL;DR: The Supreme Court gives district courts more discretion to impose enhanced damages in patent cases.

The Patent Act allows courts, in certain cases, to impose treble damages on those found to infringe a patent. The Federal Circuit had limited enhanced damages to cases where the defendant had infringed willfully and had no objectively sound defense. While this might have been good policy, it didn’t find much support in the statutory language. The Supreme Court has made a habit of reversing the Federal Circuit for applying strict, multi-factor rules that are not supported by the relevant statutes (examples here, here, and here). So it was no great surprise when the court unanimously overruled the Federal Circuit in this case.

The Supreme Court’s decision (PDF) included three holdings. First and most significantly, it rejected the rule that enhanced damages can only be imposed when the defendant has been objectively reckless. Instead, courts should consider all the circumstances, focusing particularly on whether the defendant knowingly infringed. The Supreme Court also changed the standard of proof for enhanced damages (to preponderance of the evidence) and the standard of review (to abuse of discretion). The overall impact is to give district courts more leeway.

We had filed an amicus brief (PDF) in this case with Public Knowledge. We cautioned that making enhanced damages too widely available could embolden patent trolls. We urged the court not to adopt any rules that would effectively force startups to engage in expensive legal analysis whenever they received a demand letter.

It seems the Supreme Court at least partially heeded these warnings. Although the Halo decision should make it easier for patent owners to get enhanced damages, it is not likely to make treble damages common. The decision repeatedly emphasizes that enhanced damages should only be imposed in “egregious” cases. Justice Breyer, joined by Kennedy and Alito, filed a concurring opinion that cited our amicus brief. He explained that the Court’s ruling should not be read to support willful damages simply because a defendant knew about a patent.

Kirtsaeng v. John Wiley & Sons

TL;DR: The Supreme Court gives district courts greater discretion to make awards of attorneys’ fees in copyright cases.

Back in 2013, we applauded an earlier decision in this case where the Supreme Court ruled in favor of international first sale in copyright. This was a big victory for the principle that if you bought it, you own it. A ruling the other way would have given copyright owners control over secondary markets whenever works, or even copyrighted components, had been sold overseas.

The case returned to the Supreme Court on the question of what standard should apply when the winning party asks the court to order the other side to pay its attorneys’ fees. The Copyright Act allows fee shifting in some cases but the courts of appeal had applied different standards. Once again, the Supreme Court ruled (PDF) in favor of greater discretion. It wrote: “courts must view all the circumstances of a case on their own terms, in light of the Copyright Act’s essential goals.” Importantly, the Supreme Court recognized those goals include “enabling others to build on [a copyrighted] work.”

This decision is likely to make it slightly easier for defendants to get fees when they successfully defeat bogus copyright claims. But its ultimate impact will depend on how lower courts apply the standard.

Cuozzo Speed Technologies v. Lee

TL;DR: The Supreme Court affirmed the “broadest reasonable construction” standard for interpreting claims during inter partes review.

At EFF, we have often spoken in favor of inter partes review (IPR). IPR is a procedure that allows parties to challenge patents before the Patent Trial and Appeal Board (PTAB) within the Patent Office. We used the IPR process to successfully challenge the podcasting patent owned by patent troll Personal Audio.

In Cuozzo, the Supreme Court considered two questions about IPRs. First, are decisions about whether to implement an IPR appealable? Before an inter partes review can begin, the PTAB must decide whether the applicant has presented evidence sufficient to show a likelihood of success. The statute says that the decision “whether to institute an inter partes review” is “final and nonappealable.” The Supreme Court ruled (PDF) that, at least in most cases, this clear language precludes any appeal. The court suggested that it might be possible to appeal based on a constitutional challenges to an institution decision, but in ordinary cases the decision cannot be appealed.

The second question before the court was what standard should the PTAB apply when interpreting patent claims? Patent claims outline the boundaries of the invention. The PTAB had been using a test called BRI (for “broadest reasonable interpretation”) to interpret claims. The Supreme Court upheld this rule. Opponents of BRI had presented various policy arguments against the standard. But the Supreme Court said that since the statute did not impose any particular test, the Patent Office was free to apply BRI.

This Cuozzo decision means that, at least for now, inter partes review will continue as before. This is a good result. The IPR process is working as Congress intended by providing a cheaper and faster way to challenge patents. We will continue to oppose attempts to weaken the IPR process.

The impact of these cases will largely depend on how trial courts and the Patent Office choose to wield the discretion Supreme Court has given them. Any standard that gives more discretion to district courts raises the prospect that some courts will apply the standard differently. We hope that the rulings provide enough guidance that they will be applied consistently and will not become tools for patent trolls or copyright trolls. We will monitor developments and keep fighting for copyright and patent law that favors innovation over litigation.

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