Patent trolls know that it costs a lot of money to defend a patent case. The high cost of defensive litigation means that defendants are pressured to settle even if the patent is invalid. Fee awards can change this calculus and give defendants a chance to fight back against weak claims. A recent decision [PDF] from the Federal Circuit has overturned a fee award in a case involving an abstract software patent on crowdsourcing. This disappointing ruling may encourage other patent trolls to file meritless cases.
Patent troll AlphaCap Ventures claimed that its patent covered various forms of online equity financing. It filed suit against ten different crowdfunding platforms. Most of the defendants settled quickly. But one defendant, Gust, fought back. After nearly two years of litigation in both the Eastern District of Texas and the Southern District of New York, AlphaCap Ventures dismissed its claim against Gust. The judge in the Southern District of New York ruled that AlphaCap Ventures’ attorneys had litigated unreasonably and ordered them to pay Gust’s attorneys’ fees. Those lawyers then appealed.
EFF filed an amicus brief [PDF] to respond to one of the lawyers’ key arguments. AlphaCap Ventures’ attorneys argued that the law of patent eligibility—particularly the law regarding when a claimed invention is an abstract idea and thus ineligible for patent protection under the Supreme Court’s decision in Alice v. CLS Bank—is so unsettled that a court should never award fees when a party loses on the issue. Our brief argued that such a rule could embolden lawyers to file suits with patents they should know are invalid.
As we were drafting our brief in the AlphaCap Ventures case, the Federal Circuit issued a decision in Inventor Holdings v. Bed Bath & Beyond. The patent owner in Inventor Holdings had asked the court to overturn a fee award against it on the ground that the law of patent eligibility was too uncertain for its arguments to have been unreasonable. The Federal Circuit rejected this in a unanimous panel opinion. It wrote:
[W]hile we agree with [Inventor Holdings] as a general matter that it was and is sometimes difficult to analyze patent eligibility under the framework prescribed by the Supreme Court . . . , there is no uncertainty or difficulty in applying the principles set out in Alice to reach the conclusion that the ’582 patent's claims are ineligible.
In other words, it rejected a very similar argument to the one advanced by Alphacap Ventures’ lawyers.
In the Alphacap Ventures decision, in contrast, the two-judge majority emphasized that “abstract idea law was unsettled” and found that the lawyers’ arguments were not so unreasonable to warrant fees. The majority did not distinguish or even cite Inventor Holdings. (Judge Wallach’s dissent does cite Inventor Holdings.) The appeals involved different patents, and the fee awards were made under different statutes, but it was still surprising that the majority did not discuss the Inventor Holdings decision at all.
We hope that the decision in Alphacap Ventures does not encourage other patent trolls to bring suits with invalid patents. The Inventor Holdings decision remains good law and shows that, at least sometimes, they will be held to account for bringing unreasonable cases.