Good News in the Fight Against Patent Trolls

The Supreme Court Rules Against Aggressive Patent Owners in 6 Unanimous Decisions. 

The Supreme Court rarely decides patent cases, so when they do, its a big deal. When the Supreme Court decides 6 patent cases in a single term, its a very big deal. And when all 6 are unanimous decisions against overreaching patent owners, the Supreme Court is sending a message to lower courts: patent rights need to be scaled back.

While none of these 6 cases involved trolls directly, the rulings will be applied to patent troll cases, and hopefully reduce their impact on technology startups. Here’s a plain-language summary of the cases, and what they mean for startups.

No Patents for Just Doing it on a Computer.

Alice v. CLS Bank says that taking an abstract idea and doing it on a computer is not an invention and can’t be patented. In this case, the Supreme Court decided that taking the “abstract idea” of an escrow agent, and doing it in software is not an invention worthy of a patent. In the Supreme Court’s language:

We hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.

Alice v. CLS should have two positive effects. First, startups can more easily invalidate many of the old software patents favored by trolls. Second, Alice makes it more difficult to obtain software patents in the first place. In fact, the Patent Office has already started rejecting software patent applications based on Alice.

Remember that Alice doesn’t kill off all software patents. Software patents are still valid if the software is a novel solution to a real technology problem. (See Prof. Chisum’s early analysis).

No Vague Patents

Nautilus v. Biosig says that vague patents are invalid. In the legalese, patent claims are “invalid” for “indefiniteness” if they fail to describe the invention with “reasonable certainty.” As Justice Ginsburg put it:

we hold that a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

For software patents, “those skilled in the art” means something like “average software developer.” Not a recent grad, and not a ninja-rockstar-unicorn. Just your average developer. Would he/she understand what the patent is about? If not, the patent is invalid.

Of course, this has always been the rule, and courts have never applied it with much force. Most developers have no idea what most software patents are about, and yet judges rarely invalidate them for being vague. The Nautilus case should give the rule some bite.

Going forward, it will be easier for tech startups to invalidate the notoriously nebulous software patents thrown around by trolls.

Make Trolls Pay for Frivolous Lawsuits

Two sister cases, Highmark v. Allcare and Octane v. Icon are about punishing plaintiffs for filing frivolous patent lawsuits. Octane sets the standard for when a plaintiff can be punished, and Highmark sets the standard for when a plaintiff can appeal the punishment.

Octane v. Icon says that judges can punish plaintiffs that file “exceptionally” weak patent lawsuits by forcing them to pay the defendant’s legal bills (called “fee shifting”). Before Octane, Judges could only impose fee shifting if the plaintiff filed the case in “subjective bad faith” and the case was “objectively baseless.” This standard was nearly impossible to meet, and plaintiffs filed all kinds of worthless lawsuits with impunity.

Under the new rules, patent trolls lose the protection of such a rigid test. Instead of the rigid test, judges can look at all of the relevant facts to determine which cases are “exceptional” and warrant “fee shifting.” This should lead to more defendants winning back the money they paid for legal defense against meritless patent lawsuits.

Highmark v. Allcare says that if a judge decides to punish a plaintiff for filing a frivolous lawsuit, this decision can only be overturned on appeal if the trial judge was “abusing her discretion.” Appellate judges are a polite bunch, and don’t like to accuse their peers of “abusing discretion.” Therefore, trial judges have a free hand to impose fee shifting penalties without worrying about reversal from the Federal Circuit. This new rule should work in tandem with the Octane v. Icon rule to make it easier for courts to punish patent trolls.

Two More Decisions: Complicated, but Ruling Against Aggressive Patent Owners.

The last two cases are more complicated. Limelight v. Akamai is about “inducing” a third party to infringe a patent, and Medtronic v. Boston Scientific is about who has the “burden of proof” in a declaratory judgment action. The important thing is that they were both unanimous 9-0 opinions, and both ruled against the patent holder. In both cases, the Supreme Court continued its efforts to scale back the problem of frivolous patent litigation.

6 Unanimous Wins for Patent Defendants

It will take some time for these 6 Supreme Court wins to trickle down into the trial courts and day-to-day lives of technology startups. But they will, eventually, have a positive effect:

• Software patents are no longer allowed for simply taking a known business idea and doing it on a computer. (Alice v. CLS Bank)
• Patents can’t be too vague. They need to describe the technology with enough detail that an average developer can understand whats actually being patented. (Nautilus v. Biosig)
• Startups can more easily stick trolls with their legal defense bills. (Highmark v. Allcare & Octane v. Icon)

Trolls Now File 67% of All Patent Lawsuits: Will it Get Better?

I’m an optimistic guy. So, I’m predicting that this 67% figure is the high-water mark for patent trolls. In the next few months, we will see judges start punishing the worst trolls with “fee shifting” penalties (under Highmark and Octane). Word will spread, and trolls will think twice before indiscriminately firing out dozens of patent lawsuits.

Will the trolls stop altogether? Probably not. But they will cut back. These 6 Supreme Court decisions don’t solve the patent troll problem, but they’re a step in the right direction. I’ll take what I can get.