Federal Circuit Decision Helps Troll Defendants Reduce Cost Of Litigation

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While the attention of most of the patent litigation world has been focused on Supreme Court decisions on the patentability of human gene sequences and the viability of antitrust claims based on settlement of Hatch Waxman litigation, the Federal Circuit issued a significant decision that could help defendants in patent actions litigate the cases more efficiently, thereby reducing the cost of defense leverage that many trolls rely upon to force settlements.

In Robert Bosch, LLC v. Pylon Manufacturing Corp., the Federal Circuit effectively approved of the bifurcation of patent cases into separate trials on liability and damages and ruled that decisions on liability for infringement can be appealed while issues of damages and willful infringement remain to be decided.

Because of the so-called final judgment rule, appellate courts will not review trial court decisions until the entire dispute is decided.  This rule helps the appellate courts avoid piecemeal appeals, but it also adds to the cost of litigation.  In most cases, the parties are required to go through the costly discovery process on all issues, including damages, before the trial court even addresses potentially dispositive issues of liability and if the defendant does not prevail on summary judgment, the defendant needs to go through a full trial on damages before it can appeal any liability issues.  Patent trolls are well aware of this and often use the threat of lengthy and expensive litigation to induce settlements even when defendants believe they have strong non-infringement or invalidity defenses.

The Robert Bosch decision throws a spotlight on a special exception to the final judgment rule for patent cases that can be used to change the equation.  The federal appeal statute (28 U.S.C. § 1292) provides that an appeal in a patent case can be taken when the judgment is “final except for an accounting.”  After reviewing the understanding of the term “accounting” in 1948 when this provision was enacted, the court found that the term includes a trial on damages and claims of willful infringement so that an appeal is proper even when damages and willfulness issues have not been resolved.

While this case decides an issue of appellate jurisdiction, its most significant impact may well be on case management practices in the trial court as it is expected to encourage bifurcation in patent cases. 

This case came to the Federal Circuit after a trial on liability before Judge Sue Robinson, a District Court judge well known for handling patent cases in the District of Delaware, who routinely bifurcates patent cases into separate trials for damages and liability.  In its ruling, the Federal Circuit quoted from Judge Robinson’s decision to bifurcate, which stated that “bifurcation is appropriate, if not necessary, in all but exceptional patent cases”.  The Federal Circuit further supported its decision by noting that Congress provided this exception to the final judgment rule in patent cases to avoid the cost of damage calculation proceedings that might ultimately be unnecessary, the same rationale that lead Judge Robinson to bifurcate the proceedings in the first place.  As Judge Robinson noted and the Federal Circuit quoted with approval, discovery disputes and motion practice related to damages experts are “a drain on scarce judicial resources.”  Similarly, a willfulness claim “requires qualitatively and quantitatively different proof than does infringement.”

The Federal Circuit’s favorable treatment of Judge Robinson’s decision to bifurcate and its clarification that a final judgment on liability alone will be immediately appealable will likely encourage district court judges to allow bifurcation in patent cases more frequently.  This seemingly slight procedural shift, however, could have a significant effect on the dynamics of settlement negotiations in patent cases, as it promises to reduce the cost of litigation and thereby reduce the incentives for cost of defense settlements.