Supreme Court Update: Four Important Decisions for IP

by Knobbe Martens

In the recent cases OCTANE FITNESS, LLC v. ICON HEALTH & FITNESS, INC. and HIGHMARK INC. v. ALLCARE HEALTH MANAGEMENT SYSTEM, INC., the U.S. Supreme Court empowered district court judges to award attorney fees to prevailing parties in patent litigation and increased the likelihood that such fee-shifting will stick.

After the District Court granted summary judgment of non-infringement to Octane, Octane moved for attorney’s fees under §285.  The district court denied Octane’s motion under the Federal Circuit’s framework of Brooks Furniture Manufacturing, Inc. v. Dutailier International, Inc., 393 F.3d 1378 (Fed. Cir. 2005).  Under Brooks, a case may be deemed “exceptional” under §285 in only two circumstances: when there has been some material inappropriate conduct, or when the litigation is brought in subjective bad faith and is objectively baseless.  Additionally, Brooks requires that entitlement to fees under §285 be proved by clear and convincing evidence. The Federal Circuit affirmed the district court and declined to revisit its settled standard for exceptionality from Brooks.

The Supreme Court held the text of § 285 to be clear and that “an ‘exceptional’ case is simply one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”  In reversing the Federal Circuit, the Court held the Federal Circuit’s Brooks framework to be “overly rigid.”  First, the Court held Brooks’s first category of sanctionable conduct to be an inappropriate benchmark—exceptional (and deserving of fees) does not necessarily need to rise to the level of material inappropriate conduct that is independently sanctionable.  Second, the Court found that Brooks’ second category’s dual requirement of subjective bad faith and objective baselessness was improperly imported into §285 by the Federal Circuit (from Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993) (“PRE”)).  The Court noted that the concerns justifying that dual requirement in antitrust cases (as in PRE) do not justify its application to “the mere shifting of attorney’s fees.”  Third, the Court rejected Brooks because it renders §285 largely superfluous.  Finally, the Court held that preponderance of the evidence is the proper standard for establishing an exceptionality under §285, not clear and convincing evidence as required by the Federal Circuit.

In Highmark, after the District Court granted summary judgment of non-infringement to Highmark, Highmark moved for fees under § 285.  The district court found the case to be “exceptional” and granted Highmark’s motion.  On appeal, the Federal Circuit reviewed the district court’s determination de novo and reversed in part.  The Federal Circuit held that its de novo review was justified because “objectively baseless” under Brooks is a mixed question of law and fact.  

The Supreme Court applied its reasoning in Octane to vacate and remand Highmark.  The main issue considered by the Court in Highmark is the appropriate standard of review for a determination of exceptionality under § 285.  The Court held that § 285 commits the determination of exceptionality to the discretion of the district court and that the district court is better positioned to decide whether a case is exceptional because it lives with the case over a prolonged time period.  Therefore, all aspects of a district court’s § 285 determination must be reviewed on appeal only for abuse of discretion.

The Supreme Court’s decision in NAUTILUS, INC. v. BIOSIG INSTRUMENTS, INC. lowered the bar for invalidating patents for indefiniteness. 

Biosig had filed a patent infringement suit claiming that Nautilus’ exercise machines infringed its patent.  Biosig’s patent claims a heart rate monitor that includes a “live” electrode and “common” electrode “mounted . . . in spaced relationship with each other.” The District Court granted Nautilus’ motion for summary judgment on the ground that the claim term “in spaced relationship with each other” failed the definiteness requirement of 35 U.S.C. § 112, second paragraph.  The Federal Circuit reversed and remanded, finding that a patent claim passes the definiteness threshold so long as the claim is “amenable to construction” and the claim is not “insolubly ambiguous.” 

The Supreme Court held that the Federal Circuit’s test does not satisfy the statute’s definiteness requirement and can leave courts without a reliable compass.  The Court held that a patent is invalid for indefiniteness if its claims, read in light of the specification and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.  The Court emphasized that this standard takes into account the inherent limitations of language, but also requires that a patent must be precise enough to afford clear notice of what is claimed. The Court vacated and remanded to the Federal Circuit for reconsideration under the proper standard.

Finally, in the Supreme Court decision LIMELIGHT NETWORKS, INC. v. AKAMAI TECHNOLOGIES, INC., the Supreme Court limited the scope of induced infringement for method claims.

Akamai is the exclusive licensee of a patent which claims the method of designating content components to be stored on distributed web servers.  Limelight performs some of the claimed method steps, but its customers perform the “tagging” step.   The jury found Limelight liable for infringement but the district court granted judgment as a matter of law that there is no direct infringement.  Subsequently, a Federal Circuit panel affirmed, holding that, absent an agency relationship or a contractual obligation with its customers, Limelight is not liable when its customers perform one of the steps.  After en banc review, however, the Federal Circuit reversed the panel’s decision, holding that a defendant who performed some steps and encouraged others to perform the rest could be liable for inducement even if no one was liable for direct infringement. 

The Supreme Court reversed and stated that “liability for inducement must be predicated on direct infringement.”  The Court explained that the Federal Circuit’s analysis “fundamentally misunderstands what it means to infringe a method patent” and would deprive 35 U.S.C. § 271(b) of ascertainable standards.  In addition, the Court concluded that § 271(f)(1) reinforces the Court’s interpretation of § 271(b) because Congress acted in § 271(f)(1) to impose liability for an activity that does not constitute direct infringement.  Relying on this example, the Court stated that it “should not create liability . . . where Congress has elected not to extend that concept” for Section 271(b).  

The Court also rejected Akamai’s arguments based on tort law for imposing liability on a defendant who harms another through a third party.  The Court emphasized that “no direct infringement was committed” and there is no tort case supporting imposing liability when a plaintiff’s legal rights are not violated.  Similarly, the Court rejected Akamai’s analogy of § 271(b) to the aiding and abetting statute, 18 U.S.C. § 2, because the Court does not believe Congress had the aiding and abetting doctrine in mind when it enacted the Patent Act of 1952.  The Court acknowledged the concern that a would-be infringer may evade liability by dividing performance of a method patent’s steps, but it concluded that this concern does not justify fundamentally altering the rules of inducement liability.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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