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Recent Trends in the Supreme Court: The Undoing of ‘Patent Law’

9 September 2015

Over the last decade, the Supreme Court has reversed a number of Federal Circuit decisions that seemingly carved out exceptions for patent cases. Since its decision in eBay Inc. v. Merexchange, L.L.C., (eBay Inc. v. Mercexchange, L.L.C., 547 U.S. 388 (2006)) the Supreme Court has worked to undue these special exemptions and apply long recognized rules of law to patent cases.

The first notable correction of the Federal Circuit by the Supreme Court based on well settled law came nearly ten years ago in eBay. Rather than using the established four-factor test for determining whether to issue an injunction, applied by courts of equity in other areas of the law, the Federal Circuit held that absent sound reasons for denying it a permanent injunction would issue when infringement has been found and validity upheld.  (See Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1247 (Fed. Cir. 1989)) In creating this rule for patent cases, the Federal Circuit relied on the portion of the Patent Act that states “patents shall have the attributes of personal property, …including the right to exclude others from making, using, offering for sale, or selling the invention.” (35 U.S.C. § 154(a)(1))  However, in doing so, the Federal Circuit ignored that the Patent Act also provides that courts “may grant injunctions in accordance with the principles of equity….” (35 U.S.C. § 283 (emphasis added)) In overturning the Federal Circuit, the Supreme Court noted that “[n]othing in the Patent Act indicates that Congress intended” to depart from the long tradition of equity practice established when evaluating whether to grant an injunction. (eBay Inc., 547 U.S. at 391) Accordingly, the specialized rule for issuing injunctions in patent cases was undone by the Supreme Court.

In 2013, the Supreme Court attacked another patent specific carve-out created by the Federal Circuit in the area of fee shifting. In its decisions in Octane Fitness, LLC v. ICON Health & Fitness, Inc. and Highmark, Inc. v. Allcare Health Mgmt. Syst., Inc., which were argued and decided together, the Supreme Court overturned the Federal Circuit’s definition of an “exceptional case” for the purpose of awarding attorneys fees in patent cases. In 2005, the Federal Circuit held that parties could only recover attorneys fees under 35 U.S.C. § 285 when either: (1) “there has been some material inappropriate conduct;” or (2) the litigation was both “brought in subjective bad faith” and was “objectively baseless.”( Brooks Furniture Mfg., Inc. v. Dutailier Int’l, Inc., 393 F.3d 1378 (Fed. Cir. 2005)) In moving from the traditional case-by-case consideration of the totality of the circumstances to the more rigid standard set forth above, the Federal Circuit foreclosed the discretion of the district court and imposed requirements for the award of attorneys fees the Supreme Court held were not found in the Patent Act.

Among the reasons for rejecting the standard created by the Federal Circuit, the Supreme Court looked at comparable fee-shifting statutes and how those statutes have been interpreted in other areas of the law. The court noted that it has “long recognized a common-law exception to the general ‘American rule’ against fee-shifting – an exception, ‘inherent in the power [of] the courts’ that applies for ‘willful disobedience of a court order’ or ‘when the losing party has ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons….’” (Octane Fitness, LLC v. Icon Health & Fitness, Inc., 572 U.S. 1749, 1758 (2014)) Through Octane Fitness and Highmark, the court again made clear that absent specific congressional intent, patent cases are to be treated no differently than areas of law.

Just last term the Supreme Court again corrected the Federal Circuit’s divergence from well settled law. In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., the Supreme Court overturned Federal Circuit precedent of reviewing claim construction decisions that involve findings of fact under the de novo standard of review. The court made clear that while the ultimate question of claim construction is for the judge, there is no “exception from the ordinary rule governing appellate review of factual matters.” (Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 838 (2015)) Rather, Federal Rule of Civil Procedure 52(a) applies equally to patent cases and the Federal Circuit may not set aside a district court’s “finding of facts,” even subsidiary facts, unless they are “clearly erroneous.” The court stated explicitly that while it concluded “that it was proper to treat the ultimate question of the proper construction of the patent as a question of law in the way that we treat document construction as a question of law,” “this does not imply an exception to Rule 52(a) for underlying factual disputes.” Rather, the court explained, “[w]e use the term ‘question of law’ while pointing out that a judge, in construing a patent claim, is engaged in much the same task as the judge would be in construing other written instruments, such as deeds, contracts, or tariffs.” (Teva, 135 S.Ct. at 837) Accordingly, when factual disputes arise in the context of claim construction, they are to be reviewed, as all other factual findings, for clear error. 

To the extent the Federal Circuit has carved out other exceptions to long-standing legal principles and diverged from well-settled precedent in other areas of law, such exceptions may soon disappear. As the Supreme Court takes up more patent cases in the coming years, we could see more undoing of the “patent law” created by the Federal Circuit.

Reprinted with permission from the September 9, 2015 edition of InsideCounsel © 2015 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

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