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Expert: Supreme Court decisions on patent cases a rebuke to 'baseless lawsuits'

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Law professor Paul Heald says two recent high-profile Supreme Court rulings on intellectual property make it easier for courts to award attorney's fees, which will likely deter a number of questionable lawsuits brought by so-called patent trolls.

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5/15/2014 | Phil Ciciora, Business & Law Editor | 217-333-2177; pciciora@illinois.edu

CHAMPAIGN, Ill. — The U.S. Supreme Court recently handed down two decisions on patents, both of which were watched closely by technology companies because of their potential impact on nonpracticing entities, otherwise known – and pejoratively referred to – as "patent trolls." But according to a University of Illinois expert in intellectual property law, there's nothing inherently wrong with individuals and organizations that don't make things trying to enforce their rights as patent holders.

Law professor Paul Heald says the high court's decisions aren't entirely about policing patent trolls.

"What they're doing is carving out a subset of patent owners who are engaging in the very old practice of bringing baseless lawsuits," said Heald, the Richard W. and Marie L. Corman Research Professor of Law at Illinois.

"The commonly acknowledged definition of a patent troll is any entity that enforces its patents but doesn't make anything. By that measure, a major research university that sues for patent infringement could also be labeled a patent troll, because, technically, they're a nonmanufacturing entity. But I think the court is targeting a narrow group of bad actors with these decisions, and they're doing so in a surgical and reasonable way."

According to Heald, the problems occur when individuals or companies buy up patents for the express purpose of suing others.

"Let's say I buy up a portfolio of patents and one of them is for an inventory system for drugstores," he said. "I buy this patent and immediately send a letter to every drugstore in the U.S. demanding a licensing fee for using my patent – without ever checking to see if they're actually using my technology.

"That's what some patent trolls do, which is just a plain abuse of litigation. Whether it's ambulance-chasing attorneys, abusive divorce lawyers or, in this case, completely baseless lawsuits, unethical behavior should be punished. In a sense, there's nothing special about so-called patent trolls, because fraudulent claims are brought in any number of areas of law."

The rulings in the two cases – Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management – make it easier for courts to award lawyer's fees to the prevailing party, which will deter a number of these spurious suits, Heald said.

"The Supreme Court is merely singling out and punishing these bad litigators," he said. "I don't think anyone thinks that making attorneys more honest is a bad thing."

According to Heald, the patent troll phenomenon is a byproduct of an open market for patents.

"On balance, it's probably good for innovation if patents are liquid," he said. "If you can make money not only by making something, but also by inventing and then selling your patent, then you have an increased incentive to innovate. Anytime you can keep lawyers from suppressing competition, that's a good thing. No one wants to crush the market for the sale and licensing of patents because then you would be throwing a valuable baby out with the bath water."

The Supreme Court taking on an increasing number of intellectual property cases over time also points to the increased importance of intellectual property in the information economy, Heald said.

"The Supreme Court used to go years and years without hearing an intellectual property case, and now, suddenly, we have seven in one term, and there were several last term," he said. "I doubt it's a conscious decision of the court to police technology more. It's the docket, and the docket is a product of what's happening below in the lower courts, which is itself a product of what's happening in the market. But I really don't think they try to engineer their docket in any particular way.

"So the question isn't whether it's the Supreme Court saying, 'Gosh, computers seem to be important. Therefore, we need to hear more computer cases.' In reality, computers have become and continue to be important, and continue to attract more research and development, more innovation and more litigation. And there are just a higher percentage of computer cases that come before the courts rather than say, railroad cases. In the age of railroads, you had a lot of railroad cases. Not so much anymore."

The Supreme Court may also be watching the federal circuit more closely because it has exclusive jurisdiction in patent case and other courts cannot participate in the development of the law, Heald said.

"There's no doubt that the federal circuit has been shot down on occasion by the Supreme Court, but I think all you can say about that is that the Supreme Court feels a greater obligation to monitor the federal circuit than it does other circuits because the federal circuit has a monopoly on all patent cases," he said. "The Supreme Court usually waits until there's a split in circuit court decisions. But with patent cases, there's no chance for other circuits to chime in, or for the circuits to work things out for themselves."

The Supreme Court also may feel an obligation to watch what the federal appeals court does more closely because it "doesn't have any competition," Heald said.

"It's like antitrust law – you always regulate monopolists more heavily than you do markets where there's lots of competition," he said. "And in the recent cases the cost to the public is palpable and really easy to see – it's a drag on innovation and commerce for businesses, who have to hire an attorney to deal with a completely bogus claim."

Editor's note: To contact Paul Heald, call 217-265-5422; email heald@illinois.edu.

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