Patent Cases Ask U.S. Supreme Court to Curb Lawsuit Abuse

Photographer: Andrew Harrer/Bloomberg
The "Authority of Law" statue stands in front of the Supreme Court building in Washington, D.C.

Even as it deals with hot-button issues like campaign financing and affirmative action, the U.S. Supreme Court has patents on its mind these days.

The court, which has already heard four patent-related cases this term, will hear two more next week. An underlying question is how to deal with companies that own patents purely to collect royalties without making a product. Congress also is weighing ways to curb what companies like Google Inc. (GOOG) and Cisco Systems Inc. (CSCO) call rampant lawsuit abuse by some patent owners.

“That’s why they take so many cases -- they think a great danger is afoot,” said Paul Janicke, a University of Houston law professor. “The Supreme Court is worried and has been for years that patent power is too strong -- too many patents are issuing, too many people are being abused by them.”

The stakes are high for the companies and the broader economy. Industries with revenue tied the most to patent protection -- including drugmakers, technology companies and certain manufacturers -- generated $763 billion, or 5.3 percent, of the 2010 U.S. gross domestic product, according to a Commerce Department report in 2012. The challenge is restraining excessive lawsuits without harming companies that rely on patents for their products or licensing revenue.

Photographer: Andrew Harrer/Bloomberg

A patent inventor index cabinet sits inside the public search facility at the U.S. Patent and Trademark Office headquarters in Alexandria, Virginia. In the past eight years, the Supreme Court has limited patent owners’ ability to block non-competitors from using their inventions, made it easier to invalidate patents, and made it harder to get patents on business methods, medical diagnostics and isolated DNA. Close

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Photographer: Andrew Harrer/Bloomberg

A patent inventor index cabinet sits inside the public search facility at the U.S. Patent and Trademark Office headquarters in Alexandria, Virginia. In the past eight years, the Supreme Court has limited patent owners’ ability to block non-competitors from using their inventions, made it easier to invalidate patents, and made it harder to get patents on business methods, medical diagnostics and isolated DNA.

In the past eight years, the Supreme Court has limited patent owners’ ability to block non-competitors from using their inventions, made it easier to invalidate patents, and made it harder to get patents on business methods, medical diagnostics and isolated DNA.

Software Patents

In March the justices heard arguments on whether to tighten the rules to get a patent on software. They are considering two cases, argued in February, on when the loser in a patent case should pay the winner’s legal fees.

The court ruled in January that the patent owner always has the burden to prove infringement, even if the other side filed suit first to challenge the patent.

“I’m not one to say the Supreme Court is always anti-patent,” said Timothy Holbrook, who teaches patent law at Emory University in Atlanta. “They view patents with greater suspicion. There is some hostility.”

Next week’s cases involve how to determine exactly what a patent covers and whether a company can be liable for infringing a patented method even when it doesn’t perform every step of the method.

In the first case, being heard April 28, Nautilus Inc., (NLS) maker of Bowflex exercise equipment, claims a patent on a heart-rate monitor owned by Biosig Instruments Inc. is invalid because it’s too vague. An appeals court disagreed and said the patent’s wording was adequate as long as someone who understands the technology could figure it out.

Google, Amazon

Google, Amazon.com Inc. (AMZN) and other companies say that standard -- set by the U.S. Court of Appeals for the Federal Circuit, which handles all patent cases -- is too lax and allows some owners to claim their patent covers far more than was invented.

“Inventions are not wish lists,” the companies said in a filing supporting Nautilus. “Nor are they recitations of desired results that, if achieved, would be useful, even commercially available. Inventions are particular ways of achieving results.”

Yahoo Inc., while agreeing the standard needs to be tightened, said patent owners should have some leeway for reasonable interpretations of what the patent claims.

A stringent standard “would threaten to invalidate an enormous swath of patents and deprive inventors of any meaningful ability to claim the full scope of their inventions,” Yahoo said in its filing.

Taking Sides

In all the cases before the Supreme Court, what side a company takes depends on the patents it owns, how they are used, and whether the company is more often the one filing infringement suits or the one being sued.

Google focuses its legal arguments on trying to curb the number of lawsuits against its search engine and other businesses, even though it also owns thousands of mobile-phone patents through its purchase of Motorola Mobility Inc.

The lobbying group for biotechnology companies including Amgen Inc. and Monsanto Co. argues that tighter rules for patent descriptions would hurt their research, “where innovations must be described in terms of degrees and ranges, rather than precise amounts.”

Similar divides are found in the second case, being heard April 30. Limelight Networks Inc. (LLNW) is disputing claims it infringed a patent owned by Akamai Technologies Inc. for a way to deliver video or graphics over the Internet. The Federal Circuit said Limelight could be held liable even when it performs some steps of the patent and its customers, website operators including online video service Netflix Inc., perform the rest.

On Demand

Limelight and Akamai each store video, graphics and other content that can be delivered to a website on demand. Limelight said it stores the data and instructs its customers how to modify their websites to retrieve the information. Akamai’s patent covers both the storage and modifications.

A group that includes Google, Yahoo, Cisco, SAP Inc. and Oracle Corp. is backing Limelight. The Federal Circuit ruling would hurt makers of software and networking services, and lead to more litigation against information technology companies, they said.

Drugmaker Eli Lilly & Co. argued in a filing that those concerns were overstated and that a ruling for Limelight would allow infringers to escape liability. Gaming company Bally Technologies Inc. said in court papers that companies could “conspire with one another to knowingly infringe a patented method” and avoid liability by each agreeing to perform only part of the method.

The Federal Trade Commission plans a study of patent litigation to determine whether it harms competition. The Senate Judiciary Committee is working on legislation to address concerns raised by companies like Google and retailers over patent lawsuits; the U.S. House passed a measure in December.

For now, court decisions are “going to always be based on whose ox is being gored,” Janicke said.

The cases are Nautilus Inc. v. Biosig Instruments Inc., 13-369, and Limelight Networks Inc. v. Akamai Technologies Inc. (AKAM), 12-786.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net Laurie Asseo, Mark McQuillan

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