Wednesday, July 23, 2014

The Supreme Court is struggling to rein in America's rogue patent court

Sam Howzit

If you want to blame someone for the explosion of patent litigation in recent years, a good candidate is the US Court of Appeals for the Federal Circuit. That's the appeals court responsible for handling appeals in all patent cases. Over the past decade, the Supreme Court has slapped down its rulings, which the high court has seen as too friendly to patent holders and patent applicants.

Between 2004 and the start of 2014, the nation's highest court has overruled the Federal Circuit 10 times (based on this list). Nine out of those ten decisions had made the system more patent-friendly; only one had gone the other way.

And this year, the Supreme Court has intensified its scrutiny of Federal Circuit decisions. It has already ruled on five Federal Circuit decisions, all of which favored the interests of patent holders. In every case, the Supreme Court overruled the court, siding instead with accused infringers instead. And all five Supreme Court rulings have been unanimous.

This pattern suggests a serious cultural problem at the Federal Circuit. Courts are supposed to apply the law fairly and even-handedly. Yet if the Supreme Court's decisions are any indication, the Federal Circuit has a strong and persistent pro-patent bias that has tilted the patent system in favor of patent holders.

The Federal Circuit's monopoly over patent law only dates to 1982. Before that, jurisdiction over patent law was divided among the same generalist courts that handle most other legal issues. Congress consolidated patent jurisdiction in the Federal Circuit because it thought doing so would bring greater uniformity and expertise to the topic. But the arrangement has also had some serious downsides.

The Federal Circuit gets overruled again. And again.

The latest bad news for the Federal Circuit came on Monday, when the Supreme Court handed down two unanimous rulings overturning the court's rulings:

  • The Federal Circuit had made it easy to get vague patents, allowing them so long as their claims were not "insolubly ambiguous." In Nautilus v. Biosig Instruments, the Supreme Court unanimously held that this standard made it too easy to uphold vague patents.
  • The Federal Circuit ruled that a content-delivery network called Limelight was liable for patent infringement because it had "induced" its customers to infringe the patents of a competitor, Akamai. The Supreme Court unanimously overturned the ruling, holding that a defendant couldn't be held liable for inducing infringement if the action being induced did not itself infringe the patent.

This week's rulings followed three other rulings earlier in the year, which all unanimously overruled patent-friendly Federal Circuit decisions.

And the year's most significant patent ruling, on the patentability of software, is still coming up. The initial ruling by a three-judge panel in the case would have made it easier to get software patents. A broader panel of Federal Circuit judges eventually deadlocked, which effectively upheld a lower court ruling that the patent was invalid. The Supreme Court is widely expected to endorse the lower court's view.

The pro-patent bias of the Federal Circuit's original 3-judge panel was so egregious that one Federal Circuit judge wrote a blistering dissent. "The majority has failed to follow the Supreme Court’s instructions—not just in its holding, but more importantly in its approach," wrote Judge Sharon Prost, who recently became the Federal Circuit's chief judge. "Just a few months ago, the Supreme Court reversed us for a second time in its last three terms, hinting (not so tacitly) that our subject matter patentability test is not sufficiently exacting."

That was last year. Since she penned those words, the Supreme Court has unanimously overruled the court five more times. That seems to confirm that the nation's top patent court likes to march to the beat of its own, very patent-friendly, drummer.

The patent lawyers' court

One likely reason is that the Federal Circuit has a cozy relationship with the patent bar. Judges don't just see patent lawyers in their courtrooms every day, they also read their journals and attend their conferences and parties. Legal scholar Chris Sprigman has described how Judge Randal Rader, who recently stepped down as the court's chief judge, has been treated as a literal rock star, playing with his band at patent lawyers' conferences. The pro-patent ideology of patent lawyers seems to have rubbed off on the nation's most senior patent judges.

Stronger patents also serve the Federal Circuit's institutional interests. The stronger patent rights are, the more important they are to the nation's economy, and the more important the patent system, and the court that oversees it, is.

The problem is made worse by the Federal Circuit's unusual structure. Most other legal issues, such as copyright, contracts, and environmental law, are handled by the 12 generalist appeals courts that are organized by geography. As legal scholars John Duffy and Craig Nard have argued, competition among these courts makes it easier for the Supreme Court to do its job. Disagreements among the courts — known to lawyers as "circuit splits" — provide the Supreme Court with signals about when an issue requires their attention.

When a non-patent case reaches the Supreme Court, the high court benefits from having multiple, competing perspectives on the issue. Different appellate courts create and flesh out rival legal standards. Legal scholars debate the merits of the different precedent. These disagreements provides raw material that helps the Supreme Court fashion a workable nationwide standard.

The real problem with the Federal Circuit isn't the five patent decisions that the Supreme Court has overruled this year — it's the much larger number of Federal Circuit patent law rulings that the Supreme Court won't have time to review at all. If the Federal Circuit refuses to follow Supreme Court precedents, it's not easy for the Supreme Court to bring it into line. The nation's highest court doesn't have time to review more than a small fraction of Federal Circuit decisions. So as long as it has a monopoly over patent appeals, it's going to have an outsized influence over patent law.

Correction: This article originally stated that the Federal Circuit had upheld the patent at issue in CLS v. Alice, and that the Supreme Court was expected to overrule it. While a 3-judge panel of the Federal Circuit did uphold the patent, this ruling was superseded by a full "en banc" panel of 10 Federal Circuit judges. This panel deadlocked, effectively upholding the lower court ruling.

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