The Supreme assimilation of patent law.

Author:Lee, Peter
Position:III. The Supreme Assimilation of Patent Law D. Eliminating Specialized Patent Rules in Favor of General Precedent and Ordinary Meanings through Conclusion, with footnotes, p. 1441-1470
 
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  1. Eliminating Specialized Patent Rules in Favor of General Precedent and Ordinary Meanings

    The Supreme Court has also eliminated specialized patent rules in a more straightforward fashion, conforming patent practice to general precedent and ordinary meanings of legal concepts. This phenomenon is evident in several trans-substantive areas that implicate not just patent litigation but litigation in general, such as the "actual controversy" requirement to bring a suit under the Declaratory Judgment Act as well as the standard by which a court will award attorney's fees to a prevailing party.

    1. The "Actual Controversy" Requirement

      The Supreme Court's assimilationist project extends to the "actual controversy" requirement to bring a suit under the Declaratory Judgment Act. (201) This requirement plays an important role in a variety of patent cases, including declaratory actions where a licensee in good standing seeks to challenge the validity of a patent that it is currently licensing. More specifically, courts have grappled with whether such a licensee, who has not repudiated the license, can satisfy the "actual controversy" requirement of the Declaratory Judgment Act to confer jurisdiction on a court to adjudicate the case. (202) After all, if the licensee continues to pay royalties and does not repudiate the license, perhaps there is no actual controversy between the licensee and patentee. In a series of cases, the Federal Circuit developed a two-part "pragmatic inquiry" to determine the existence of an actual controversy for purposes of bringing a declaratory judgment action:

      There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity. (203) This "reasonable apprehension" test was particularly salient when a licensee maintained good standing (and continued to pay royalties) but sought to challenge the validity of a licensed patent. In such circumstances, it was difficult for the licensee to establish a reasonable apprehension of suit on the part of the patentee, thus failing to satisfy the actual controversy standard and foreclosing a patent validity challenge. (204) Indeed, Federal Circuit doctrine discouraged a licensee from "hedging] its bet[s]" and compelled the licensee to stop paying royalties if it wanted to challenge the patent. (205)

      In MedImmune, Inc. v. Genentech, Inc., the Supreme Court rejected the Federal Circuit's reasonable apprehension test in favor of broader precedent concerning the actual controversy standard. (206) At issue in this case was another instance where a licensee in good standing, MedImmune, sought to challenge the validity of a patent it was licensing. Reversing the Federal Circuit, the Court held that a licensee could still satisfy the actual controversy requirement without repudiating the license and ceasing to pay royalties, thus conferring jurisdiction on a federal court to adjudicate the patent challenge. (207) In so doing, the Court relied centrally on its own precedent rather than that of the Federal Circuit. (208) Furthermore, the Court explicitly emphasized that the Federal Circuit's reasonable apprehension test conflicted with settled Supreme Court doctrine regarding the actual controversy requirement. (209) As a result, the Court not only made patents more vulnerable to challenge, it eliminated a specialized patent rule in favor of more general precedent. (210)

    2. Attorney's Fees

      A pair of recent cases reflects the Supreme Court's assimilation of patent doctrine regarding the award of attorney's fees. Attorney's fees have attracted significant attention because they tend to be quite high in patent litigation, and some see the award of attorney's fees as a fruitful way to discourage suits by nonpracticing entities (also known as patent trolls). (211) The Patent Act authorizes district courts to award attorney's fees to the prevailing party "in exceptional cases." (212) The Federal Circuit had developed a line of doctrine establishing only two limited circumstances where a case could be deemed "exceptional": (1) "when there has been some material inappropriate conduct," or (2) when the litigation is both "brought in subjective bad faith" and "objectively baseless." (213) In Icon Health & Fitness, Inc. v. Octane Fitness, L.L.C., the Federal Circuit denied Octane's request to "revisit the settled standard for exceptionality" and affirmed the district court's denial of attorney's fees. (214)

      On appeal, in Octane Fitness, L.L.C. v. Icon Health & Fitness, Inc., the Supreme Court explicitly rejected the Federal Circuit's "unduly rigid" framework for determining "exceptional" cases. (215) Rather, it assimilated the standard governing the award of attorney's fees in patent cases to general equitable principles. Rejecting the Federal Circuit's two-part definition, the Court construed the term "exceptional" according to its "ordinary meaning." (216) Doing so, the Court held that "an 'exceptional' case is simply one that stands out from others with respect to the substantive strength of a party's litigating position ... or the unreasonable manner in which the case was litigated." (217) The Court also drew on the "comparable context of the Copyright Act," which also maintains a broader equitable test to determine the award of attorney's fees. (218) Furthermore, the Court buttressed its holding by situating patent law within more general legal principles: "We have long recognized a common-law exception to the general 'American rule' against fee-shifting--an exception, 'inherent' in the 'power [of] the courts'...." (219) Based in part on these transcendent principles, the Court rejected the Federal Circuit's narrow, specialized rule for identifying "exceptional cases" for the purpose of awarding attorney's fees. (220)

      The Supreme Court's assimilationist project continued with its ruling on the appropriate standard of review for a district court's determination of an "exceptional" case. The Supreme Court addressed this question in the companion case of Highmark Inc. v. Allcare Health Management System, Inc., which it decided on the same day. (221) In prior proceedings, the district court had held that the case was "exceptional" and awarded attorney's fees to Highmark. (222) On appeal, the Federal Circuit reviewed de novo the district court's determination that the case was "objectively baseless" and reversed in part. (223) Among other implications, the Federal Circuit's standard of de novo review provides it with significant power to determine the appropriateness of awarding attorney's fees.

      On appeal, the Supreme Court reversed the Federal Circuit, rejecting de novo review of elements of the "exceptional" case determination. (224) Drawing on its contemporaneous holding in Octane Fitness, the Court ruled that because "[district courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion," (225) such determinations were subject to review for abuse of discretion upon appeal. (226) In so doing, the Court invoked the traditional framework in which courts review questions of law de novo, questions of fact for clear error, and discretionary matters for an abuse of discretion. (227) Furthermore, the Court drew upon cases unrelated to patent law to illustrate the notion that courts generally review discretionary decisions for abuse of discretion. (228) The Court thereby continued to eliminate exceptional patent rules in favor of more general legal principles.

  2. Eliminating Presumptions and Per Se Rules at the Intersection of Patent and Antitrust Law

    The Supreme Court's assimilation of patent doctrine also includes eliminating specialized presumptions and per se rules at the intersection of patent and antitrust law. This is fraught territory, for the Supreme Court has observed on occasion that the presence of a patent in an antitrust dispute may justify a deviation from traditional antitrust principles. (229) The trend in recent cases, however, is to deny the "specialness" of patents, subsuming disputes involving patents within broader principles of antitrust analysis. The Court has thus integrated patent law into its general shift away from per se rules and toward greater use of antitrust law's traditional rule of reason. (230) This assimilationist shift is evident in two areas at the interface of patent and antitrust law: tying arrangements and reverse payment settlements.

    1. Tying Arrangements

      The Supreme Court's assimilation of patent doctrine is evident in its evolving approach to tying arrangements. In general, a tying arrangement (which does not necessarily involve a patent) arises when a party makes the purchase of one good (the tied product) a mandatory condition for purchasing another good (the tying product). (231) Such arrangements can arouse antitrust suspicions because the patentee may be leveraging market power in one market to restrain competition in another. (232) In its early antitrust jurisprudence, the Supreme Court regarded tying arrangements (including those that did not involve patents) with deep skepticism, observing that "[t]ying agreements serve hardly any purpose beyond the suppression of competition." (233) Over the years, however, this skepticism decreased, and the Court ultimately rejected a per se rule that all tying arrangements constitute antitrust violations. Rather, parties must make a showing of market power in a tying arrangement in order to prevail on an antitrust claim. (234)

      Tying arrangements involving a patented product, however, were somewhat specialized cases. In such tying arrangements, a patentee conditions the sale of a patented product on a buyer also purchasing a second, "tied" product. (235) To understand the legal...

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