May 03, 2016 Practice Points

Supreme Court Arguments in Two IP Cases Portend Practical Guidance for Practitioners

While the cases present issues of statutory interpretation, during oral arguments a conspicuous focus on fundamental fairness emerged.

By Jarrad Wood

On April 25, 2016, the United States Supreme Court heard oral arguments in Kirtsaeng v. John Wiley & Sons, Inc., a copyright case, and Cuozzo Speed Technologies, LLC v. Lee, a patent case. In Kirtsaeng, the Supreme Court heard arguments on the proper standard for awarding attorney's fees for the prevailing party under section 505 of the Copyright Act. In the second case, Cuozzo,the Court reviewed two questions. First, whether the proper standard for patent claim construction before the Patent Trial and Appeal Board (PTAB) during an inter partes review proceeding is the standard used by the United States Patent and Trademark Office (PTO) when reviewing an application for a patent or the standard used by United States district courts during patent suits. The second issue in Cuozzo is whether the PTAB's decision to institute an inter partes review is judicially reviewable. While the cases present issues of statutory interpretation, during oral arguments a conspicuous focus on fundamental fairness emerged.

Kirtsaeng v. John Wiley & Sons, Inc.
Returning to the Supreme Court for the second time, Kirtsaeng (Kirtsaeng II) centers on the proper standard for awarding attorney's fees for the prevailing party under the Copyright Act. In Kirtsaeng's first appearance before the Supreme Court (Kirtsaeng I), the Court considered whether the first sale doctrine in copyright law immunized the defendant's (Kirtsaeng) sale of textbooks bought abroad and sold within the United States. Kirtsaeng lost at trial and on appeal in Kirtsaeng I, and the Supreme Court reversed. On remand, Kirtsaeng moved for attorney's fees and the district court denied the motion after considering the factors articulated in Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994). The district court, as directed by Second Circuit precedent, placed "substantial weight" on the "objective reasonableness" factor which examines whether the losing plaintiff's position was objectively reasonable. Kirtsaeng, in Kirtsaeng II, contends that placing substantial weight on the "objective reasonableness" Fogerty factor is improper under the Copyright Act.

Kirtsaeng appeared to face several hurtles from the outset, including convincing the justices of a workable alternative rule. In response to the idea that the test for attorney's fees should include an analysis of the relative resources of the parties—a "David versus Goliath" factor—Justice Ginsburg observed "it does sound like . . . that your rule is if David faces Goliath and David wins, David gets fees no matter how reasonable Goliath's position was." On the other hand, Kirtsaeng appeared to have some support from Justice Sotomayor who at one point said "I'm sympathetic to your argument that the Second Circuit rule obviously stacks everything in favor of a winning plaintiff . . . because 80 percent are now winning, if not more."

Wiley, and the government arguing as amicus curiae, pushed back on the statistics indicating that the scales were improperly tipped in favor of prevailing plaintiffs and against prevailing defendants. Wiley noted that the eighty percent number includes a "great number of default judgments where fees are . . . small." The government pointed out that "there is some ground to quibble with some of the statistics, and [that] . . . there is not this vast disparity." According to the government, "77 percent of the time when plaintiffs ask for fees and it was decided on the merits in a reported decision, they got fees, and 53 percent of the time when defendants asked for fees."

Cuozzo Speed Technologies, LLC v. Lee
Cuozzo, the second case heard by the Court, presented two issues—both arising under the Leahy-Smith America Invents Act. The America Invents Act, among other things, created several new types to adversarial proceedings before the PTAB at the PTO. In these proceedings, the PTAB can review a patent that has already been issued to determine whether the patent should not have been issued in the first place. One of these proceedings, inter partes review, has two main procedural stages—the institution stage, where a panel of administrative judges at the PTAB determine whether a patent has at least one claim that is not patentable, and the final decision stage where the PTAB makes a determination as to whether some or all of the claims in the patent at issue are not patentable.

The first issue in Cuozzo is whether the PTAB should construe claims using the "Broadest Reasonable Interpretation" of the claims (the standard used by the PTO when evaluating patent applications) or the "ordinary meaning" standard (used by district courts during patent litigation). At arguments, it appeared that the issue would be largely resolved by answering another, related question—are inter partes review proceedings more like patent applications or are they more like district court adjudications? As Justice Ginsburg observed, the proceedings are "kind of a hybrid. In certain respects it resembles administrative proceedings and other district court proceedings. So there . . . is a right to amend" the patent claims at issue as in patent application proceedings and "[t]here are discovery differences; there are other differences. So . . . it's a little of one and a little of the other, this inter partes review."

Chief Justice Roberts had several exchanges with the government in which the Chief Justice indicated skepticism that the Broadest Reasonable Interpretation was the proper standard in light of Congress's intent that inter partes review, to a certain extent, replace district court patent litigation. The Chief Justice asked at one point "why . . . should we be so wedded to the way they do business in the [United States Patent and Trademark Office] with respect to the broadest possible construction when the . . . point is not to replicate [United States Patent and Trademark Office] procedures[?]"

On the other hand, Justice Breyer pointed out that the Broadest Reasonable Interpretation may be the proper standard in light of the issue of "patent trolls," or entities that obtain broad patents of the sole purpose of initiating law suits to extract settlements from businesses. As Justice Breyer put it,

[T]here is another way to look at it . . . that there are these things, for better words, let's call them patent trolls, and that the . . . Patent Office has been issuing billions of patents that shouldn't have been issued I overstate but only some. And what happens is some person in business gets this piece of paper and . . . looks at it and says, ["]oh, my God, I can't go ahead with my invention.["] And so what we're trying to do with this process is to tell the office, you've been doing too much too fast. Go back and let people who are hurt by this come in and get rid of those patents that shouldn't have been issued. Now, we will give you, again, once the same chance we gave you before, and that is you can amend it once if you convince the judge you should have done it before. But if, on the broadest possible interpretation, you know, reasonable interpretation, it shouldn't have been issued, we're canceling it.

The second issue is whether the federal judiciary can review the PTAB's decision to institute an inter partes review proceeding with respect to one or more claims of a patent brought before the PTAB. This issue did not receive much attention. The petitioner only received one question on the issue. Justice Ginsburg asked the petitioner if statutory language appearing to expressly bar appeal of decisions by the PTAB to institute an inter partes review is even necessary because only final judgements are appealable, stating "there would be a bar on interlocutory review under the final judgment rule, in any event. You don't need a statute to preclude interlocutory review when the reviewing court can review only final judgments."

Conclusion
It remains to be seen how the Court will resolve the issues in Kirtsaeng v. John Wiley & Sons, Inc., and Cuozzo Speed Technologies, LLC v. Lee. At this stage, however, intellectual property practitioners may take note of the Court's attention to the underlying issues of fairness in both cases. Is it fair if it is the case that an emphasis on the "objective reasonableness" factor in evaluating motions for attorney's fees in copyright cases tips the scale sharply in favor of prevailing plaintiffs and against prevailing defendants in copyright cases? Is it fair if inter partes review proceedings are adjudicative proceedings but the claim construction standard is different than the one used in other adjudicative proceedings before district courts? In both cases, the "ifs" are unresolved. However, it may be worth taking note of how these issues of fairness have manifested themselves in these cases—and how they may arise in future intellectual property cases.

Jarrad Wood is with the Superior Court of the District of Columbia in Washington, D.C.

The views expressed in this article do not necessarily represent the views of the Court, or the D.C. government.


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Jarrad Wood – May 3, 2016