Businesses increasingly assert patents for strategic reasons

While everyone has been fixated on patent trolls, experts say a different breed of abusive intellectual-property litigants have been making a comeback: businesses that assert dubious patents for strategic reasons.

Patent trolls are non-practicing entities — those that hold a patent for a product or process but have no intention of developing it — that make questionable claims of patent infringement and use the threat of costly litigation to extort licensing fees or settlements.

In a recent decision many hope will discourage such activity, the U.S. Supreme Court made it easier for prevailing parties to obtain attorneys’ fees in patent cases. Lawyers say they hope the ruling will be applied not only to trolls, but also those who use patent litigation as a business tactic against competitors.

Stephen D. Rosenberg of The McCormack Firm in Boston said he frequently defended clients against such methods in the years leading up to the 2008 financial crisis.

“I had this distinct feeling I had been very busy with what consistently felt like specious claims by bigger, more well-funded companies, basically to protect their market share,” he said.

Such lawsuits dried up during the recession as companies focused on simply staying in business and stopped spending discretionary money to file complaints. But the practice has since returned, according to Rosenberg.

“Sometime over the past year-plus, I’ve started to feel it again in my own practice and in talking to other lawyers,” he said.

On the rise

While there is no way to statistically quantify plaintiffs’ motives, there is no doubt that patent litigation in general is on the rise, particularly in Massachusetts.

There was a 55 percent increase in new patent case filings in the District of Massachusetts in 2013, compared to a 12.4 percent increase nationwide, according to Lex Machina, a California-based company that provides analytics on IP litigation.

But there does appear to be at least anecdotal evidence of the more specific trend Rosenberg is noticing.

While Boston University, a non-practicing entity, filed nearly a third of the new patent cases in Massachusetts in 2013, a review of cases filed this year reveals many more disputes between competing businesses. They include Bose Corp. v. Monster Inc. and Alex and Ani v. Northeast Diamond and Casting Co., et al., cases that the defendants claim are weak and strategic in nature.

Bose is accusing Monster of infringing on a design for in-ear headphones. In response to a complaint previously filed with the U.S. International Trade Commission, Monster countered that the patent at issue is likely invalid due to its simplicity and obviousness and accused Bose of merely trying to eliminate a competitor.

“This tactic poses an obvious and significantly detrimental impact on competition in this market,” Monster argued to the ITC. “Notably, Bose has not named any respondent other than Monster, a strong indication that Bose wants to exclude its primary competitor.”

Meanwhile, Rhode Island-based jewelry company Alex and Ani accuses Northeast Jewelers in Massachusetts of infringing on a design for expandable bangle bracelets. The lawsuit was filed in January, five months after Alex and Ani terminated its retail partnership with the small local jeweler.

“It’s a bit over-aggressive for them to go against such a small competitor,” Northeast Jewelers’ lawyer William J. Seymour said of the multi-million-dollar company.

In a response to the lawsuit, Seymour argues that Alex and Ani’s patent is invalid because the bracelet design has existed for more than 100 years, and he includes more than a dozen examples of art from as early as 1888 to bolster his case.

“When somebody gets a piece of intellectual property … there’s this instinct to protect not only what your IP covers, but this penumbra of rights that go beyond the scope of their IP,” said Seymour, a lawyer at Lando & Anastasi in Cambridge, Massachusetts. “When they make a claim like this, they’re putting their patent and the scope of their IP at risk. It could change who they can go after with a straight face later.”

SCOTUS impact

Lex Machina CEO Josh Becker agrees with Rosenberg that businesses are increasingly using patent litigation for competitive reasons, and he said the rebounding economy is the main catalyst for such behavior.

“The economy turning around means there are more startups,” he said. “More startups mean more competition, and thus more big companies using that as a tool.”

The two disagree, however, on whether the Supreme Court’s recent decision in Octane Fitness v. ICON Health & Fitness Inc. will help curtail the practice. In a unanimous decision, the justices rejected the Federal Circuit’s strict standard for awarding attorneys’ fees in “exceptional” patent cases and established a more lenient one that invests U.S. District Court judges with wide discretion.

Becker said judges still will be very reluctant to award fees since the assumption that litigants will bear their own costs is such an ingrained notion in American jurisprudence.

“Most people I talk to actually don’t feel it’s going to make that much of a difference,” Becker said.

Birnbaum & Godkin litigator John R. Bauer agreed, noting that there already are state and federal laws that can be used to sanction those who bring unmeritorious cases for bad reasons.

“If a patent case goes to trial, the fees are routinely — routinely — in excess of $5 million. The award of attorneys’ fees in a patent case is a huge, huge deal,” the Boston lawyer said. “I think judges still will be reluctant to award fees.”

Seymour, however, said the Supreme Court decision likely will have “a really huge impact” because “it gives smaller defendants a little more hope to stick it out on what they perceive is a frivolous case.” If chances are greater that defendants will fight back, it will force businesses to reconsider whether filing a weak patent case against competitors makes financial sense.

Rosenberg conceded that the Supreme Court ruling probably will not make “one bit of difference to the Apples or Samsungs of the world,” but that smaller companies will have to consider the possibility of paying a defendant’s legal fees, even if only a small number of judges avail themselves of the more lenient standard for awarding such fees.

“There will be some judges who say, ‘Finally, I have a hammer to deal with this problem,’” Rosenberg said. “The possibility you’re going to be paying six or even seven figures is a real cost factor they’re going to have to consider. I am hopeful that it will, over time, have a big impact.”

As evidence, Rosenberg noted that Octane Fitness was a business dispute, not a troll case, and that the Supreme Court’s opinion included discussion of emails between ICON sales executives that suggested the case originally was brought “as a matter of commercial strategy.”

“That’s clearly a sign the statute needs to be applied evenly, and not just to trolls,”  Rosenberg said.