High court resets plaintiffs' bar for patent suits

Patents, those longtime guardians of American innovation, have lost some of their heavy armor.

Last week, the Supreme Court upheld the ruling of a federal appeals court that substantially limited the amount of damages that the Massachusetts Institute of Technology and Convolve Inc. could seek in their patent infringement lawsuit against Seagate Technology, the big disk-drive maker that has major operations in Bloomington and Shakopee.

Legal experts called it a landmark ruling in intellectual property law that will shield big manufacturers such as Medtronic Inc., 3M Co., and Boston Scientific Corp. from large punitive damage awards. At the same time, inventors and smaller firms will face a tougher time suing for patent violations.

The Seagate case is only the latest in a string of federal court rulings in recent years that have curtailed the power of patents, which some critics say have unfairly stifled competition.

"Some would say [that Seagate] leveled the playing field," said Mark Privratsky, chairman of the intellectual property practice at the Minneapolis law firm of Lindquist & Vennum. "For too long, the deck has been stacked against the defendant."

The U.S. patent system dates to the country's founding. The Constitution authorizes Congress "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

The goal of the patent system was to encourage innovation by protecting inventors' rights to profit from their discoveries, but only for a finite time so that other inventors could eventually improve upon the works.

By the 1960s and 1970s, patent law was frequently ignored, said Dan McDonald, a partner with Merchant & Gould, a Minneapolis-based law firm that specializes in intellectual property law.

States such as Minnesota and Nebraska were known as "patent graveyards," he said.

Under the Reagan administration in the 1980s, the federal government and courts moved to strengthen patent protections. A special court based in Washington, known as the Court of Appeals for the Federal Circuit, was established to hear patent disputes before judges who had special expertise in intellectual property law.

Plaintiffs suing for alleged infringement enjoyed several legal advantages. For instance, a defendant had to obtain a letter of opinion from an outside lawyer that stated he did not violate a patent. Otherwise, the court would draw a "negative inference" from the lack of such a letter.

Judges also regularly granted preliminary injunctions, which prevented the defendant from selling or marketing the disputed technology before the court heard the case.

Infringement cases are expensive and can take years to resolve, said Felicia Boyd, a partner with the Minneapolis-based law firm of Faegre & Benson. Faced with a backlog of patent cases clogging the court system, some deemed frivolous, the federal government in recent years has attempted to swing the legal pendulum back toward defendants.

The Federal Trade Commission in 2003 recommended legal changes that would make it easier for courts to invalidate patents and to limit damages. Congress also is weighing changes that would streamline the patent system.

"If we are to maintain our position at the forefront of the world's economy and continue to lead the globe in innovation and production, then we must have an efficient and streamlined patent system to allow for high quality patents that limits counterproductive litigation," Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said last year in a prepared statement.

The federal courts have moved aggressively to roll back the flood of patent lawsuits. In 2004, the Federal Circuit ruled that the court would draw no negative inference if a patent defendant decided not to obtain a "letter of counsel" saying there was not a patent violation.

The Seagate case dates to 2000, when MIT and Convolve sued Seagate for allegedly violating one of their patents relating to technology that limits noise from disk drives. Seagate, based in Scotts Valley, Calif., is one of the world's largest manufacturers of hard drives and employs more than 3,000 people in Minnesota.

In August, the Federal Circuit overturned nearly 25 years of patent law when it ruled that, in order to win triple damages, plaintiffs had to prove that an infringing company acted in "reckless" disregard of the patent holder's rights. That's a much higher standard legal standard than the previous one.

Plaintiffs now must provide clear "objective" evidence that the defendant knew, or should have known, that he violated the patent. Such evidence includes proof that the defendant possessed the plaintiff's patent and intended to infringe it.

As a result of the higher standard, Boyd of Faegre & Benson predicts that courts will dispose of willful infringement cases faster, as they rule on lawsuits' merits earlier in the process.

"Seagate was a very big shift that put patent defendants on equal footing" with defendants in other types of cases, Boyd said.

But McDonald of Merchant & Gould said the ruling would make it harder for individual inventors and smaller firms to protect their patents through lawsuits.

Such plaintiffs don't have the money or resources of larger companies, and often rely on lawyers who work on contingency fees. Now that Seagate has limited the possibility of winning triple damages, the lawyers might be more reluctant to take these types of cases, McDonald said.

Thomas Lee • 612-673-7744