(Bloomberg) — The U.S. Supreme Court heard oral arguments Wednesday in a case involving a health insurance company caught up in a patent dispute.
The case is testing how deferential the Federal Circuit must be when trial judges make a decision about patent case legal fees.
The court also heard arguments on a related, more general case that could make it easier for companies that defeat patent lawsuits to collect legal fees from the losers.
The insurance company case is Highmark vs. Allcare Health Management Systems, 12-1163.
The broader case is Octane Fitness v. Icon Health & Fitness, 12-1184.
Technology companies that often have to defend themselves against suits by what they regard as “patent trolls” are hoping the cases will give them weapons they can use to ward off frivolous suits.
Lawyers who represent clients who are trying to protect patents contend that poorly structured court-fee rulings could scare patent holders with valid claims from trying to protect patents in court
Allcare Health Management Systems Inc., the other party in the Highmark case, owns U.S. Patent Number 5,301,105. The patent, filed in April 1991, covers managed care company utilization review methods and methods for keeping a plan from paying for care before a review is completed.
Allcare sued Highmark over alleged infringement of the patent in April 2002, then lost.
Highmark — the holder of the Blue Shield license in central Pennsylvania, and the Blue Cross and Blue Shield licenses in western Pennsylvania, West Virginia and Delaware — is trying to get to pay $4.9 million in attorney’s fees and other legal costs.
The district court decided, in April 2010, that Allcare had been so “vexatious” about bringing a case that was “objectively baseless,” and in “bad faith,” that Highmark should get to make Allcare pay its court costs.
Members of the Federal Circuit appeals court threw out the district court ruling on court costs. The appeals court said it ought to have the ability to review the case from scratch, without deferring to the district court ruling.
Donald Dunner, a lawyer for Allcare, said during arguments that determining whether a patent case is “objectively baseless” is difficult, and that the Federal Circuit appeals court might be better situated to address that kind of issue than a district court.
Dunner added that the size of the legal fees involved can be important.
“The size of the fee involved in patent cases is, as my daughters would say, humongous,” Dunner said, according to an arguments transcript posted by the Supreme Court. “I’ve been in two cases where the legal fees were $30 million.”
Chief Justice John Roberts got laughs by interjecting, “Well, you’ve got to stop charging such outrageous fees.”
Justice Sonia Sotomayor said the record seems to show that Allcare pursued its litigation in what seemed to be an unreasonable way.
“Why should this objective reasonableness be considered a pure question of law?” Sotomayor asked. “Because it’s not about right or wrong and a legal answer. It’s about behavior during litigation.”
Dunner said he thinks the best way to police patent litigation while, at the same time, giving patent holders a chance to fight infringement in court without the risk of facing $30 million legal fee bills is to have one court handle patent cases in a uniform, predictable way.
Letting the Federal Circuit appeals court review the cases from scratch is a way to provide for that kind of uniformity, Dunner said.
Neal Katyal, who represented Highmark, said setting a standard that lets the Federal Circuit appeals court review patent court cost cases “de novo” — from scratch — encourages the losers to try to repackage factual disputes as legal disputes when they file appeals.
“Clever lawyers can always make arguments on appeal…look legal when they were factual,” Katyal said. “This case an Example A of that.”
Encouraging losers in bad cases to roll the dice wastes court resources, Katyal said.
Brian Fletcher, a lawyer with the U.S. Justice Department, noted that a dissenter in the appeals court case had argued that, even though the Federal Circuit appeals court has expertise in patent law, that expertise isn’t actually relevant when a court is deciding whether a party’s position is objectively reasonable.
A district court judge who’s lived with a case and knows the parties is in a better position to judge whether the parties have been reasonable, Fletcher said, citing the appeals court dissenter.
Allison Bell contributed to this article.