I blogged about this case — Encylopaedia Britannica, Inc. v. Dickstein Shapiro LLP (D. D.C. Aug. 26, 2015) — way back when it came out. The case was summarily affirmed in June. A cert petition has been filed, and it’s worth reviewing this case again. If the law stays the way it is, then maybe clients should start suing lawyers to get their fees back for patents that the lawyers “should have known” were “invalid” years before Alice came out…
The Dickstein Shapiro firm had been retained by Encyclopaedia Britannica, Inc. (EB) in 1993 to file a patent application. The patent issued, and in 2006 EB sued several companies for infringing it. The patent was held invalid due to “an unnoticed defect” in the 1993 application. The basis for invalidity was not 101, and is not clearly stated in the opinion, but seems to have been a break in the chain for priority.
EB then sued the law firm for malpractice in prosecuting the 1993 application. EB contended that, but for the firm’s negligence, it would have made a lot of money in the infringement suit.
After the malpractice suit was filed, Alice was decided. The defendant law firm then argued that — had the defendants in the 2006 case not prevailed on the “unnoticed defect” defense (the break in the chain for priority) — they would have prevailed because the patents were “invalid” under 101. Because the claims would have been “invalid” in the 2006 litigation under 101, there was no harm caused by the actual basis for invalidity — the priority problem.
To put this in context: Because of a 2014 Supreme Court decision, the 2006 infringement case would have been lost in 2009 anyway because the court in 2009 would have applied Alice’s standard and found the claims ineligible.
And the argument worked. The district court granted a motion to dismiss for failure to state a claim (actually, for judgment on the pleadings under 12(c), but same standard), finding (holding?) the subject matter ineligible on the face of the patent.
What is interesting is the court’s approach to retroactive application of Alice. The issue was whether in the 2006 litigation asserting the patent, even had the firm’s alleged malpractice not caused the invalidity of the patent because of the break in priority, the claims were “invalid” under 101 in 2006 — years before Alice was decided. The district court held that Alice did not change the law, but merely stated what it had always been. Specifically, the district court stated:
When the Supreme Court construes a federal statute… that construction is an authoritative statement of what the statute has always meant that applies retroactively. Alice represents the Supreme Court’s definitive statement on what 101 means — and always meant. Because the underlying case is governed by 101, it is appropriate for this Court to apply the Supreme Court’s construction of 101 as set forth in Alice.
(Citations omitted).
For this and other reasons, the court reasoned that “the only rule that makes sense in this context is to apply the objectively correct legal standard as enunciated by the Supreme Court in Alice, rather than an incorrect legal standard that the [district court in the 2006 infringement case] may have applied prior to July 2015 [when the court was deciding the motion.]” The court then applied Alice and found the claims “invalid” under 101. Thus, the firm’s failure to maintain priority did not cause harm — the “invalidity” under 101 did.
There’s a lot to unpack here.
Let’s start with a basic statutory interpretation principle: as a matter of statutory construction the retroactivity principle relied upon by the district court is correct in that retroactivity does not ordinarily apply when an interpretation is changed. (This perhaps explains why the Supreme Court is careful to avoid saying it is changing an interpretation, because changes to interpretations of a statute are prospective, only, as a general rule. In that regard, think about Therasense for a moment.) So, if Alice changed the law, then the district court was likely wrong to apply it retroactively.
Let’s be real: the Supreme Court will never say that Alice changed the law. We all know it did, or I guess a better way of putting it is: we were wrong about what the pre-Alice law meant — despite reading the cases as best we could, and so was the USPTO (which is why it issued all those bad patents, and had to put in place, post-Alice, all of those new guidelines, etc.). So, we were all wrong and Alice merely said what we all were not smart enough to understand the law always was and had been.
Shame on us.
But now let’s look at Dickstein Shapiro’s conduct through that lens: if the law was that clear — that you could 12(b)(6) or summary judgment this patent for “invalidity” under Section 101, why did you get the for the client in the first place? If the law about 101 “always” was this way, why did you advise EB to spend so much money on a patent so clearly invalid that a judge could decide it by looking at it?
If cert is not granted, patent prosecutors should be ready to disgorge a lot of fees, I guess is what I’m saying. Remember: fee disgorgment doesn’t require damages — it requires (usually) a clear and serious breach of duty. How can this not be?
So now let’s say prospective litigation counsel looks at a patent and in evaluating it, says to the patentee “no, this one’s bad under Alice. It’s worthless.” If the client then sues the lawyer who prosecute the patented, you’d think the client would have an easy case: “Lawyer, the law was always the way Alice says it was, and yet you got me this stupid patent, and charged me $25,000 to get it. Give that money back.”
Now, we can get into what is called judgmental immunity — but if the law was settled and clear, how can that help? We could also argue the law changed — but it didn’t, or so the courts tell us.
But we can’t obviously do this: Allow lawyers to escape liability for bad patents because the law was “clear” back then, and so the client would never have prevailed in an infringement suit, but then allow lawyers to say “the law was unclear” and allow them to avoid disgorging fees.
Someone got any ideas? The intellectually honest way to approach it is to say that the EB case was wrongly decided: whether the patent would have been “invalid” under 101 in the 2006 litigation should be decided under the law at the time of trial, not the law in 2014, just as the decision to seek the patent in 1993 should turn on 101 law in 1993, not the law in 2014. More to that point, we all know that certain claim formats have fallen out of favor (e.g., means-plus-function). If the law was favorable to them in, say, 1993, and a lawyer picked them, why should we use standards developed in 2014 to judge the lawyer’s conduct, even though the “change” is more subtle than occurred in Alice?
And now one more wrinkle. Suppose a firm represents the client, and sues. Suppose the judge shifts fees onto the client under 285. Unless the court holds that those fees are the responsibility of the lawyer bringing the suit, not the client, then the client’ going to be responsible for having sued on an “invalid” patent. Is it going to sue the prosecution firm and say: the law was clear back then, why did you get this patent for me? Look at the damages you caused…?
Stay tuned.