Are State ‘Anti-Troll’ Laws Constitutional? The Federal Circuit Avoids the Question (For Now)

On Thursday, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued its opinion in Micron Technology v. Longhorn IP. As reported here, the CAFC held that it lacked jurisdiction to hear Longhorn’s appeal from a district court order that required Longhorn to post an $8 million bond to proceed with a patent infringement case.

In imposing the bond, the district court had relied on Idaho’s “anti-troll” statute, which outlaws assertions of patent infringement made in “bad faith.” Also under that statute, if a court finds a “reasonable likelihood” that a patent owner has made a bad faith assertion, the court must require the patent owner to post a bond equal to its opponent’s estimated litigation costs and damages.

The problem for Longhorn was that, typically, only final, case-ending judgments are appealable; the district court order imposing the bond was indisputably not that. So, Longhorn argued to the Federal Circuit that the bond order had a similar effect—that, as practical matter, Longhorn couldn’t move forward with its infringement case because of the large bond the district court had required.

At oral argument (which I previewed for IPWatchdog here), both Judge Lourie and Judge Stoll pointed out that there was no proof in the record that Longhorn could not, in fact, afford the bond. And Judge Lourie’s opinion for the court mentioned that lack of proof several times. See, e.g., slip op. at 7 (“There is no record evidence suggesting that [Longhorn] cannot continue the litigation due to the imposition of the bond.”).

Given that lack of proof, it’s tempting to dismiss the Federal Circuit’s ruling as fact- and case-specific: if there was proof that Longhorn couldn’t pay, the Federal Circuit wouldn’t have dismissed the appeal; it would have instead considered whether the bond order was justified under the Idaho statute and, potentially, whether the statute complies with the U.S. Constitution.

In my view, however, the Federal Circuit’s opinion goes much further in cutting off appellate relief for patent owners like Longhorn. The opinion seems to leave the extraordinary writ of mandamus—which comes with an extremely deferential standard of review—as the only possible mechanism for reviewing a bond ordered under a state anti-troll statute.

Let me explain why that’s so.

The Federal Circuit’s opinion rejects three grounds for appellate jurisdiction asserted by Longhorn. On my reading of the opinion, even if Longhorn proved it was unable to pay for a bond, two of those three grounds would remain unavailable.

First, in Part I of its opinion, the Federal Circuit rejected Longhorn’s attempt to analogize the bond order to an (immediately appealable) injunction. The Federal Circuit noted that, unlike an injunction, “the imposition of the bond does not prohibit [Longhorn] from engaging in any conduct or require [it] to take any action other than satisfying a procedural precondition to proceed”—with the “procedural precondition” seemingly referring to the posting of the bond. See slip op. at 7; see also id. (“[T]he imposition of the bond is more akin to a conditional stay until it is paid or waived.”).

Even if there were proof that a patent owner couldn’t pay for a required bond, the bond order would remain, to use the Federal Circuit’s words, a “procedural precondition”—not an injunction—in that the patent owner would be completely free to move forward with its infringement case just as soon as it (somehow) posted the bond.

Second, in Part II of its opinion, the Federal Circuit rejected Longhorn’s argument for jurisdiction under the collateral order doctrine. Applying the Supreme Court’s test for jurisdiction under that doctrine, the Federal Circuit noted that the bond order was not “separate from the merits” because “the same factors which can demonstrate bad faith”—giving rise to a private right of action under Idaho’s statute, see Idaho Code § 48-1706, “implicate whether to impose a bond.” Slip op. at 9; see Idaho Code § 48-1707 (requiring the court to impose a bond if there is “a reasonable likelihood that a person has made a bad faith assertion of patent infringement in violation of this chapter”).

Again, like a bond order that will always be just a bond order, not an injunction, any decision about whether to impose a bond will, under the Idaho statute, always be bound up with the factors that establish a claim of bad faith.

For interlocutory appellate jurisdiction, then, that leaves only the third option, discussed in Part III of the Federal Circuit’s opinion: mandamus. As the Federal Circuit noted, to obtain mandamus, a party must show that they have “no other adequate means” to get the relief sought. The Federal Circuit ruled that Longhorn couldn’t make that showing because, as the court read the Idaho statute, Longhorn still had the right to ask the district court to waive the bond requirement. Slip op. at 12; see Idaho Code § 48-1707 (“The court may waive the bond requirement if it finds the person has available assets equal to the amount of the proposed bond or for other good cause shown.”).

If the district court (1) denied the waiver motion and (2) Longhorn offered proof that it couldn’t afford the required bond, then Longhorn could argue to the Federal Circuit that it must exercise mandamus jurisdiction because otherwise the district court case could never proceed to a final judgment—that is, Longhorn would have no way besides mandamus to obtain relief from the bond order.

Even then, however, Longhorn would have to show, under well-established mandamus case law, that its right to the writ is “clear and indisputable.” That’s a hard showing to make. As I’ve demonstrated elsewhere (in co-authored work), the Federal Circuit hardly ever grants mandamus except on the issue of venue transfer in patent cases from Texas.

It’s possible the Federal Circuit didn’t intend to limit appellate jurisdiction as aggressively as it seemed to in Parts I and II of its opinion in Micron v. Longhorn. Indeed, it seems plausible that, if a patent infringement case truly could not move forward because the patent owner couldn’t afford a bond, the Federal Circuit would view the bond order to effectively be an injunction and allow an interlocutory appeal to proceed.

But that would, in my view, require explaining away some sweeping language from the court’s opinion.

The upshot is that we’ll be waiting a while longer to get guidance from the Federal Circuit about the extent to which state anti-troll laws can coexist with federal patent law. That’s too bad because cases under those statutes are becoming more common and will continue to grow with the demise of inter partes review (IPR). IPR played an important role in discouraging patent owners from aggressively asserting weak patents—which is what spurred states to adopt these anti-troll statutes in the first place.