All three branches of the US government weigh in on patent trolls

December 2013 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

‘Patent troll’ abuses of the US patent system are a hot topic that has generated a flurry of recent activity by all three branches of the US government. The pejorative label ‘patent troll’ describes an entity that abusively asserts patents to ‘shake down’ settlements regardless of the merits of a case. Patent trolls take strategic advantage of the inefficiencies of the US litigation system and the substantial cost of defending a patent infringement suit to leverage nuisance settlements from infringement defendants who may be compelled to settle rather than fight.

All three branches of the US government have proposed reforms to address the ‘litigation extortion’ problem that patent trolls present. A summary of these proposals is provided below.

Executive branch

President Obama has condemned the practices of patent trolls, who, in his words “essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them”. In June of this year, the White House issued five executive actions and seven legislative recommendations “designed to protect innovators from frivolous litigation and ensure the highest-quality patents”. These legislative recommendations include measures that would require disclosure of the real party-in-interest with respect to patents, provide federal courts with more discretion to award attorney fees to a prevailing party under 35 U.S.C. § 285 (a patent law provision that allows fee shifting to the losing party in ‘exceptional cases’), and incentivise public filing of correspondence in which a prospective defendant is accused of infringement. The executive actions from the White House include steps “to help bring about greater transparency to the patent system and level the playing field for innovators”. These steps include rulemaking by the US Patent and Trademark Office (PTO) to require updates of patent ownership information, development of PTO strategies to improve ‘claim’ clarity (the portion of a patent that defines the metes and bounds of the patented invention), and publication of outreach materials to answer questions common to those facing demands from patent trolls.

Legislative branch

The Legislative Branch has proposed a profusion of reforms intended to curb the abusive assertion of patents.

In February of this year, the ‘Saving High-Tech Innovators from Egregious Legal Disputes Act of 2013’ (H.R. 845) was introduced in the House of Representatives. Referred to as the SHIELD Act, this proposed legislation would allow a prevailing patent infringement defendant to obtain its litigation costs, including attorney fees, from a plaintiff who fails to satisfy at least one of three descriptions – (i) an original inventor or original assignee of the patent, (ii) an entity that practices the patented invention, or (iii) a university or technology transfer organisation. The plaintiff would be required to post a bond to cover the other side’s litigation costs, and the cost-shifting would be mandatory absent a court finding of exceptional circumstances that make an award unjust.

A few months later (in May), the ‘End Anonymous Patents Act’ (H.R. 2024) and the ‘Patent Abuse Reduction Act of 2013’ (S. 1013) were introduced in the House of Representatives and Senate, respectively. The House bill requires, with respect to transfer of ownership of a patent or patent application, that the new owner and any real party-in-interest be disclosed to the PTO. This bill also would limit the recovery of infringement damages to the period after this requirement has been met. The broader Senate bill: (i) requires extensive detail in patent infringement complaints; (ii) imposes limitations on litigation discovery until the Court has construed the meaning of the patent claims; and (iii) mandates cost shifting to the non-prevailing party unless the Court determines that that party’s position and conduct were objectively reasonable and substantially justified, or that exceptional circumstances make such an award unjust.

The ‘Patent Litigation and Innovation Act of 2013’ (H.R. 2639), which was introduced in the House in July, is similar to S. 1013, but instead of mandating cost shifting, this House bill requires specific findings from the Court regarding each party’s compliance with Rule 11 of the Federal Rules of Civil Procedure (which requires a reasonable basis for a party’s litigation positions), and authorises sanctions for violations.

Another bill, the ‘Innovation Act’ (H.R. 3309), was introduced in the House in late October and repeats much of what was included in the preceding bills. In addition to requiring detailed pleading in patent infringement cases, H.R. 3309: (i) mandates fee-shifting absent a finding that a losing party’s position was ‘substantially justified’; (ii) limits discovery until the Court rules on any claim construction issues; and (iii) implements new rules that limit the timing and nature of the discovery of all electronic communications.

On the last day of October, the ‘Patent Litigation Integrity Act of 2013’ (S. 1612) was introduced in the Senate. This bill contains provisions similar to the SHIELD Act, to the extent that it includes considerations to be used by the Court to determine if a plaintiff patent owner should be required to post a bond sufficient to cover the accused infringer’s litigation costs. S. 1612 also bears similarities to other bills discussed above which mandate cost-shifting unless the Court determines that the non-prevailing party’s position and conduct were substantially justified or that special circumstances make an award unjust.

Judicial branch

Members of the judiciary have also weighed in on the patent troll problem. Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit (which hears appeals from all patent infringement cases) has suggested that the answer to patent trolls and their abusive litigation tactics is not new legislation. Rather, according to Judge Rader, “judges already have the authority to curtail these practices: they can make trolls pay for abusive litigation”. Along with other members of the judiciary, Judge Rader has suggested that federal judges make more liberal use of the tools available to them to avoid the need for new laws directed at curbing the abusive actions of patent trolls. These tools include summary disposition by means of a grant of ‘summary judgment’ in non-meritorious suits, assessment of attorney fees under 35 U.S.C. § 285, and imposition of sanctions under Rule 11 of the Federal Rules of Civil Procedure.

Whatever the approach, a balance must be maintained between the interests of non-infringers who deserve protection from abusive litigants, and of patent owners who should be free to legitimately assert their patent rights. Patents play an integral role in the promotion of innovation, and the incentive they provide should not be undermined by those who would abuse the patent system or by those who seek to curb that abuse.

Nina Shreve is a partner and Lori A. Wolfe is an associate at Fitzpatrick, Cella, Harper & Scinto. Ms Shreve can be contacted on +1 (212) 218 2263 or by email: nshreve@fchs.com. Lori A. Wolfe can be contacted on +1 (212) 218 2259 or by email: lwolfe@fchs.com.

Nina Shreve and Lori A. Wolfe

Fitzpatrick, Cella, Harper & Scinto