Patent Trolls

Posted by David Breiner in 2015 on 12/3/2015

Patent Trolls (Download a PDF of this article)

Patent trolls are the bane of many a business.  Too often, small business owners are targeted for doing nothing more than using off-the-shelf products.  This of course, is bad not only for small businesses but consumers as well.  According to Senator Chuck Grassely, abusive patent litigation costs consumers and businesses billions of dollars each year.  Some organizations, for example, the RPX Corporation, estimate patent trolls cost operating companies $12.2 billion in 2014 alone. In an effort to stop abusive patent litigation, Senator Grassley, along with Senators Patrick Leahy, John Cornyn and Chuck Schumer, introduced the bipartisan Protecting American Talent and Entrepreneurship Act ("PATENT Act"), the third major patent reform bill introduced this year.

The PATENT Act contains many provisions aimed at curbing abusive litigation. Three of the more interesting provisions include a change in pleading standards (SEC. 3), protection for customers (SEC. 4), and creation of risk for bad actors (SEC. 7).  From the bill’s summary:

SEC. 3. PLEADING AND EARLY DISCLOSURE REQUIREMENTS: Form 18 is eliminated. Plaintiffs must identify each patent and claim allegedly infringed, which products or processes are infringing, and describe the alleged infringement. Allows plaintiffs to describe information in general terms if it is not accessible to them. Clarifies that pleadings can be amended and allows for confidential information to be filed under seal. Exempts 271(e) (Hatch-Waxman and biosimilars) proceedings. Requires plaintiffs to make additional disclosures to the court and the Patent and Trademark Office (“PTO”) about the plaintiff and the asserted patents shortly after filing.

SEC. 4. CUSTOMER STAY: Allows a case against a customer to be stayed while the manufacturer litigates the alleged infringement, provided that the manufacturer is involved in a lawsuit in the US involving the same issues. The customer stay is available only to those at the end of the supply chain, who are selling or using a technology that they acquired from a manufacturer, without materially modifying it. Allows for a stay to be lifted where it would cause undue prejudice or be manifestly unjust.

SEC. 7. FEES AND RECOVERY: Provides that reasonable attorney fees will be awarded if a court determines the position or conduct of the non-prevailing party (plaintiff or defendant) was not objectively reasonable, unless special circumstances make an award unjust. The winner must show that the non-prevailing party’s position was not objectively reasonable and the judge must make a ruling for fees to shift – this is not a presumptive fee shifting rule. Fee shifting extends to cases where a party attempts to unilaterally withdraw from a case on the eve of a trial. Keeps 271(e) (Hatch-Waxman and biosimilars) proceedings under current law. Fee Recovery: Requires a plaintiff to identify interested parties in the litigation, and provides a process for a court to recover fees where the abusive litigant is judgement-proof. If a plaintiff cannot certify it has sufficient funds to satisfy a fee award, it must notify interested parties, who can opt out of their interest. Permits a court to exempt institutions of higher education and qualifying parties in the interest of justice.

The PATENT Act has both supporters and critics. Erich Anders, Vice President and Deputy General Counsel at Microsoft, for example, stated “[t]he PATENT Act avoids measures that would erode the value of patents and undermine incentives to innovation.”  The Association of American Universities (“AAU”) similarly praised the PATENT Act as a “measured approach to addressing the abusive litigation practices of patent trolls while protecting the integrity of our patent system.”  The Innovation Alliance, however, opposes the PATENT Act believing it would “cripple the ability of legitimate U.S. patent owners to protect their ideas from infringers, both in the United States and overseas.”  Similarly, the Biotechnology Industry Organization criticized the PATENT Act for failing to address other abuses of the patent system such as abuse of the USPTO’s inter partes review (IPR) proceedings against patent owners.

It will certainly be interesting to follow the PATENT Act as it traverses the legislative process.  Hopefully, the final product will be one that truly curbs abusive patent litigation while preserving legitimate patent holders’ rights.  Anyone interested in the PATENT Act can find the bill, in its entirety, available at http://www.judiciary.senate.gov/imo/media/doc/PATENT%20Act.pdf.

David Breiner is a member at BrownWinick and his practice includes patent application preparation and prosecution. David can be reached at (515) 242-2411 or breiner@brownwinick.com