I was lucky enough to be invited to participate in a panel on anti-NPE regulation at an International Leadership Women’s Forum in NYC. The event was put on by Managing Intellectual Property (MIP). In English, this means I was asked if I wanted to talk about legislation designed to curb patent trolls. Don’t have to ask me twice!
I said yes because of the topic. Then I looked at the speaker and attendee list….holy cow did they have rock stars attending and speaking. This was my first time going to an event with so many executive level in-house female lawyers.
First, my thoughts on the event. Then I’ll give some thoughts (my thoughts, not those of my employer) on anti-NPE regulation and trolls.
The Forum was an all day, free of charge for in-house counsel, and CLE accredited event that was women inclusive. When I say women inclusive I mean men were not excluded but the purpose was to pull together women in IP. I did see at least two gentlemen at the event.
The only item on the agenda that wasn’t applicable to what I do was the “trends in life sciences and biotechnology” portion in the first panel. Luckily for me the panel decided to drop that and instead expand on how to stay professional in litigation when dealing with hostile adversaries. That was something I was much more interested in than life sciences and biotechnology. It also meant 100% of the topics for the day were something I could learn from which isn’t always the case in all day event.
Sometimes when public speaking attorneys can be very…well…buttoned up and very selective of what they say. It’s a common characteristic of being a lawyer I think, I’m also that way. But it means you may not get as good advice as you could have if the speaker were more candid. At this event all of the speakers were very open and up front with their advice. I feel a little bad for the two gentlemen at the event saying this but I’ll say it anyway- it was like going to a dinner with your girlfriends to get advice but these girlfriends were high level attorneys at big corporations. It was great!
I judge how well of a networking success an event is by seeing if the number of in-house contacts I leave with outnumber the law firm contacts. I have lots of friends at law firms and solid working relationships with firms so sure those contacts are valuable and I did send invites to some firm attorneys I met there. But I consider in-house contacts more valuable since I think they understand your perspective and issues more than a firm attorney does. The forum was a win networking wise.
If you’re a female IP lawyer, particularly if you’re in-house, I highly recommend going to this.
My opinion on trolls and anti-NPE regulations are my personal opinions and not those of my employer.
Here are a couple of thoughts on trolls and two anti-NPE regulations (one passed and one pending), most of which I mentioned at the forum.
Who are we talking about?
First, when I say NPE I’m talking about trolls. I’m not talking about the pharmaceutical industry or universities that use their patents to do stuff like cure cancer. I’m talking about companies that use their patents to create risk and uncertainty for non-profits that help disabled people and they’re not even using good patents like cancer curing patents. They’re using patents like scan to email. That is like suing a restaurant for using forks. That is how nutty these lawsuits are. The nuttier thing is our laws allow these lawsuits to proceed. This costs our economy billions of dollars. That’s what the anti-NPE regulations are designed to address.
America Invents Act
So first, the America Invents Act. It was the anti-NPE reform that mostly wasn’t. Before it got to Obama for signature it was significantly watered down, probably due to politics. I hope I don’t regret talking politics… Democrats were the majority in 2011, trial attorneys support Democrats, and trial attorneys don’t like anything that smells like tort reform. In the spirit of full disclosure, I lean more towards being a Democrat than a Republican and registered as a Democrat. So I am not saying all Democrats are against anti-NPE reform, but a lot of them are.
So out came two key provisions.
The first provision would have made it less profitable for trolls to sue by changing how damages are calculated. Say you have a $100.00 product. It has scan to email. It also has IM, phone call routing, FAX, and a bunch of other features. Say scan to email is worth $5.00 and the other stuff is worth $95.00. The provision that was struck out would have required the royalty analysis be conducted on the $5.00 part that read on the scan to email patent claim and wouldn’t include the $95.00 portion that was either prior art or didn’t read on the patent.
The second provision would have put some limitations on forum shopping, i.e. suing in troll friendly jurisdictions. We all know it is really one jurisdiction I’m talking about here.
Two provisions that did make it in were the introduction of post grant review of patents and removal of the ability of trolls to join a bunch of defendants in the same suit just because they allegedly infringed upon the same patent. Very broadly speaking post grant review means you have 9 months after a patent is issued or reissued to challenge the validity of a patent. Trolls may hold off pulling the trigger on a lawsuit if they know it’s easier for defendants to invalidate their patents and post grant reviews mean there are fewer bad patents out there trolls can sue on. There are a bunch of technicalities and specifics on post grant reviews that I am not commenting on here. You can read more about post grant review in the article I linked above.
An additional thought while we are talking about trolls that use patents that should never have been granted. If you read the legal topics on this blog regularly you know I lean towards not granting patents on software. You can read the full explanation in the linked blog. Technology changes quickly and the long terms on patents means you have to stretch to figure out how patent claims written years ago could apply to technology that wasn’t even thought of at the time of the patent filing date.
So, personally speaking, if patents on software continue to be allowed I’d like to see a shorter term on the patents. The problem is the value of the patents of the good NPEs, the universities and researchers, have a much longer shelf life than technology patents. So I’d expect them to fight any proposal that patents have a shorter term.
But having a single patent term on all patents regardless of the shelf life of its innovation may not be the best idea either. Possibly it would make sense to have different patent terms based on the subject matter of the patent? It makes sense to me that a patent on a cancer-curing drug would last 20 years. Researchers spend many years and a lot of money to develop patents like those and a cancer-curing drug would be useful for years. On the other hand, technology is by its nature fast moving and often developed relatively quickly. While not cheap to develop I would judge technology must be cheaper to develop than the years it’s taking to research a cure for cancer. Also, technology becomes outdated relatively quickly as new technology is introduced. So it would seem to make sense to me to have different patent terms for different subject matter.
The Innovation Act was introduced in 2014 and was well on its way towards being passed when patent reform was abruptly taken off of Congress’s agenda. It was reintroduced in 2015 and is being considered now.
Key parts of the Innovation Act
Fee shifting: It establishes a rebuttable presumption in favor of fee shifting in patent litigation. It mandates an award of attorneys’ fees to the prevailing party, unless the court finds the losing party’s position and conduct were “reasonably justified” or “special circumstances makes fee shifting unjust. If an NPE is unable to pay a fee award the prevailing defendant can join & recover fees from third parties that hold a right to enforce or sub-license the patent or have a direct financial interest in the patent. This is important because most patent trolls are shell companies with no real assets but their backers have more $$$. Pulling the backers into the suit is made possible by the next item.
Patent-owner transparency: The bill requires the NPE to disclose to the court, defendants, and the PTO any entity having rights to enforce the patent or a financial interest in the patent, and the troll’s ultimate parent entity. Those companies might be less willing to back NPEs if they know their pocket books might take a hit. More importantly, the damage to their reputation by being publicly associated with trolls in the anti-troll environment we’re in should really cause them to think twice before supporting trolls.
Pleading requirements: A complaint should tell the defendant what they’re being accused of but at the moment patent infringement complaints are allowed to be very vague. Defendants can spend a lot of time and money trying to formulate a response when they’re stuck attempting to make sense of unclear claims. The bill would require the complaint to specify the claims allegedly infringed, the name and model number of the accused products, and detailed grounds for the alleged infringement. It also requires the complaint to describe it’s principal business and more importantly disclose any prior litigation concerning the patent which can be helpful in discovering licensing deals that could absolve you of liability for infringement.
Discovery limits: The discovery burden is very one sided in troll suits. Trolls have their entire discovery prepackaged and ready to go because suing is their business. Defendants don’t since they aren’t in the business of being sued. The burden of pulling together discovery may be made compounded by some trolls may serve a lot of discovery requests to distract you from running your business. The discovery provision of the Innovation Act would lessen the burden by defining “core documentary evidence” which the producing party would pay for. For any other discovery request the requesting party would pay. That means if an NPE is less motivated to hit you with unnecessary discovery requests since they’d be the ones paying for production. Also the bill would put discovery mostly on hold until claim construction is done which seems logical since you shouldn’t have to do discovery supporting or refuting infringement until you agree what the claims you allegedly infringe on are.
Demand letters: Sometimes trolls will send out vague demand letters so they can claim you were on notice of a patent and later hit you with treble damages for that. This would preclude the NPE from relying on pre-suit demand letters to establish willful infringement if the letters don’t specify the asserted patent, the accused product, the plaintiff’s parent entity, and the grounds for the alleged infringement.
Stay of customer suits: The Innovation Act includes a proposal which says if the same patent has been asserted against a manufacturer and it’s customer, the court must grant a stay of the customer suit if the manufacturer and the customer consent to the stay, and the customer agrees to be bound by any final decision on common issues in the manufacturer suit.
State Action against NPEs
A number of states have followed Virginia’s lead in passing regulations designed to prevent abusive patent litigation. Virginia amended their Consumer Protection Statute to define a corporation, not just an individual, as a consumer, which meant that corporations targeted by trolls could be protected under that statute. It remains to be seen how enforceable these state laws are since patent infringement falls under federal jurisdiction.
Supreme Court takes a strong defendant stance
The Supreme Court issued a string of defendant friendly decisions in 2014. If that wasn’t enough of an indicator on their feelings on trolls, in 2015 the Supreme Court used the term “patent troll” for the first time in a published Supreme Court decision.
What does all this mean?
There’s going to be a lower return on investment for trolls as a result of all this. It’ll be more expensive, risky, and time consuming for them to file suit.
With a Republican majority the Innovation Act should pass and more importantly it won’t be as watered down as the America Invents Act. I didn’t mention the other proposed anti-NPE regulations in this blog, but there are a handful of them. For the most part they mirror portions of the Innovation Act and/or state regulation put in place to curb trolling. Hopefully none of them come close to passing because I suspect trolls will pick the weakest one and support it. Before, patent trolls claimed the ones pushing for patent reform were tech companies looking to trample third party IP rights but now trolls have started suing non-profits and small mom and pop shops. Suddenly tech companies aren’t the only ones asking for reform. In this very anti-NPE climate it’s probably in the trolls interest not to fight all of the pending regulations, but instead to pick the weakest one and try to get that particular bill pushed through.
What anti-NPE reform Congress doesn’t implement the Supreme Court looks willing and able to handle through adjudication.
The grassroots fighting of trolls will continue to spread as more State Attorney Generals follow Virginia’s lead and pass laws designed to curb patent abuse.
But stopping the bleeding will take time even if progress does happen in 2015. Trolling went down in 2014 thanks probably to the AIA and the Supreme Court decisions, but an Electronic Frontier Foundation article pointed out there were more suits filed by NPEs in January 2015 than in the entire year of 2004. Patent trolling exploded over the course of a decade and it’s going to take a long-term comprehensive effort in both the legislative and judicial branches along with support from the states and businesses to stop the damage.