Changes in patent law over the past five years have created some relief in the number of cases filed but big problems remain.
Colleen Chien, a law professor at Santa Clara University School of Law; Evan Engstrom, executive director of Engine; U.S. Rep. Darrell Issa, a member of the House Judiciary Committee and chairman of the Subcommittee on Courts, Intellectual Property, and the Internet; and Ruben Rodrigues, an intellectual property trial attorney and senior counsel to Foley & Lardner, comprised a panel that discussed the “Persistence of Patent Trolls in Tech” at SXSW in Austin.
The panel discussed some of the changes to patent law and suggested changes to patent law that could deter frivolous lawsuits.
Changes to Patent Law
The Leahy-Smith America Invents Act’s central provisions went into effect on September 16, 2012, and on March 16, 2013. Rodrigues said the act is “much quicker and cheaper than the previously available methods for validating patents.”
But the act isn’t perfect, Rodrigues said, “It’s still very expensive. The final fee alone is almost $50,000 to get the thing going and the attorneys’ fees can range from being $150,000 to $500,000 depending on the complexity of the matter.”
Supreme Court decisions in Octane Fitness v. Icon Health & Fitness in 2014 and Highmark v. Allcare Health Management System in 2014 changed the “exceptional case” definition under the U.S. Patent Act’s fee-shifting provision.
After Octane and Highmark decisions, “exceptional” was defined as “a case that sets out from others or stands out from others,” Rodrigues said.
Even with the change, Rodrigues said there has been little increase in fee-shifting provisions in patent cases. Chien said the fee-shifting provision might be too difficult of a culture shift for the U.S. as compared to countries with regular rates of compensation in place.
The panel also referenced Rule 11 of the Federal Rules of Civil Procedure as a way to possibly have litigation labeled as frivolous. Rodrigues said, “it is, however, a gruesome process because of the back and forth that goes on and at the end of the day the judge has to entertain a motion for sanctioning.”
Another change was a result of the 2014 Supreme Court ruling in Alice Corporation v. CLS Bank International, where “the Supreme Court struck down one patent for claiming an abstract idea,” Rodrigues said.
A Supreme Court order in 2015 abrogated Rule 84 of the Federal Rules of Civil Procedure and thus eliminated Form 18. Rodrigues said before the changes “it used to be that there was a form for a patent complaint and it was very basic. If you complied with the form, you basically met your obligations to file a suit. So courts wouldn’t dismiss a lawsuit, no matter how bare bones the pleading was, if it complied with Form 18.”
In 2017, the Supreme Court issued a decision in TC Heartland v. Kraft Food Groups Brand. “You can only sue someone for patent infringement where they’re incorporated or where they have a place of business and have committed acts of infringement,” Rodrigues said.
The decision affected the U.S. District Court for the Eastern District of Texas, which had been a hot bed of patent litigation because plaintiffs did very well there, Rodrigues said. The “stats as of two years ago, the win rate of plaintiffs was above 80 percent, whereas the national average was 40 percent.”
Rodrigues also identified other trends that have reduced patent litigation, including “the willingness of courts to entertain early summary judgment [and] a willingness of large companies to fight trolls to discourage copycat suits.”
Trolls Change Tactics
With larger companies now showing a willingness to combat patent trolls, there has been a change in demand. “Now they ask for $50,000 rather than ask for a million dollars, and that’s been my experience in practice,” Rodrigues said. “They’re not going after large companies, but they continue to be very active in going after small and medium companies getting these ‘nuisance value’ settlements.”
Loser Pays system. A possible solution to frivolous patent lawsuit would be the “Loser Pays” system where the idea is that the losing parties in the suit pay the winners’ legal expenses, including attorneys’ fees.
Engstrom said he doesn’t see the loser pay system as a solution for the problems startups face in battling patent trolls because startups are really capitally strained.
“Even the notion of having a loser pay system may not work if your decision point is ‘do I pay $3,500 and wash my hands of this or take a loan out to finance litigation that is going to cost up to $6 million even if it’s a 95 percent chance that I’ll win?’ Really, it’s about preventing these things from happening in the first place.”
Cheaper court costs. A common tactic of patent trolls is to offer a “nuisance cost” to settle lawsuits. The nuisance cost is a fee that the troll knows will be less than the cost of litigation.
The most impactful changes to patent law have been around “the introduction of cheaper alternatives to litigation, such as inter partes review, which is still expensive,” Chien said. “I think this is an indictment of our court system that’s so expensive, so cumbersome, that we’ll try to go around by going to the PTAB [Patent Trial and Appeal Board].”
The notion of inter partes review, or IPR, is highly contested, Chien said. In fact, a current Supreme Court case, Oil States Energy Services v. Greene’s Energy Group, is challenging whether IPR violates the Constitution by removing private property rights through a non-Article III forum without a jury.
Compulsory Licensing Act. “One of the first things that may end up in the long run happening is more situations like the famous IBM case, where IBM was forced to license their patent portfolio because they had effectively locked out—in perpetuity—anyone from making an effective computer simply because by the time you’d get to use their patents it would be useless,” Issa said.
Although, there may be certain circumstances where compulsory licensing is necessary for the continuance of innovation, Issa said.
All of the changes aimed at controlling patent controls may have an undesired effect though, said Chien. “Now there’s a lot of concern in the patent community that the pendulum has swung too far in a direction that sort of devalued patents.”