A Case for Patent Reform

The United States is one of the world's most innovative countries.

Each year the U.S. Patent and Trademark Office (USPTO) receives over half a million patent applications, and issues nearly three hundred thousand patents.

Patents and patent applications are important for protecting both pioneering innovations and incremental – but inventive – developments that provide competitive advantages. They also help companies raise capital to continue to invent and make things we want.

The need to foster innovation through a limited, exclusive patent right has been recognized for centuries. But now patent trolls are taking unfair advantage and it's time to change things.

The U.S. Constitution gives Congress the power to "promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

It's now up to Congress to use that power again to rein in the trolls.

Problems and Solutions

Everyone – except the trolls, that is – recognizes the need to fix the patent granting and enforcement systems, but the key is to fix them without reducing the value of, and protection for, genuine innovation. So what is wrong and what can be done about it?

Litigation procedures and the cost of patent litigation currently favor trolls.

• PROBLEM: Current procedural rules allow a patent troll to say relatively little in the complaint about how a defendant allegedly infringes a patent. Provided a complaint identifies a product or service of the defendant, that is often enough to allow the lawsuit to proceed to the next phase. This makes it easy for a patent troll to file a lawsuit and difficult for a defendant to get a meritless suit dismissed at an early stage.

• SOLUTION: Require a plaintiff to put much more detail in a complaint, such as identifying the patent claims asserted, explaining with detailed specificity how the accused products and features allegedly infringe, and describing the actions of anyone alleged to have contributed to or induced the infringement.

• PROBLEM: Trolls can "forum shop" to litigate in more plaintiff-friendly venues such as the Eastern District of Texas. Trolls will often hide their funding and corporate structure, and often set up a new shell company where they want to sue, so that it can be hard for a defendant to transfer a case to the defendant's home state.

• SOLUTION: Require a plaintiff to disclose the full ownership of the patents and the sources of funding for the litigation, and make it easier for defendants to join others into a lawsuit.

• PROBLEM: Expensive "discovery" – where each side has to provide relevant documents and things to the other side – usually happens early in a case, before the defendant has an opportunity to challenge the merits of the case in a summary procedure (without a trial).

The burden of discovery is not shared equally between defendants and patent trolls because most trolls have few relevant documents as they do not make any products or compete in the market, and they may not even have the original inventor's files and notes.

So cost-wise, the expensive and often time-consuming discovery process is tilted heavily against the defendant and in favor of the troll. This is particularly true these days when electronic discovery ("e-discovery") of emails and other electronic files can be extremely burdensome and expensive.

The cost of discovery plays right into the troll's hands, because a settlement (particularly an early settlement) is often likely to cost a defendant less than just the discovery phase alone.

• SOLUTION: Limit discovery until after certain key stages of a patent lawsuit. This would take away one of the troll's favorite weapons and often the biggest incentive for defendants to settle meritless cases early on.

It's too hard to recover fees and costs when you win.

• PROBLEM: If you beat a troll, it is often difficult to recover your own attorney's fees and costs. Under current rules, it is necessary to show that a troll did not have a good faith basis to bring the case or that it was "objectively baseless," or show some other "litigation misconduct." Courts are typically reluctant to penalize a troll unless the facts are particularly egregious.

• SOLUTION: Make it easier to recover legal fees and costs if a defendant prevails and give more power to the courts to assess litigation misconduct.

Trolls sue many customers and end-users, in addition to the original manufacturer.

• PROBLEM: Trolls often rope in a multitude of customers and end-users in their lawsuits when the real dispute should be with the manufacturer. This is done to put pressure on the manufacturer to settle, as well as giving the troll a hugely expanded list of companies from whom to extract a settlement fee.

• SOLUTION: Limit lawsuits against customers and end-users until the primary dispute with the manufacturer has been finally resolved.

Trolls favor certain types of patents and patent claims.

• PROBLEM: Trolls like patent claims that have broad functional language. They often try to stretch the meaning of the patent claims far beyond what the inventor originally invented. Most troll lawsuits are in the internet, e-commerce and software fields, where the USPTO may have issued quite broad claims, and where defining an invention in words is perhaps harder than in mechanical or chemical patents.

• SOLUTION: Improve the patent granting process at the USPTO and expand the range of patents subject to accelerated review at the USPTO.

Congressional Action

Six bills were introduced into the most recent Congress to address these problems and set out solutions.

Below is a brief summary of what has been proposed there.

Ultimately, it is hoped a comprehensive bill will emerge and become law, so watch this space!

Summary of Legislative Initiatives:

The views in this article represent those of the author, and not necessarily those of Kaye Scholer LLP or its clients.

Dr. Stephen C. Holmes focuses his practice on intellectual property litigation and international litigation, with an emphasis on patent litigation and technology-related disputes. He is a registered patent attorney licensed to practice before the U.S. Patent and Trademark Office, and has twenty years of experience litigating in the U.S., the UK and Europe, including significant trial experience and appellate practice.