PublishedMay 6, 2014

Why Patent Trolls Hate Heightened Pleading

There have been plenty of objections (some silly, some not) to patent reform. But the ones that have probably seemed the weakest to me are the objections to raising the standard for pleadings in patent cases.

For a typical civil case, you are required to put enough facts in your complaint so that, assuming those facts are true, your claims are plausible. That is not the standard in patent cases. The Federal Circuit held in In re Bill of Lading Transmission that in patent cases, all you need is:

1) an allegation of jurisdiction; (2) a statement that the plaintiff owns the patent; (3) a statement that defendant has been infringing the patent `by making, selling, and using [the device] embodying the patent’; (4) a statement that the plaintiff has given the defendant notice of its infringement; and (5) a demand for an injunction and damages.

That’s a low bar, because a complaint with only that information isn’t enough to tell a defendant what it’s being accused of doing that infringes. And for those who continue to question the importance of heightened pleading, we just recently got a perfect demonstration of why it’s necessary.

During the Senate recess, a draft of patent litigation reforms floated around. That draft had an effective date of April 24, 2014; that is, the provisions would apply only to cases filed on or after that date.

Guess what happened on April 23, 2014?

190 patent cases were filed on that day, the bulk (153 cases) in the Eastern District of Texas. The most prolific filer was a patent troll called eDekka, which filed 87 separate patent infringement suits. In this latest flood of suits, eDekka sued companies like the NFL, Etsy, FTD.com, GameFly, and 1–800-Flowers. (eDekka had previously sued another 70 or so companies, including Apple, Lowe’s, Walgreens, and JCPenney.)

The complaint that eDekka filed in each case was about four pages long and they were all nearly identical. Here’s a sample from the complaint against B & H Foto & Electronics:

13. Upon information and belief, Defendant has infringed and continues to directly infringe one or more claims of the ‘674 Patent, including at least claims 1 and 3, by actions comprising making and/or using one or more websites that include “shopping cart” functionality, including without limitation the website www.bhphotovideo.com and associated subsites, web pages and functionality within that website (the “Accused Instrumentalities”).

14. Defendant’s actions complained of herein are causing irreparable harm and monetary damage to Plaintiff and will continue to do so unless and until Defendant is enjoined and restrained by this Court.

Those two paragraphs are all the information eDekka provides about what the defendant has supposedly done to infringe eDekka’s patent. And eDekka’s patent says absolutely nothing about “shopping cart” functionality, e-commerce, or even the Internet. (Not surprising, because the patent was filed in 1992. The patent doesn’t expire until 2018 because it issued in 2001; the rule for patents filed before June 8, 1995 is that they expire 17 years after issuing.)

Now, B & H Foto, along with 86 other companies, gets to spend thousands of dollars in legal fees just to try to figure out whether eDekka even has a case.

And it gets worse for B & H Foto, which drew Judge Gilstrap as the judge. Judge Gilstrap will likely issue an order shortly after B & H files its answer that will require B & H Foto to start producing all of its documents without even waiting for eDekka to request them. (Judge Gilstrap has a standard discovery order he uses for patent cases that has that requirement in it.)

In other words, just because eDekka is allowed to file a uselessly vague complaint, companies like B & H are going to have to waste tens of thousands of dollars on these lawsuits.

We can do a little back of the envelope math to begin to see how wasteful this is. Let’s assume that each company has to spend a minimum of $10,000 in legal fees initially for a case evaluation. (That’s just over 20 hours of lawyer time for a big firm which charges an average of $500 an hour.) These 87 suits would then cost $870,000 right off the top. That’s nearly a million dollars that could be going to job creation or innovation instead of being spent on legal fees to evaluate the case.

As you can imagine, that total will quickly jump into many millions of dollars.

And how much did eDekka spend on these complaints? It costs $350 per case to file, which is $30,450 for 87 lawsuits. eDekka probably has a lawyer working on contingency, so that there are no out-of-pocket legal fees. Regardless, it probably took no more than an hour per complaint to fill in the blanks and file it. If just one company settles for, say, $50K, eDekka has paid for the filing fees and expenses for all of the suits. The rest of the settlements (minus contingency fee) are profit.

Heightened pleading requirements would increase eDekka’s costs substantially, because it couldn’t simply reuse one complaint 87 times. eDekka would have to identify specific products that infringe and explain exactly how it thinks those products infringe its patent. That, combined with other litigation reforms, would make it far less profitable to use eDekka’s litigation strategy.

Is it any wonder that patent trolls don’t want heightened pleading requirements?

Matt Levy

Previously, Matt was patent counsel at the Computer & Communications Industry Association

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