Common Sense Solutions to the Patent Troll Problem

It is relatively cheap to be a patent troll and extremely expensive to defend against one. We believe that any solution should be based on these three principles:

  • Change the economics of patent trolling

  • Level the playing field

  • Bring transparency to the system

We support the following proposals:

Change the Economics of Trolling

  1. Trolls shouldn’t be allowed to use the crushing cost of litigation as a weapon. [details]
  2. Let all industries benefit from the success of enhanced review for the financial services industry. [details]
  3. Hold patent trolls to the same pleading standards as everyone else; defendants have a right to know what they are accused of doing wrong. [details]
  4. Prevent costly fishing expeditions made to drive up the cost of litigation. [details]
  5. Every branch of government has a role to play in improving patent quality. [details]

Level the Playing Field

  1. Legal fees and taxpayer dollars should not be wasted on litigating patents whose legitimacy is in doubt.
  2. Given the high number of low-quality patents, there is no reason to make it unusually difficult to show that a patent is invalid.
  3. Protect innocent third parties from being dragged through the courts.
  4. Post-grant review should not prevent a defendant from raising new arguments later.

Bring Transparency to the System 

  1. Trolls shouldn’t be able to sue before proving they own what they’re suing on.
  2. Defendants in a patent troll lawsuit should know who will financially benefit from the action against them.
  3. Software patents are controversial, and it is critical to determine whether they hurt or help the economy.

Details

Patent trolls are harming the American economy.  A patent troll (or patent assertion entity) is a company with no business except licensing patents and suing for patent infringement.  Patent trolls have branched out from suing large businesses to suing everyone from retailers to grocers to individual software developers.  Patent trolls rely on the enormous cost of defending against patent infringement to obtain settlements, taking advantage of legal rules intended to protect research investments as their means of extortion.

Members of both parties agree that the patent troll problem has gotten out of hand.  For example, Rep. Chaffetz said: “Patent trolls contribute nothing to the economy.  No industry is immune to these attacks.  Instead of creating jobs and growing the economy, businesses are wasting resources to fight off frivolous lawsuits.”  And Sen. Leahy acknowledged: “There is more Congress can do to improve the patent system and address the problem of patent trolling, by increasing transparency and accountability.”

1. Trolls shouldn’t be allowed to use the crushing cost of litigation as a weapon.

Proposal:  Shift fees in patent cases to the loser, requiring plaintiffs to post a bond at the beginning of the case.

Trolls thrive on a business model that makes settlement the lower-cost option for defendants, even when they would ultimately succeed if the case were to go to trial.  The cost of litigation, coupled with the inability to recover fees,  leads defendants to settle otherwise meritless cases.  Therefore, by creating some form of fee-shifting requirement, like that proposed by Reps. DeFazio and Chaffetz in the SHIELD Act, defendants would feel less pressure to settle in order to save money and fight the cases that need and deserve to be fought.  Requiring trolls to post a bond would ensure that patent holding corporations with no assets don’t bring the suits, leaving the defendant with a bankrupt plaintiff to seek fees from.

Small competitor companies should be allowed to request that the bond be waived, and this request should be granted at the judge’s discretion. The bond is to prevent shell companies with no assets from bringing suit.

2. Let all industries benefit from the success of enhanced review for the financial services industry.

Proposal:  Expand the existing review procedure from AIA Sec. 18 to cover all business method and software patents.

Business method and software patents are typically vague, broad, and abstract.  That makes them the frequent weapon of choice for patent trolls.  Section 18 of the America Invents Act created a strong review procedure for “covered business method patents,” which were limited to financial products or services.  As proposed by Sen. Schumer in the Patent Quality Improvement Act, this review should extend to at least all business method patents. It should be extended further to all software patents as well. 

3. Hold patent trolls to the same pleading standards as everyone else; defendants have a right to know what they are accused of doing wrong.

Proposal:  Eliminate Civil Form 18.

Although the standard for pleading a complaint has been raised by the Supreme Court in recent years, trolls evade this and file vague complaints, relying on a recent Federal Circuit decision, K-Tech Telecoms. v. Time Warner, which created a sui generis, patent-specific pleading standard.  Under this patent-specific rule, a plaintiff need only complete Civil Form 18 of the Federal Rules of Civil Procedure.  Compare K-Tech Telecoms. v. Time Warner, Nos. 2012-1425, 1446 (Fed. Cir. April 18, 2013) with Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 US 662 (2009).  As a result, an accused infringer often has no idea what it is accused of having infringed, or how.  Eliminating Form 18 would require patent trolls to meet the same pleading requirements as other plaintiffs.

4. Prevent costly fishing expeditions made to drive up the cost of litigation.

Proposal:  Plaintiffs should be responsible for the costs of discovery beyond core documents.  If the plaintiff ultimately prevails, they can always be reimbursed.

Patent trolls can drive discovery costs into the millions in order to force settlement.  Courts should prohibit such fishing expeditions.  Defendants should only be required to produce certain “core” documents regarding limited topics such as the patent, the relevant features of the accused product, the prior art, and summary financial information.  The cost of any other document production should be borne by the requesting party, to be reimbursed if they prevail.

5. Every branch of government has a role to play in improving patent quality.

Proposal:  State that it is the sense of Congress that the legislative branch, PTO and courts should endeavor to improve patent quality.

 While opinions vary on how to improve quality, there is consensus that we have a patent quality problem.  That problem is a root cause of the patent troll challenge.  A statement of the sense of Congress that American innovators deserve high quality patents would focus attention on arriving at solutions to improve quality.

Level the Playing Field

6. Legal fees and taxpayer dollars should not be wasted on litigating patents whose legitimacy is in doubt.

Proposal:  Courts should grant an automatic stay upon request of the defendant if the patent in question is undergoing any form of review by the PTO.

If the PTO is reviewing a patent’s legitimacy, a defendant should be allowed to request a stay of litigation involving that patent — a rule already used at the US International Trade Commission (28 U.S.C. § 1659(a)).

Litigating patents is expensive.  If a patent might be invalidated by the PTO, or the patentee might amend or cancel claims, then legal fees and taxpayer dollars should not be wasted fighting over it.  In the RIM v. NTP case, for example, the court refused a stay even though NTP’s patents were being reexamined.  RIM later paid over $600 million to settle the suit, even though the PTO later invalidated the patents.  Courts otherwise give a strong presumption of validity to the PTO’s expertise.  Courts should not ignore that expertise if the PTO is reviewing a patent’s validity. 

District courts vary widely as to how likely they are to stay an action pending review by the PTO. And some district courts, like the Eastern District of Texas and the Eastern District of Virginia, are notoriously stingy in granting stays when patents are being reviewed by the PTO. It is no coincidence that those courts are very popular with patent trolls. 

7. Given the high number of low-quality patents, there is no reason to make it unusually difficult to show that a patent is invalid.

Proposal:  Reduce the presumption of validity.

35 U.S.C. § 282(a) states that “A patent shall be presumed valid.”  But the courts have given much too much weight to this presumption, making it extremely difficult to prove that a patent is invalid.  A defendant has to prove by clear and convincing evidence that a patent is invalid, even though there is no such burden before the USPTO in inter partes post-grant review proceedings.  See 35 U.S.C. § 316(e) (“the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.”).

Section 282 should be clarified to state that the burden of proving invalidity should be by a preponderance of the evidence, just as in inter partes review.

8. Protect innocent third parties from being dragged through the courts.

Proposal: Manufacturers can intervene in cases as a matter of right and in limited special cases be joined involuntarily.

Patent trolls have recently begun suing innocent small businesses, grocers, and retailers, merely because they have purchased allegedly infringing products for business use. A manufacturer should be allowed to intervene to defend its own customers in such litigation, and if it does, have its customer’s suit dismissed.

9. Post-grant review should not prevent a defendant from raising new arguments later.

Proposal:  Fix estoppel in post-grant review.

35 U.S.C. § 325(e) says that a petitioner may not raise any issue in district court or at the ITC that it “raised or reasonably could have raised during” post-grant review.  The transitional review program for “covered business patents” created by Section 18 of the AIA limits the estoppel to grounds that were actually raised.  General post-grant review should be the same.

Bring Transparency to the System

10. Trolls shouldn’t be able to sue before proving they own what they’re suing on. 

Proposal:  A plaintiff should be required to record the assignment and chain of title of a patent in order to receive a damage award.

At present, patent suits can be filed without any proof that the troll owns what they claim.  In copyright, by contrast, plaintiffs are required to prove they own the property they are suing on by registering their copyright (or assignment) before suing.  (17 U.S.C. § 411(a)).

It is unfair to require a defendant to spend money on discovery just to determine whether a plaintiff actually owns the patent (or patents) it is asserting.  This proposal would reduce litigation costs and ensure that court resources are not wasted on illegitimate claims.  Because most responsible patent owners typically file assignments with the USPTO, this would pose no additional burden.

The End Anonymous Patents Act, proposed by Rep. Deutch, would meet this goal.

11. Defendants in a patent troll lawsuit should know who will financially benefit from the action against them. 

Proposal:  A patent litigant should be required to disclose all ‘real parties in interest’ — every individual or entity with a direct financial interest in the patent or in the outcome of the litigation.

For a defendant, it can be impossible to figure out exactly who has a financial interest in a patent.  Is it a competitor?  A partner?  An investor?  Or, is it the company actually suing them?  Defendants have a right to know, and transparency regarding the real party in interest will enable this.

12. Software patents are controversial, and it is critical to determine whether they hurt or help the economy.

Proposal: Congress should commission a study on whether software patents benefit the economy. 

The Government Accountability Office should be tasked to conduct a comprehensive study of the costs and benefits of software patents.  The study should include:

–        a review of the economic literature, definitions, and categorization

–        analysis of the economic effects on different market segments, stakeholders, and business models,

–        the relationship between software patents and the rise of patent assertion entities

–        the burden on the federal court system and taxpayers

–        surveys of professional perceptions of costs, benefits, and market impact

–        cost/benefit comparison of copyright and patent protection

–        costs of searching for and evaluating software patents and prior art

–        costs of assessing and avoiding infringement

–        the effects of assertion and litigation on small and micro entities relative to large entities

–        the drivers and impact of large portfolios, aggregators, patent assertion entities, and patent enforcement markets

–        implications of monetization and financialization

–        historical evidence of the scope and impact of judicial decision-making

–        extraterritorial effects