seizing control of the Senate in the midterm elections this
week, the GOP now controls both house of Congress. With that,
hopes for passing patent reform will have been raised.
The Republican-controlled House
of Representatives had no problem passing a patent reform bill
last December. But efforts in the Senate foundered when Senate
Judiciary Committee chairman Patrick Leahy (right) pulled his
bill after majority leader Harry Reid indicated
he would not bring the bill to the floor.
Now that the Republicans control
both the Senate and the House the path to patent reform appears
to be clearer. Unusually, this is an issue the Republicans and
President Obama can agree on. Obama has made numerous calls for
There is much support from
elsewhere, including within the USPTO. Michelle Lee, who has
been nominated as director of the USPTO, took the chance during
her speech at AIPLA’s annual meeting two weeks ago
to call for "balanced and meaningful legislative reforms".
"We hope to see patent reform
move forward on the congressional agenda next year,"
Lee said. "All of us, as stewards of our IP system, have an
obligation to engage in that process responsibly, thoughtfully,
and with the goal of ensuring balance—regardless of
your monetary self-interest on an issue."
So the stage now seems set for
getting patent reform done. Yet just as the ability to get
legislation passed increases, the need for it appears to be
Those advocating for reform
point to out-of-control patent troll litigation making action a
necessity. The problem with this argument is that the situation
may be improving in the absence of legislation – and
may continue to do so.
litigation is falling fast. Unified Patents last week revealed
patent litigation was down 23% in the third quarter,
compared with the second quarter (see chart). This reinforced
the impression from an earlier report from Lex Machina that
revealed that patent litigation in September this year
was down 40% on September 2013.
Reform advocates argue that
litigation is still at historic highs. Unified Patents noted
that in the second-quarter litigation was up 16% on the first
quarter, and that 2014 was on track to be the second most
litigious year ever (although its projection includes an
assumption that the decline in litigation will not be as steep
in the fourth quarter). Unified Patents added that NPE activity
appeared "surprisingly consistent", making up 85% of high tech
patent litigation in the third quarter of this year, 88% in the
second quarter and 82% in the first quarter.
"Although patent litigation is
down from its levels in 2013, we are still observing
historically high numbers for overall patent litigation," said
Shawn Ambwani, chief operating officer of Unified Patents.
"It’s too early to tell what has led the decline
since 2013 but it is clear that high tech is still experiencing
significant NPE activity."
While it is true that NPE
activity remains high historically, it is also true that during
the time the issue has been debated in Congress the
NPEs’ business model taken some hefty dents.
Mark Lemley, law professor at
Stanford, noted in a Lex Machina blog post that patentees
appear to be deciding not to sue in light of the Supreme
Court’s June 19 Alice v CLS Bank
decision. This decision made clear that merely implementing an
abstract idea on a computer is not patentable. Since then
courts have been aggressive in invalidating software patents on
Section 101 grounds.
It is not just Alice
having an effect, however. NPEs have also had to adjust to the
rise of Patent Trial and Appeal Board proceedings. These have
a shift in the balance of power in litigation. Inter partes
reviews have handed defendants in lawsuits brought by NPEs a
potent way of striking back by seeking to invalidate the
patents at issue.
These two developments mean that
NPEs asserting weak-looking patents face a much higher chance
of having them invalidated.
Further fee shifting measure needed?
Alice is not the only
Supreme Court decision weakening the argument for reform. One
element included in patent reform was provisions for fee
However, in April the Supreme
Court handed down its
Highmark and Octane decisions.
Octane brought in a new, more relaxed test for
determining when a case is exceptional enough to warrant the
award of attorneys’ fees, while Highmark
said a district court is better placed to make the
determination of an exceptional case, making it harder for the
Federal Circuit to overturn.
"As of October 28 approximately 75
district court decisions had involved motions for fee awards
since the Octane decision, with about 18% of the
With half a year gone since the decision, some are assessing
the effect of these decisions. An analysis
from Glaser Weil noted that as of October 28 approximately
75 district court decisions had involved motions for fee awards
since the Octane decision, with about 18% of the
"But 18% does not seem to indicate an overwhelming trend to
awarding fees," it said. "Interestingly, where the motion was
granted or granted in part, the patent plaintiffs were the
slight majority of successful movants. So, these numbers also
do not seem to indicate an overwhelming shift within the grant
rate towards defendants."
While not overwhelming, 18% seems quite a high number for
success for fee shifting. A case would hardly be exceptional if
everyone who asked for it got it.
Glaser Weil said it is possible
that some NPEs may have shelved "dubious" cases that they might
have filed otherwise, noting the recent drop in litigation.
"But the numbers do not overtly
indicate a particular statistical disadvantage to patent
plaintiffs, such as NPEs," it said. "In fact, not surprisingly,
the superficial indications are that the lowered standard can
affect both sides of litigation. As much as Octane would make
it easier for successful defendants, it also lowered the
standard for successful plaintiffs, including NPEs, to get
their fees awarded."
Others say the Supreme Court
decisions do not go far enough. Fenwick & West noted that
Highmark and Octane helped but said
legislation on fee shifting is still needed.
"However, just 'fixing’ the rules associated
with attorneys’ fees is not enough,"
it said. "Action should also be taken to prevent PAEs from
being able to simply walk away from cases where there is about
to be an assessment of litigation costs or
attorneys’ fees, either by dissipating all of
their assets so they are effectively judgment proof or by
filing for bankruptcy."
Renewed calls for patent reform,
then, come at an uncertain time for patent litigation and the
effects of some Supreme Court rulings still working their way
through. What is clear is that the statistics for
fourth-quarter litigation will be closely watched by all
parties involved in the debate.