White House issues recommendations
FTC launches investigation
ITC announces pilot programme
June was a bad month for US patent trolls, PAEs or whatever they want to be called. The White House issued a proposal for new laws and regulations, boosting existing bills in Congress, while the FTC announced an investigation and the ITC launched its own pilot programme to tackle them.
The White House issued seven proposed legislative changes, including recommendations for more disclosure by patentees and lawsuit plaintiffs, and stronger legal protections for off-the-shelf users of products targeted by PAEs.
Five additional executive actions to be implemented by the USPTO and other agencies include rules to require transparency about shell companies that trolls use to hide their activities and outreach campaigns and events to educate the public about patent law.
The White House also proposed legislative fixes for the International Trade Commission, which adjudicates patent disputes alongside the courts and has been criticised for policies that encourage abusive litigation.
This added fresh momentum to the half-dozen bills introduced or planned in the US Congress that aim to crack down on frivolous patent infringement lawsuits.
"Abusive patent litigation is a drag on our economy," said House Judiciary Chairman Bob Goodlatte during a speech in Washington at the beginning of June. "The tens of billions of dollars spent on settlements and litigation expenses associated with abusive patent suits represent truly wasted capital."
Goodlatte's discussion draft, released on May 23, and a counterpart being crafted by Senate Judiciary Chairman Patrick Leahy, will form the nucleus of patent legislation that stands the best chance of passage, observers said. The lawmakers are well-positioned to move their bills because their committees have primary jurisdiction over the issue.
The flurry of activity marks the opening salvo in Washington's response to the rapid emergence of patent trolls, which Boston University estimates accounted for $29 billion in legal costs in 2011. The legislative push comes just two years after Congress enacted the America Invents Act (AIA), a law spearheaded by Leahy and former House Judiciary Chairman Lamar Smith to improve patent quality.
For many businesses it's more cost-effective to settle with patent trolls (or patent assertion entities – PAEs) that threaten legal action over broadly worded claims than to go to trial. While the AIA will result in more clarity for new patents, trolls take advantage of older, imprecise patents not subject to that law, critics said.
But Q Todd Dickinson, executive director of AIPLA, cautioned against the "underlying presumption in the PAE litigation that the patents are bad and that they're invalid" and are being asserted against non-infringing parties. "That's not necessarily the case," he said.
While Goodlatte said he hopes progress on patent legislation won't be a "multi-year" process, sources on both sides agreed that enactment of a new patent law is unlikely this year. They cite several reasons: key bills are still in draft form, the subject is complex and controversial, Congress has a packed agenda, and a diverse array of stakeholders – from tech giants and retailers to watchdogs, universities and small inventors – must be placated.
Patent legislation faces better odds in 2014, the second year of the latest two-year congressional session, because lawmakers would have more time to tweak their bills and muster support.
The 38-page Goodlatte draft focuses heavily on lowering litigation costs. For example, if a party loses a patent dispute in court or is awarded less than it would have received under a settlement, it could be required to pay the other side's legal fees.
Other provisions would share discovery costs more equitably among both sides and require plaintiffs to provide more details upfront under a new, "heightened" pleading standard as to which patents, claims and products are causing infringement.
Kupferschmid said Goodlatte understands "there's no silver bullet here". He said the congressman "recognises that there's got to be a lot of different approaches to be considered to address this problem".
Leahy, a Democrat, consulted with Goodlatte, a Republican, on the House discussion draft and is working with Senators Sheldon Whitehouse, a Democrat, and Mike Lee, a Republican, on a Senate version. He'll also coordinate with Sen John Cornyn, a Republican Judiciary member who introduced a bill that seeks to deter litigation abuse, and Sen Charles Schumer, a Democrat who sponsored a measure to improve patent quality.
The FTC investigation |
At the end of June, Federal Trade Commission chairwoman Edith Ramirez announced that the FTC is launching an investigation into the potentially anti-competitive practices of patent trolls. The investigation will be held under Section 6b of the Federal Trade Commission Act, to "help develop a better understanding" of patent trolls. She said that while the Commission still has "only snapshots of the cost of PAE activity", early indications suggest that their benefits to innovation and the general public are greatly outweighed by their costs, which include shifting money away from research and development. She said that PAE activity is also "changing shape". Although IT is still the industry most targeted by trolls, data and anecdotal evidence collected by the FTC suggests that they now file half of all their lawsuits outside of the high tech sector. Retailers are now the most common low-tech sector targeted by trolls, and the FTC has had complaints from online retailers who have had to defend lawsuits against common features on their websites such as drop-down menus and shopping carts. Small businesses have also increasingly become targets, with offline businesses such as coffee shops being sued for patent infringement for offering features like WiFi. Ramirez said the FTC plans to use Section 5 authority to protect small businesses against deceptive patent claims by trolls, such as attempting to secure settlements relating to expired patents or patents the troll has no rights to. She said the Commission is also concerned about an increase in what she described as "hybrid PAE activity", in which large corporations hide behind shell companies to engage in troll activities strategically targeting competitors. |
What is a troll?
An often-voiced grievance about the push for legislation is that legitimate entities, such as universities that obtain patents for research, will be categorised as abusers. To address this worry, Goodlatte said his bill targets behaviour, and not particular companies or categories, and that troll should be used as an adjective – not a noun.
"By addressing the activities that we all find so distasteful, you get around that issue and you only hopefully catch in your net those who really, truly are patent trolls," reasoned SIIA's Kupferschmid.
The ITC pilot |
The ITC announced last month that it has launched a pilot programme to speed up the disposal of patent cases in an effort to thwart so-called trolls. The programme will test whether earlier rulings on certain issues in Section 337 investigations, which deal with allegedly unfair import practices usually in relation to intellectual property, could reduce frivolous litigation. The main remedy available in Section 337 investigations is an order requiring US Customs to prevent the infringing imports from entering the country. Under the scheme, an administrative judge will determine whether companies suing for patent infringement have sufficient production, research or licensing operations in the US to make them eligible to be heard at the ITC. In some cases, the judges may be able to determine whether the plaintiff meets the criteria within 100 days. The ITC may adjust the programme once it is underway. If the trial is successful, the system may be implemented permanently. In a press release, the ITC admitted that "resolving issues in pilot program investigations will be challenging" but argued that "the complainant controls the timing of the complaint's filing and should be prepared to prove its case, including such elements as domestic industry, importation, and standing, without extensive discovery on these issues". |
