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What is behind the current push for patent litigation reform?

As of 4/17/2015

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Patent law and particularly patent litigation has become of heightened interest in the United States, especially in the courts and in Congress.  Just a few years ago, Congress completed a historic overhaul of the nation’s patent laws with the passage of the Leahy-Smith America Invents Act (AIA).  Since then, there has been an increasing focus and concern about patent litigation, specifically an emerging practice by some patent rights holders of sending demand letters based on patent assertions that are believed to have been made in bad faith.  This practice is often directed towards small and less sophisticated end users such as “mom and pop” businesses, coffee shops, retail stores, or restaurants, who have acquired and used equipment or services often ancillary to their primary business and who have limited experience, if any, with patent assertions.  Some refer to such senders as “patent assertion entities” (PAEs) or even “patent trolls” if these entities are in the primary business purpose of patent enforcement, including by asserting them in litigation.  The demand letters are often threatening with insufficient basis, may allege infringement of a patent or patents, include very general assertions of how the end-user is allegedly infringing, and demand relatively small amounts to settle an alleged dispute or provide a license.

A number of proponents for legislative reform argue that the complexity, cost, and apparent disproportionality in the current patent litigation system are allowing potential bad actors to take advantage of those inexperienced with patent assertions or litigation by pressuring them into a settlement regardless of the merits of the infringement allegations.  Patent litigation can be expensive, and the expense may foreclose some accused infringers from litigating matters because of the associated costs. AIPLA’s “Report of the Economic Survey,” a bi-annual analysis of the economics of intellectual property prosecution and litigation, shows that as of 2013 the median litigation costs for a patent infringement suit with at least $1 million at risk ranges from $2 million to $5.5 million through trial. Therefore, a number of issues being debated in Congress seek to address perceived inequities that relate to the management of and requirements for patent cases.  These include heightened pleading requirements, fee-shifting, joinder of interested parties to satisfy an attorneys’ fee award, limits on discovery prior to a claim construction ruling, and stays of lawsuits against a customer in favor of a suit against a manufacturer or supplier. 

Other proponents argue that many of the problems with the current system stem from abuses that occur even before litigation, and relate to the practice of widespread dissemination of abusive or bad faith patent demand letters.  As such, some legislative proposals target the demand letter issue head on by stating that a demand letter cannot serve as evidence of willful infringement unless certain information is included in the letter or by specifying the Federal Trade Commission (FTC) may investigate the widespread sending of patent demand letters as a deceptive trade practice under the FTC Act.

Others have expressed concerns about the impacts that any legislative change to the patent laws and the ability to enforce patents may have on the patent system as a whole and on innovation.  While there appears to be a recognition that problems exist and steps should be taken to curb abusive behavior, there remains disagreement about the scope of the problem and the extent of changes, legislative or regulatory, that may be needed to arrive at the appropriate corrective balance.  As a part of the policy discussions, interested stakeholders have sought to specifically identify the nature and scope of the problem.  Some studies have pointed to a substantial increase in patent litigation and attributed the increase of patent litigation to PAEs. Other studies, however, have found that the share of PAE suits is actually smaller, and found that the rise in the number of patent litigations was likely caused by changes implemented by the AIA, such as joinder which makes it more difficult to file a single suit against multiple accused infringers. For example, in Section 34 of the AIA, Congress directed the Government Accountability Office (GAO) to undertake an economic study on patent litigation, including by PAEs. The GAO concluded that increased patent litigation over the four years studied was the result of (1) the prevalence of patents with unclear property rights, (2) the attraction of large monetary awards, and (3) corporate recognition that patents are a more valuable asset than previously thought. Finally, more recent data shows that patent litigation, including by PAEs, may be leveling off or declining, as 2014 was the first year with a decrease in the filing of patent infringement actions since 2010.

Improving the quality of patents issued by the U.S. Patent and Trademark Office (USPTO) is also a key issue in the current patent reform debates. Some of the abuse in patent litigation is thought to stem from patents with unclear terms, overly broad claims or both. Such patents may be problematic because of the difficulty for entities, even those that regularly interact with the patent system, to determine what the patent actually covers. Therefore the intervention of the courts is needed to determine whether new products or processes they are developing may be infringing. A number of provisions in the AIA are aimed at improving patent quality, including the creation of administrative trial proceedings before the USPTO to allow third parties to challenge the validity of a patent in a more efficient and less costly manner than litigation. Utilization of these proceedings has widely exceeded expectations, so much so that some are arguing the proceedings are unbalanced or unfair to patent owners and that changes are warranted.  Congress is currently debating whether amendments to those provisions are necessary. The USPTO has recently acknowledged alterations to the proceedings are warranted, announcing plans for a series of changes to their implementing rules.  In addition, the USPTO is making patent quality a priority and is taking steps to improve quality within the Office.

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