Patent Reform or Toll the Troll

December 9, 2013, 10:46 AM

In my continuing quest to report on legal developments that may portend real change to the patent trial practice within the Eastern District of Virginia, today we tackle the Innovation Act (H.R. 3309) recently passed by the United States House of Representatives. That act, a mlange of politically appeasing fixes was aimed at making procedural changes that would curb the patent litigation abuses wrought by so-called trolls under the America Invents Act.Since the passage of the America Invents Act, there has been an increase in companies acquiring broad patentparticularly business method patentsand asserting them against all forms of business and not so much to enforce patent rights but rather to extract licensing fees from companies that infringe the patents. Despite contending that the broad patents are invalid, many companies end up settling for a modest license fee rather than incur the substantial costs of litigation and, in particular, the liberal discovery now afforded under the Federal Rules of Civil Procedure. To combat this growing issue, the House, by a 325 to 91 vote, passed the America Invents Act on December 5, 2013. According to the Washington Post, the chief provisions may be summed up as follows:

Require specificity in patent lawsuits. Right now, patent plaintiffs can file lawsuits that are vague about exactly how the defendant allegedly infringed the plaintiff's patent. That makes it easier for trolls to sue many people without doing their homework. The bill would require lawsuits to be more specific.

Make patent ownership more transparent. Patent holders sometimes form shell companies to engage in troll-like behavior. To discourage this, the Innovation Act requires patent plaintiffs to name anyone who has a financial interest in the patent being litigated.

Make losing plaintiffs pay. The Innovation Act makes it easier for a victorious defendant to recover the costs of defending against an unsuccessful patent lawsuit. Also, if a losing plaintiff cannot pay, the bill would allow a judge to order others who had a financial stake in the plaintiff's lawsuit to join the lawsuit and pay the defendant's legal fees.

Delay discovery to keep costs down. A big reason patent lawsuits are so expensive is that plaintiffs often force defendants to produce millions of pages of e-mails and other internal documents to help them build their case. The Innovation Act would delay this phase of the litigation process until after the courts have addressed legal questions about the meaning of patent claims. Hopefully, that will allow more frivolous lawsuits to be resolved before defendants have racked up huge legal bills.

Protect end users. A common troll tactic is to sue end users (such as coffee shops offering their customers WiFi access) rather than technology vendors (such as the manufacturer of the WiFi equipment). These small-business defendants can often be intimidated into paying regardless of the merits of a plaintiff's case. The Innovation Act allows technology vendors to step into the shoes of their customers and fight lawsuits against trolls on their customers' behalf.

If the Innovations Act becomes law, there is at least one provision that may not fit neatly with the Eastern Districts Rocket Docket. Delaying full discovery until after the claims construction hearing will favorably move up the time for consideration of Markman issues; unfortunately, it would be difficult to maintain the speed of the Courts docket as such a process will necessarily create a bifurcated pretrial process and necessarily cause delay. Maybe the change will light the way for Local Patent Practice Rulessomething many regular practitioners in the area have endorsed.

Although passed by the House, the Act still faces a long road before it would become law; the Act still must survive the gauntlet of the amendment process in the House and then, a related bill in the Senate must be passed and the two bills reconciled. Stay tuned! - Stephen E. Noona

Stephen E. Noona is the head of Kaufman & Canoles Trial Section and Co-chair of its Intellectual Property Law and Franchising Practice Group. He has been counsel in over ninety-five (95) patent cases in the Eastern District, is Fellow in the AmericanCollege of Trial Lawyers, and regularly appears before the judges in all four Divisions of the Eastern District on patent and intellectual property matters.