A busy year for reform of abusive patent litigation

Top events ahead in 2014 for abusive patent litigation

reform of abusive patent litigation
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It’s a new year and all indications are that it will be a busy one for reform of abusive patent litigation.

What are some of the top events ahead in 2014?

State Attorney General's step up focus on PAE abuse

In the most recent development, New York Attorney General Eric T. Schneiderman announced what he calls a "groundbreaking settlement" with a well known Patent Assertion Entity (PAE), a so-called "patent troll." This action in the Empire State follows on earlier state Attorney General (AG) investigations in Vermont, Minnesota, and Nebraska. It heralds what I anticipate to be deeper scrutiny by state AG’s of PAE use of 'deceptive and abusive tactics' against businesses and other entities in what the NY AG found in this case to be "an effort to strong-arm them into paying... for patent licenses of dubious value."

According to NY AG Schneiderman, this settlement "should be viewed by other patent trolls as the minimum standards—they are not a safe harbor—that such entities seeking to contact New York businesses must follow to avoid liability for unlawful deceptive practices."

"The federal patent system suffers from a variety of flaws that are exploited by patent trolls," he said. "By restricting the tactics that patent trolls can use when contacting small and medium-sized businesses about possible infringement, the guidelines in this settlement should put an end to some of the most abusive and predatory tactics used by patent trolls." The guidelines include, for example:

  • Diligence and Good Faith When Contacting Potential Infringers.
  • Providing Material Information So an Accused Infringer Can Evaluate the Claim.
  • No Misleading Statements about a License Fee.
  • Transparency of the True Identity of the Patent Holder. 

Law Professor Robin Feldman, the Director of the Institute of Innovation Law at the University of California Hastings College of Law, who has extensively studied PAEs and the effects of abusive patent litigation, commented on this action: "Today’s historic New York settlement agreement strikes at the heart of this inappropriate behavior while protecting the legitimate exercise of patent rights. The agreement provides a model for other states, and for federal regulators as well."

Widespread support for the FTC to investigate PAEs

As readers may recall, the Federal Trade Commission (FTC) took an important step in the fall of last year to initiate an investigation into PAEs' abuse of the patent system (beyond the costs of litigation) and their harm to competition and consumers. Formally known as a '6(b) study' (or 'industry study'), it is potentially an historic move by the agency and part of the FTC's roadmap on patent litigation aggressors that FTC Chair Edith Ramirez laid out in the summer.
The comment period on the proposed study closed in mid-December.

There was solid support for the FTC moving forward from a wide variety of sectors and interests. 

The companies who welcomed the FTC initiative included many well known technology and manufacturing brands, including Adobe Systems, Canon U.S.A., Cisco, Dell, Ford Motor Company, Google, Hewlett-Packard, Intel, Limelight Networks, Rackspace US, Inc., Red Hat, SAP, SAS, and Verizon.

More broadly, key groups representing consumer electronics, traditional marketing firms, restaurants, Internet and online commerce, telecom, software, a variety of retailers, grocers, and consumer groups also weighed in with positive support. 

The state Attorneys General signaled their support for FTC action, with California Attorney General Kamala Harris urging the FTC to expand its investigation. Notably, even some well-known voices in the free-market, conservative sphere applauded the FTC direction.

There were certainly concerns with the FTC approach, from the usual quarters. Points were made about the breadth of the study, the costs imposed on companies that would be subject to the order, and the necessity of the information.

But even these negative views did not suggest the FTC shouldn’t investigate; their points were largely about the details. On the whole, the vast majority of commenters supported the FTC in its initiative, both in purpose and scope.

FTC staff are reviewing the comments now, and I expect the Commission will vote sometime in the near future to move forward with its investigation.

Spotlight turns to Senate on legislative reforms

2013 ended on a high note, with House passage of HR 3309 (the "Innovation Act") in early December by an overwhelming 325-91 vote. (Big majorities from both parties supported passage.)

On December 17, the Senate began its process by holding an oversight hearing, where most witnesses largely supported action by the Judiciary Committee. And this month, the Committee began briefing members and staff on the key issues.

The two key bills to watch are:

  • S. 1720 (the "Patent Transparency and Improvements Act of 2013") (Sponsored by Sens. Leahy-Lee-Whitehouse-Klobuchar) includes provisions on manufacturer’s stay/end user protection, making clear who is the real party in interest and fixing 'estoppel' in post-grant review. It also includes provisions on abusive demand letters.
  • S. 1013 (the "Patent Abuse Reduction Act of 2013") (Cornyn-Grassley) includes provisions on fee shifting to address the current asymmetry in patent litigation costs, requiring greater clarity of patent infringement pleadings and reducing discovery abuse.

Together, these two bills include the key components found in the House-passed bill. Hopefully, a markup in early Spring will meld the two bills. But we can expect the same interests that worked against HR 3309 in the House to work to slow down efforts in the Senate.

No silver bullet

The three areas above do not reflect all that 2014 holds on this front. As widely reported, the Supreme Court is scheduled to hear a number of patent cases relating to software inventions as well as several litigation-related issues. (Look for more on these developments in other posts in the Law channel.)

2014 will continue to see patent litigation abuse (especially by PAEs) remain a front and center issue, with a growing support for action.

But it also reflects the fact, put so well by FTC Chair Ramirez last summer, each of these spheres of actions are "just one piece of a broader response."

"Flaws in the patent system are likely fueling much of the real costs associated with PAE activities. ...effective monetization of low quality patents imposes a de facto tax on productive economic activity with little or no offsetting benefit for consumers. High litigation costs add to the problem by allowing PAEs to coerce targets to pay license or settlement fees that are detached from the economic value of the patents at issue. In short, PAEs exploit underlying problems in the patent system to the detriment of innovation and consumers." [emphasis added]

I am hopeful that we will make progress in 2014.

About the author

Mark Bohannon - Mark Bohannon | Mark Bohannon is Vice President of Global Public Policy and Government Affairs at Red Hat. Previously, he served as Senior Vice President, Public Policy and General Counsel at the Software & Information Industry Association (SIIA), the principal U.S. trade association for the software and digital content industry. Prior to his work at SIIA, he was a senior official at the U.S. Department of Commerce.