Between the National Retail Foundation coverage and the national news coverage of President Obama’s statements on patent trolls, every retailer is aware of a growing swell of support for patent reform targeted at stopping the patent troll problem. And the problem is as big for retailers, as for any business sector. The NRF’s Senior Vice President and General Counsel Mallory Duncan explained it well recently:
Retailers have become one of the largest groups of non-tech companies targeted by patent trolls. . . . Retailers are using precious capital resources to fight or settle infringement claims that they should be using to invest in their businesses and create jobs. This is an abuse of our nation’s laws that needs to be stopped.
Patent trolls don’t target just national brands. Small and medium-sized retailers are also being threatened and sued, and they are seen as easy prey because they don’t have the legal expertise or money to easily fight back. . . .
I will dig into the various reform proposals in the next several weeks, as it becomes clearer which have legs. But the biggest concern is making sure that Congress stays on track to address the problem.
Unfortunately, some powerful voices are arguing that the federal courts already have the tools they need to deal with abusive patent litigation, despite acknowledging the problem of trolls. The Federal Circuit’s Chief Judge Randall Rader, Santa Clara University Professor Colleen Chien and Mercer University Professor David Hricik published a New York Times opinion piece last week. First, they acknowledge the problem:
The onslaught of litigation brought by “patent trolls” — who typically buy up a slew of patents, then sue anyone and everyone who might be using or selling the claimed inventions — has slowed the development of new products, increased costs for businesses and consumers, and clogged our judicial system.
The opinion piece then argues that Rule 11 sanctions and the 35 U.S.C. § 285 exceptional case standard can solve the problem. While it is true that Rule 11 and the exceptional case standard allow for a successful party to get its reasonable fees and costs where the litigation should never have been brought or was otherwise abusive, that answers one small part of the problem. The ability to get fees is positive, but it requires a significant upfront cost (and risk) for a defendant that is typically faced with a settlement proposal far less than its potential fees.
Additionally, as every retailer has likely seen, the potential of an exceptional case finding or adverse Rule 11 result has very little impact upon patent trolls. Trolls know that most cases settle and that even when cases go to a final judgment, exceptional case findings and adverse Rule 11 decisions are rare. In order to level the fees playing field where trolls use the fees to force settlements, but retailers have no counterbalancing leverage, at a minimum there needs to be more certainty that fees are awarded to the prevailing party.
And fees are not even the most critical reform issue for retailers. The biggest issue for retailers is likely creating some form of strong immunity for end-users of an allegedly infringing technology. The existing customer suit exception allows a court to stay suits against a customer/end-user when the manufacturer/vendor of the accused product/software has also been sued, usually in another district. Unfortunately, the customer suit exception is both discretionary and very limited. Retailers need to be freed of suits where they are the end-user of a product, software package or other product that they have not modified or personalized in any way. Of course, as I will discuss in a later post, creating a bright-line immunity from suit that trolls cannot work around will be a complex task.
The opinion piece also fails to take into account vague, Fed. R. Civ. P. Form 18-compliant patent complaints that routinely give retailers no insight into which of their products or systems are being accused of infringement. This problem is magnified by the fact that retailers often have little knowledge of how the internet widgets and software packages based upon which they are accused of infringement. So, a retailer with little or no independent knowledge of the accused instrumentality is further hindered by vague or non-existent accusations. Forcing trolls to provide more detailed complaints is critical to allow retailers to understand the claims against them and in helping them seek and get indemnification.
And the opinion piece does not consider the massive cost, in terms of both attorneys fees and corporate time, wasted on discovery, much of which is meaningless. Constraining and staging discovery, in particular email discovery, is also important. While reduced discovery costs will not stop patent trolls, it will reduce their leverage while significantly reducing the pain of patent litigation for retailers, without interfering with the pursuit of justice.
There are other elements that should be considered, like transparency of patent assignements and licenses. But the above examples make clear that the idea that existing law is sufficient to address abusive patent litigation fails when you look at the breadth of the problem.