With patent assertion entities (PAEs) now bringing around 60% of all patent litigation in the United States, there has been a flurry of recent policy activity aimed at stemming PAE tactics, including by Congress, the U.S. International Trade Commission, and the White House.
Many bills have been introduced in Congress this year regarding PAE litigation. While the bills contain provisions of varying scope and degree, there are at least three notable proposals to reduce PAE litigation:
Shifting Costs and Attorneys’ Fees. The “SHIELD Act of 2013” (H.R. 845) would allow a prevailing defendant to recover costs and attorneys’ fees, so long as the adverse party is not: (1) the original inventor or assignee of the patent; (2) producing or selling an item covered by the patent; or (3) a university or associated technology transfer organization. As a result, most PAEs would likely be subject to this cost-shifting provision if the alleged infringer prevailed. Cost-shifting may discourage PAEs from filing cases weak on the merits. While some of the other recent bills also contain cost-shifting provisions, they do not appear to be as strict as the SHIELD Act because they would require a showing that the losing party’s positions were unreasonable.
Stay of Discovery. The “Innovation Act” (H.R. 3309) and the “Patent Litigation and Innovation Act of 2013” (H.R. 2639) include provisions requiring courts to stay discovery until after a claim construction ruling. Since claim construction rulings can often be dispositive, a stay could reduce litigation costs for defendants and reduce the PAE’s ability to leverage a lengthy discovery process. Other bills contain discovery-related provisions, but appear to be more flexible, and not completely staying discovery until after claim construction.
Joinder of Parties. The “Innovation Act” (H.R. 3309) and the “Patent Abuse Reduction Act of 2013” (S. 1013) include provisions that would allow certain individuals who have a direct financial interest in the outcome of a patent case to be joined as parties. The potential for financially-interested individuals to be named as parties in their personal capacity may reduce the incentive for PAEs to institute litigation. These provisions would require that a court have personal jurisdiction over the individual, however, potentially permitting individuals to avoid joinder simply by selecting a forum where they are not subject to personal jurisdiction.
The U.S. International Trade Commission
This summer the ITC launched a pilot program that could affect PAE use of the forum. Pursuant to the program, the ITC will “identify, at institution, investigations that are likely to present a potentially dispositive issue and direct the assigned Administrative Law Judge (ALJ) to rule on that issue early in the investigation….” The first case subject to this process was a patent infringement complaint brought by PAE Lamina Packaging Innovations, Inc. In that case, the ITC required the ALJ, Judge Essex, to issue an early determination on whether Lamina satisfied the “economic prong” of domestic industry – a potentially dispositive requirement that can be difficult for PAEs to satisfy. In his early determination, ALJ Essex found that Lamina had indeed failed to satisfy that requirement. The ITC affirmed. The ITC has stated that it will evaluate the results of its pilot program to determine whether to promulgate rules and implement the procedures on a permanent basis.
The White House
The White House issued a report this summer documenting the toll PAE litigation is taking in the United States and announcing legislative recommendations and executive actions to address it. Several of the legislative recommendations are consistent with bills already introduced in Congress, as discussed above. The executive actions include tightening standards for “functional claiming” in patent applications, which some urge has yielded overly broad and vague patents used by PAEs. As a result, the U.S. PTO will provide targeted training to examiners on scrutinizing functional claims, and will develop strategies to improve claim clarity, such as through the use of glossaries in patent specifications.