[authors: Shaun McVicar, David Wilson, Hayley Bowman, Grace Pead and Nic Ruesink-Brown]
While the activities of so-called ‘patent trolls’ have generated significant media and political attention in the USA, these activities are unlikely to become as prevalent in the UK and Australia because of distinct features of patent litigation practice in these jurisdictions. Companies in the UK and Australia facing allegations of infringement from apparent patent trolls should consider how they can use these procedural features to avoid such allegations or mitigate their consequences. Conversely, patent holders should be aware of these features, which make patent troll activity more challenging than in the USA.
What is a ‘patent troll’?
There is no universal definition of a ‘patent troll’. In 2001, Peter Detkin, then vice president and general counsel at Intel Corporation, stated that a ‘patent troll is somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced’.1 However by 2013, Detkin’s view was that ‘the word ‘troll’ has been stretched to the point where it has almost no meaning and where legitimate market players are being swept in with the bad actors'.2
Activities that have been associated with so-called patent trolls include:
holding patents but not providing related products or services (‘patent troll’ has been used interchangeably with ‘non-practising entity’),
asserting patents to make money through licence fees, settlements and court ordered payouts, rather than to maintain a monopoly in the relevant market (‘patent troll’ has been used interchangeably with ‘patent assertion entity’ and ‘patent monetisation entity’),
asserting patents that are vague, overly broad and/or of questionable validity,
threatening or commencing infringement litigation, often against multiple defendants, and in jurisdictions with reputations for being patentee-friendly,
asserting patents against operating companies only after there is thriving demand for the relevant product or service, and
obtaining patents by purchase rather than research leading to genuine invention.
Patent troll activity around the world
In practice it is difficult to determine the extent of patent troll activity because most takes place confidentially through inter-party communication, licence agreements, and settlements. Of the patent troll activity that is litigious, the vast majority occurs in the USA, particularly in the e-commerce and telecommunications sectors. One report stated that in 2012 litigation by ‘patent monetization entities’ represented 58.7% of patent infringement litigation filed in the USA.3 An infringement claim by NTP against Research in Motion (RIM, now known as BlackBerry) in the USA was one of the first and most well-known examples of patent troll activity.4 In 2006, RIM agreed to pay NTP US $612.5 million to settle all claims and enter into a perpetual licence to use NTP’s patents.
Of the few instances of such litigation in the UK, the leading cases involved IPCom5 and InterDigital6 each alleging that Nokia had infringed patents relating to mobile telecommunications. Neither IPCom nor InterDigital extracted large settlement payments from Nokia, or obtained final injunctions in the UK.
While patent troll activity in Australia is far less prevalent than in the USA, it appears to be gaining momentum. In 2013, two separate infringement proceedings in relation to telecommunications patents were commenced in Australia by entities that have been described as patent trolls, Vringo v ZTE7 and Upaid v Telstra.8 Both proceedings are in the early stages at the time of publication of this article.
Challenges for patent troll activity in the UK and Australia
Certain features of patent litigation practice in the UK and Australia may explain the lower levels of patent troll activity in these jurisdictions compared to the USA. Companies in the UK and Australia facing allegations of infringement from apparent patent trolls should consider how they can use these procedural features to avoid such allegations or mitigate their consequences. Conversely, patent holders should be aware of these features, which make patent troll activity more challenging than in the USA. These features include:
Unlike certain US district courts which are perceived to be patentee-friendly, the English Patents Court, the Intellectual Property & Enterprise Court and the Federal Court of Australia have no such reputations.
UK and Australian courts determining the validity of a patent make a fresh determination based on the evidence before the court. By contrast, US courts apply a legislative presumption that a granted patent is valid,9 which may make alleged infringers less likely to try to challenge a patent’s validity and less likely to succeed if they do so.
In the UK and Australia, patent litigation is determined by judges, whereas in US district courts, it is often determined by juries of lay people, with no patent expertise. Jury determinations can be difficult to predict and have been known to result in awards of excessive damages to patent holders, both factors which may motivate alleged infringers to settle even where they believe they have a strong legal defence.
In the UK and Australia, the ‘loser pays’ rule applies so that a patent holder who commences an infringement claim risks having to pay a proportion of the alleged infringer's legal costs if the court finds that there has been no infringement and/or the patent is invalid. However in the USA, patent holders can rely on the ‘American Rule’, that generally a party to litigation is responsible for its own attorney’s fees, irrespective of the outcome.
In the UK and Australia, where a patent holder commences infringement proceedings, the alleged infringer may, in certain circumstances, apply for security for costs to ensure that the patent holder can satisfy an adverse costs order should the claim fail. If the court orders security for costs, then the patent holder must pay an amount into a court fund (or make alternative arrangements) before the proceedings continue. In the USA, security for costs is not relevant as parties generally pay their own attorney’s fees.
There is no US equivalent to the UK and Australian civil procedure rules that require the courts that determine patent disputes to encourage alternative dispute resolution in appropriate cases.10 In the UK and Australia, at an early stage of litigation, parties must describe the steps taken to resolve the dispute outside of court and courts will consider a failure to take such steps (without good reason) when exercising their discretion as to the apportionment of costs.11
1 Brenda Sandburg, ‘You may not have a choice. Trolling for Dollars’, The Recorder, 30 July 2001, available here.
2 Peter Detkin, ‘5 Inconvenient Truths about Patent Reform’, Intellectual Ventures, 5 August 2013, available here.
3 Robin Feldman et al, ‘The AIA 500 Expanded: The Effects of Patent Monetization Entities’, UC Hastings Research Paper No 45, 9 April 2013, available here.
4 NTP Inc v Research in Motion Ltd, 418 F 3d 1282 (Fed Cir, 2005), in which the US Court of Appeals for the Federal Circuit allowed the appeal from the opinion of the US District Court for the Eastern District of Virginia in NTP Inc v Research in Motion Ltd, 392 F 3d 1336 (Fed Cir, 2004).
5 See, eg, Nokia GmbH v IPCom GmbH & Co KG  EWHC 3482 (Pat).
6 See, eg, Nokia Corporation v InterDigital Technology Corporation  EWHC 3077 (Pat).
7 Vringo Infrastructure Inc v ZTE (Australia) Pty Ltd, Federal Court of Australia Proceeding No. NSD 1010 of 2013.
8 Upaid Systems Ltd v Telstra Corporation Ltd, Federal Court of Australia Proceeding No. NSD 1698 of 2013. See Upaid Systems Ltd v Telstra Corporation Ltd  FCA1441, an interlocutory judgment in this proceeding, available here.
9 Patent Act of 1952, 35 USC § 282.
10 In the UK, see Civil Procedure Rules 1998 (UK) r 1.4(2)(e). In Australia, see Federal Court Rules 2011 (Cth) r 28.01.
11 In the UK, see Civil Procedure Rules 1998 (UK) r 26.3, regarding the Directions Questionnaire. In Australia, see Civil Dispute Resolution Act 2011 (Cth) s 6, regarding the Genuine Steps Statement.
This article was written by Shaun McVicar, Partner, Melbourne, David Wilson, Partner, London, Hayley Bowman, Senior Associate, Melbourne, Grace Pead, Solicitor, Melbourne, and Nic Ruesink-Brown, Associate, London.
The article was first published on the Herbert Smith Freehills Website.
For information regarding possible implications for your business, please contact Shaun McVicar or David Wilson.