Panel Calls For Litigation Reform To Address Patent Trolls

by Manatt, Phelps & Phillips, LLP

In a June 18, 2013, panel discussion titled “Trolls, Traders, and Wizards – Understanding the Market for Innovation,” the impact of the recently implemented America Invents Act (AIA), as well as the prospects for even more proposed patent reforms, was debated by leading jurists and users of the U.S. patent system at an event sponsored by the Northern California Chapter of the Association of Business Trial Lawyers. Of surprise to many in attendance was the tone that predominated on this panel, which stood in marked contrast to what some perceive as the “anti-patent” rhetoric and sentiments of recent presidential and congressional reform proposals.

Panelists Chief Judge Randall Rader of the United States Court of Appeals for the Federal Circuit, The Honorable Lucy Koh, United States District Judge for the Northern District of California, and Peter Detkin, Founder and Vice-Chairman at Intellectual Ventures, all agreed that litigation reform, not more patent reform, is what is needed to address the excesses related to patents that are driving support for the recent reform proposals. Even panelist Mark Chandler, Senior Vice President, General Counsel and Secretary of Cisco, who has previously argued that strong patent rights hinder innovative companies like his, appeared to reluctantly acknowledge that litigation misconduct may be the more significant problem.

All of the panelists agreed that the high costs of both litigation and administrative proceedings distort the assessment of patent value and that reducing such costs could help rationalize pricing in the patent market. From that perspective, litigation reforms, such as widespread adoption of the Federal Circuit's model order for e-discovery and other proposed limitations on discovery under consideration by the federal rules committee, could drive down the cost of patent disputes and thereby rationalize pricing and improve overall satisfaction with the patent system. Judge Koh also suggested that she might like more authority to award attorneys’ fees in some cases, though that would require a change in law by Congress or the Federal Circuit.

Mr. Reines introduced Mr. Detkin as coining the term "patent troll," even though Mr. Detkin now runs Intellectual Ventures – a company that many consider to be the prototypical patent troll. Mr. Detkin defended his company's business model – which has resulted in its collecting an estimated $3 billion from licensing its vast patent portfolio – as an important way to compensate inventors who develop valuable inventions but lack the means to enter markets to exploit them.

He gave the example of an inventor who comes up with a way to improve router efficiency by 10%. Such a person could never hope to compete with Cisco selling routers or to effectively license his patent directly to Cisco. The only viable alternative for such an inventor to realize compensation is, in many cases, to sell or license patent rights to entities like Intellectual Ventures that are better positioned to monetize them.

The panelists generally agreed that it will take more time for cases raising AIA issues to work their way through the courts before the impact of the AIA is fully understood. The panelists nevertheless generally concurred that recent increases in the number of new patent case filings clogging the courts is an unintended consequence of the anti-joinder provisions of AIA. Judge Rader observed that this both : (i) argues for Congress to grow the number of judges on the Federal Circuit - to handle the "tsunami" of patent appeals that he sees "heading up the Potomac"; and (ii) cuts against patent defendants. While the intent of the anti-joinder provisions of the AIA was to give each defendant a fair day in court, the effect may be the opposite because the first case to reach the Federal Circuit on a given patent is likely to determine claim construction and similar issues for all subsequent cases on that patent.

Judge Koh also directed at Mr. Chandler a pointed comment about companies like Cisco, who complain so loudly about poor patent quality and the scourge of patent trolls, while themselves lobbying for special patent treatment. For example, Judge Koh noted that Cisco and others are trying to get multiple "bites at the apple" to challenge patent validity – such through as inter partes review by the Patent Office while district court litigation proceeds. Such multiple avenues for challenge are not available in other areas of law. In patent law, however, the district court often has to deal with parallel Patent Office proceedings that can either change everything, something, or nothing about issues simultaneously before the district court. Deciding whether to stay district court proceedings has in some ways become easier given the finite 12 to 18-month duration of inter partes review under the AIA. However, Judge Koh noted that in many cases the administrative proceedings will resolve in favor of the patentee and, as such, will only delay district court litigation.

On the recent presidential and congressional proposals for further patent reforms, such as "loser pays" and mandatory registration of patent ownership, Mr. Detkin opined that Congress considered and rightly chose not to implement such proposals in the 10 years of debate and negotiation leading to the enactment of the AIA. He argued, over some objection by Mr. Chandler, that going forward these issues generally are more amenable to the more precise "scalpel" of court decisions than the less discriminating "hatchet" of congressional legislation. And while the panelists generally agreed that the courts are best suited to develop patent law in most areas, Judge Koh noted that the current standard for awarding attorneys’ fees under 35 U.S.C. § 285 makes it difficult for judges to punish what many might view as litigation misconduct. Judge Koh also observed that the Federal Circuit's recent opinions have left district courts with no clear guidance or analytical framework with respect to patent damages. Judge Rader did not really dispute that assertion but joked that at least his court has not caused as much confusion as some Supreme Court patent opinions.

On the recent New York Times op-ed piece authored by Judge Rader and two others, which argued for increased application of § 285 to award attorneys’ fees in patent cases, Judge Rader admitted only to agreeing with "at least a third" of the piece. Echoing her earlier comments, Judge Koh said she thought the piece was misleading in suggesting that conduct that is reasonable and lawful under current § 285 case law should be taken as evidence of bad faith supporting attorney fees awards as advocated in the op-ed piece. She said that she cannot cite a New York Times op-ed piece as authority for awarding attorneys’ fees, and the law would need significant revision to realize the proposals in the op-ed piece and bring more cases within the scope of § 285.

Overall, the panel's comments and the audience's reactions suggested skepticism about the recent presidential and congressional patent reform proposals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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