President Obama, Judge Rader, and Patent Trolls

by Orrick, Herrington & Sutcliffe LLP

President Obama and the Chief Judge of the Federal Circuit struck a one-two punch in the fight against patent trolls this week.

On June 4, 2013, the President announced seven legislative proposals and five executive actions “designed to protect innovators from frivolous litigation and ensure the highest-quality patents in our system.”  In the President’s words, these Patent Assertion Entities (PAEs) “hijack somebody else’s idea and see if they can extort some money.”  Instead of producing anything themselves, he said, they engage in “abusive litigation and extraction of settlements.”

The President’s legislative recommendations include:

  1. Requiring patentees and applicants to disclose the “Real Party-in-Interest,” by compelling any party sending demand letters, filing an infringement suit, or seeking PTO review of a patent to file updated ownership information, and enabling the PTO or district courts to impose sanctions for non-compliance.
  2. Providing district courts more discretion to award attorneys’ fees to prevailing parties in patent cases, as a sanction under 35 U.S.C. § 285 for abusive court filings (similar to the legal standard that applies in copyright infringement cases).
  3. Expanding the PTO’s transitional program for covered business method patents to include a broader category of computer-enabled patents, and permitting a wider range of challengers to petition for review of issued patents before the Patent Trial and Appeals Board (PTAB).
  4. Protecting consumers and businesses by providing them with better legal protection against liability for using products off-the-shelf and solely for their intended use, and staying judicial proceedings against such consumers when an infringement suit has also been brought against a vendor, retailer, or manufacturer.
  5. Changing the ITC standard for obtaining an injunction to better align it with the traditional four-factor test in eBay Inc. v. MercExchange, to enhance consistency in the standards applied at the ITC and district courts.
  6. Using demand letter transparency to help curb abusive suits, incentivizing public filing of demand letters in a way that makes them accessible and searchable to the public.
  7. Ensuring that the ITC has adequate flexibility in hiring qualified Administrative Law Judges.

And the President’s executive actions include:

  1. Making “real party-in-interest” the new default.  The PTO will begin a rulemaking process to require patent applicants and owners to update ownership information regularly when they are involved in proceedings before the PTO, specifically designating the “ultimate parent entity” in control of the patent or application.
  2. Tightening functional claiming.  The PTO will provide new targeted training to its examiners on how best to scrutinize functional claims, and over the next six months, it will develop strategies to improve claim clarity, such as by using glossaries in patent specifications to assist examiners in the software field.
  3. Empowering downstream users.  The PTO will publish new education and outreach materials, including an accessible, plain-English website offering answers to common questions by those facing demands from a possible troll.
  4. Expanding dedicated outreach and study.  The Administration will expand its outreach efforts, including six months of high-profile events across the country to develop new ideas and consensus around updates to patent policies and laws.  The PTO will also expand the PTO Edison Scholars Program, which will bring distinguished academic experts to the PTO to develop — and make available to the public — more robust data and research on the issues bearing on abusive litigation.
  5. Strengthening enforcement and process of exclusion orders.  The U.S. Intellectual Property Enforcement Coordinator will launch an interagency review of existing procedures that U.S. Customs and Border Protection and the International Trade Commission use to evaluate the scope of exclusion orders, and will work to ensure that the process and standards utilized during exclusion order enforcement activities are transparent, effective, and efficient.

The White House also issued a study documenting the toll that these activities take on the economy and innovation.  The study found that in 2012, PAEs brought over 2,500 lawsuits, accounting for 62% of all patent lawsuits filed in the United States.

On the same day as the White House’s announcement, Chief Judge Randall R. Rader of the U.S. Court of Appeals for the Federal Circuit, along with law professors Colleen V. Chien and David Hricik, published an op-ed in the New York Times that expressed similar concerns over patent troll lawsuits.  The op-ed argues that judges already have the authority to curtail abusive suits by shifting the cost of litigation from the defendant to the patent troll under Section 285 of the Patent Act, and under Rule 11 of the Federal Rules of Civil Procedure. The op-ed concludes with a call to action: “Judges know the routine all too well, and the law gives them the authority to stop it.  We urge them to do so.”

Click here to view the Fact Sheet and “Patent Assertion and U.S. Innovation” study report released by the White House on Tuesday.  Click here to view “Make Patent Trolls Pay in Court,” the editorial opinion published in the New York Times.

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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