Friday, 1 November 2013

Trolls: if the solution is American, does that mean the problem's American too?

"Trolls Better Watch Out This Halloween -- Senator Hatch Introduces Patent Litigation Integrity Act", by Andrew Williams (McDonnell Boehnen Hulbert & Berghoff LLP), was posted on to the Patent Docs weblog yesterday.  You can read the piece in full here. Andrew writes:.
" ... Senator Orrin Hatch (R-Utah) has introduced yet another piece of legislation to combat the perceived "patent troll" problem.  The Patent Litigation Integrity Act (S. 1612) is aimed at shifting the reasonable fees and other expenses from the prevailing party in patent litigations to the non-prevailing party, absent "substantially justified" conduct, or other circumstances that would make it unjust.  The proposed changes to 35 U.S.C. § 285 (Fees and other expenses) are nearly identical to the comparable section of the Goodlatte "Innovation Act," currently being discussed by the House [summarised on IP Watchdog, here].  The only significant difference between the two amendments to § 285 is that the Senate bill specifies that "reasonable fees and expenses" includes attorney fees.  As a result, both the House and Senate now currently have bills pending that would make the shifting of fees in patent litigation the default which can only be overcome by showing that conduct was substantially justified.  However, neither version provides guidance explaining when such "justifications" rises to the level of "substantial."
Where the House and Senate bills diverge is in on how to hold the parties accountable for such fees, especially the plaintiff patent holders.  Rep. Goodlatte's bill proposes making the fees "recoverable against any interested party joined pursuant to section 299(d)."  That section would allow joinder of an interested party if "the party alleging infringement has no substantial interest in the patent or patents at issue other than asserting such patent claim in litigation."  Therefore, not only must an "interested party" be identified, it must be shown that the patent-asserting plaintiff has no other interest in the patent (other than in asserting the patent).  Sen. Hatch's bill takes a different tact [sic], providing for the potential discretionary bonding by "the party alleging infringement." ... The provision goes on to highlight factors that the court "shall consider" in determining whether such "a bond requirement would be unreasonable or unnecessary."  These include: 
(1) whether the bond will burden the party alleging infringement to pursue unrelated activities; 
(2) whether the party is an institution of higher learning or non-profit technology transfer organization; 
(3) whether the party is a licensee of such an institution or organization and conducts further development on the subject matter; 
(4) whether the party is a named inventor or original assignee; 
(5) whether the party practices the invention; 
(6) whether the party can prove they have the ability to pay; and/or 
(7) whether the party will agree to pay the shifted fees (and has the ability to do so).

Two immediate observations come to mind.  First, the bill introduced by Sen. Hatch ... treats the parties equally when it comes to fee shifting, but it only provides for the bonding by the party asserting patent infringement.  It is clear that the goal of this provision is to stop the "trolls," but it is also possible to imagine an alleged infringer dragging out litigation in the face of evident willful infringement in the hopes of deterring the patent holder with increased costs. ... The second observation is that this could set up for a patent enforcement system that has two classes of patent-asserting plaintiffs -- those for whom there is no upfront cost to assert infringement, and those for whom there is an "entry fee," which could run in the millions of dollars.  The point has been made many times that there is an economic justification for non-practicing patent asserting entities -- for example, they can help innovators that do not have sufficient resources of their own to capitalize on their inventions and they can help provide liquidity to the intellectual property market.  If such a "bond" provision is enacted, it could have a chilling effect on the legitimate patent asserting entities, which could have the unintended consequence of hindering innovation.  ... 
The question is sometimes asked whether the patent troll is a universal problem or a purely American one.  The proposals here appear to consist of tweaking or fine-tuning the rules of engagement for US patent litigation rather than addressing issues of principle. Where the proposed solution is so closely focused on the mechanism of patent litigation in the US, one is tempted to conclude that trolls are indeed a by-product of the current US system rather than a business model of wider application.

PatLit has now received the following statement from Public Knowledge, a "Washington D.C.- based public interest group working to defend consumer rights in the emerging digital culture". 
Public Knowledge Praises The Sen. Hatch Fee Shifting Bill 
Today, Senator Orrin Hatch (R-UT) introduced the Patent Litigation Integrity Act. This bill gives judges more opportunities to shift the costs and expenses of litigation. Furthermore, this bill allows defendants to request an up front bond to prove that the party seeking the claim has the resources to compensate the winning party if that party can't successfully defend its claim. 
In his statement Senator Hatch writes that "Fee Shifting without the option of having to seek a bond is like writing a check on an empty account." He further noted that Fee Shifting is an integral part to any legislation geared to stop patent trolls. Public Knowledge agrees and knows that this bill is a strong step in reforming the abuses that occur in America's patent system.  ...
 This release is linked here. 
A link to a summary of the bill can be found here
PatLit thanks Chris Torrero for these links

1 comment:

Claire said...

Whilst it's very interesting observing all these legislative efforts to deal with trolls, one wonders whether it might have been easier to deal with if action had been taken earlier. Now of course billions of dollars are at stake, and so the trolls will not back down easily. However when trolling first started those companies may could have been persuaded to change their business models to something more acceptable. After all we do want patent monetisation to happen, but in other ways. Had organisations like Intellectual Ventures been encouraged to try other approaches who knows what new business models might have emerged.