Anti-troll Patent Reform Bill Introduced to the House
Last week a new bill was introduced to the House that would reform patent litigation procedure. Its intent is to bring down the cost of patent litigation, with specific hopes of reducing nuisance litigation brought by so-called non-practicing entities (sometimes more lovingly referred to as “patent trolls”). Such entities have been able to coerce settlements from large corporations by inflating the costs of discovery to the corporations. The non-practicing entities can demand large document productions that require expensive collection, hosting, and review. At the same time, because the non-practicing entities do not have the large document history or e-mail traffic of large corporations, the costs of their own discovery are much lower and they do not have to worry about retaliatory demands increasing costs and swaying any cost-benefit analysis. While expensive discovery is not unique to patent litigation, this asymmetry creates a special problem. Where large corporations are facing off against one another, both sides have an incentive to negotiate to limit discovery to more reasonable levels.
While the new legislation covers a wide variety of changes to patent law, here are a few of the highlights:
1) Heightened pleading requirements
Following the decisions of Aschroft v. Iqbal, 556 U.S. 662(2009) and Bell Atl. v. Twombly, 550 U.S. 544 (2007), complaints in a Federal Court required a more specific articulation of facts leading to a cause of action than had existed previously. The Federal Circuit, however, did not read Iqbal and Twombly to have much of an effect, if any, on the standard for pleading in a patent case that only involved direct infringement. In such cases, a complaint for direct patent infringement requires merely an allegation of jurisdiction, a statement that the plaintiff owns the patent, a statement that the defendant has been infringing the patent, a statement that the plaintiff has given the defendant notice of its allegations, and a demand for an injunction and damages as is contained in Form 18 of the model forms for pleadings in the Federal Rules (in cases involving indirect infringement, more particularized facts were usually required as to the indirect acts). See, e.g, R+L Carriers, Inc. v. DriverTech LLC, 681 F.3d 1323 (Fed. Cir. 2012). The proposed legislation would essentially require that a plaintiff provide infringement contentions along with its complaint to pass scrutiny. In particular the new legislation would require a plaintiff alleging infringement to, among other things, identify (or explain why it cannot identify and the efforts it went to in trying to identify) the (1) patent allegedly infringed, (2) the particular claims allegedly infringed, (3) each device that allegedly infringes, and (4) where each element of each allegedly infringed claim is found in each allegedly infringing device and (5) whether the element is found literally or under the doctrine of equivalents. The new legislation would also require the plaintiff to identify every other case that the plaintiff is aware in which one of the asserted patents is also asserted and whether any of the patents have been declared as essential, potentially essential to any standard-setting body.
2) Fees presumptively awarded to prevailing party
As with other litigation, patent litigation follows the “American” rule where, under normal circumstances, each party bears the burden of covering their own attorneys’ fees and expenses in litigation, regardless of who prevails. Courts in patent case, however, may award reasonable attorneys’ fees to the prevailing party in “exceptional cases.” 35 U.S.C. § 285. The new legislation would change § 285 such that courts shall award fees and expenses to the prevailing party in patent cases, unless the court finds that the nonprevailing party was “substantially justified” or “that special circumstances make an award unjust.” It is unclear whether courts would treat the new “substantially justified” rule any differently than the “exceptional case” rule, but it is noteworthy that the presumption would be flipped such that an award of attorneys’ fees would be presumed.
Under the new legislation, a party that extended a covenant-not-to-sue to a given defendant with respect to the patents at issue would be a deemed a nonprevailing party for purposes of awarding attorneys’ fees. This rule that deems a plaintiff who bows out of a baseless litigation by mooting it through a covenant-not-to-sue as a non-prevailing party could prevent some non-practicing entities from pulling the trigger on a litigation.
3) Limits on discovery
The proposed legislation would put limits on discovery in two ways. First, it would limit, with some discretion by the court, discovery preceding claim construction to information necessary for the court to determine the meaning of the terms used in the patent claim, including any interpretation of the those terms to support the claim of infringement. It is often the case that resolution of the case turns on construction of the claim terms and so by making claim construction occur earlier in the discovery process, a case can see its end before extensive expensive discovery occurs.
Secondly, the legislation would require the Courts to develop rules “to address the asymmetries in discovery burdens” arising in patent cases. This would include a restriction on the requirements of discovery of information other than “core documentary evidence.” Core documentary evidence explicitly includes (1) documents relating to the conception of, reduction to practice of, and application for the invention of the patent; (2) documents sufficient to show the operation of the allegedly infringing product(s); (3) documents relating to potentially invalidating prior art; (4) documents relating to licensing or other transfer of rights of the patent; (5) documents sufficient to show profit attributable to the patent(s); (6) documents relating to pre-complaint knowledge of the patents by defendants; (7) documents relating to pre-complaint knowledge of infringement by plaintiff; (8) documents relating to licensing term or pricing commitments the patent may be subject through any agency or standard setting body; and (9) document sufficient to show marking or other notice of the patent.
Any discovery of electronic communications would occur only after the parties exchanged the core documentary evidence and would be required to be specific requests limited to no more than 5 custodians, subject to modification by the parties or the court. If a party seeks discovery of additional custodians beyond those agreed to by the parties or granted by the court, the requesting party bears the costs of the discovery.
The full text of the proposed legislation can be found here.