Make Patent Litigation More Balanced and Efficient
In recent years, patent litigation hit record highs with more cases filed than at any previous time in U.S. history. This is the result of enormous growth in the number of cases brought by “patent assertion entities,” often referred to as “patent trolls.” The number of defendants sued by patent trolls nearly tripled from 2005 to 2016, and these suits now account for a majority of all patent litigation in the U.S. and about 90% of patent cases involving high-tech products and services. These entities harm economic growth and deter innovation by leveraging the high cost of litigation to obtain settlements that divert resources away from innovation and create a drag on job growth and R&D investment.
This increase reflects the imbalance in our patent litigation system. Regardless of who wins, patent lawsuits are far more expensive to litigate for defendants than patent owners. This is particularly true for patent troll suits, where it is not uncommon for the plaintiff to be a shell company with no physical offices or employees, no motive other than litigation, and virtually no evidence they can be compelled to disclose in discovery. In contrast, patent cases are very expensive for real companies and often cost millions of dollars to defend even when the patent at issue is invalid.
Legitimate patent owners, defendants, inventors and the public would all ultimately benefit from a more balanced litigation system, as this would lead to more efficient and focused resolution of patent disputes. Developments in recent years that have strengthened venue limitations, increased the availability of fee shifting, and required more specificity in pleadings represent a step in the right direction, as was the enactment of the America Invents Act (AIA). But these efforts have fallen short of balancing the burdens of patent litigation, as demonstrated by the continued success of patent trolls in profiting from nuisance settlements.
To achieve a more balanced litigation system it is necessary to make additional changes:
Venue rules should ensure that patent disputes have some legitimate connection to the jurisdiction in which they are adjudicated. The Supreme Court’s decision in TC Heartland v. Kraft Foods provided a welcome affirmation that patent litigation was indeed subject to statutory venue rules. However, remaining ambiguities in the venue statute still require clarification and the venue rules themselves must be actively enforced by appellate courts to be effective. In particular, to prevent ongoing attempts to engage in venue shopping, the courts must interpret the venue statute to require a substantial connection between the defendants’ “regular and established place of business” and the alleged infringement.
Plaintiffs should be required to disclose their infringement contentions and proposed claim constructions earlier in litigation, and litigation procedures should be modified to encourage earlier resolution of dispositive issues and to prevent “fishing expeditions” in discovery.
Those making baseless infringement claims in demand letters should be subject to federal fines or other penalties, especially whether the targets of their demand letters are small or unsophisticated companies that don’t themselves produce the product or service accused of infringement.
A losing party that took objectively unreasonable positions in litigation should be required to pay the other side’s fees and costs.
The Supreme Court’s decision in Halo Electronics, Inc. v. Pulse Electronics, Inc. should be reversed, returning to the rule that enhanced damages for willful infringement may only be imposed if the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent; and this risk was previously known or so obvious that it should have been known to the accused infringer.
Inter partes review (IPR) proceedings should be strengthened and expanded to cover additional grounds of invalidity under Section 101 and 112 of the Patent Act to make IPR a true alternative to district court litigation.