A closer look at patent troll legislation (pt. 1): Pleading requirements

shutterstock_87564505
PleadingRequirements by Shutterstock

On October 23, Rep. Bob Goodlatte (R-Va.) introduced the “Innovation Act” in the House, with the goal of “address[ing] the issues that businesses of all sizes and industries face from patent troll-type behavior and aim[ing] to correct the current asymmetries surrounding abusive patent litigation.” The announcement was followed by an event hosted by AEI’s Center for Internet, Communications, and Technology Policy, where Rep. Goodlatte was the keynote speaker.

Patent trolls—more charitably referred to as “non-practicing entities” (NPEs) or “patent assertion entities” (PAEs)—are companies or solo inventors who own patents and assert them against others, but that do not design, develop, or manufacture any actual products.

Recently, the business community, state legislators, Congress, and the White House alike have been on the warpath to rein in the malign influence of PAEs, in particular those that have targeted nonprofits, consumers, and other end-users of products they claim infringe their intellectual property. A variety of court cases, state attorney general actions, and executive branch regulations have ratcheted up the pressure on these entities.

The bipartisan Goodlatte bill has progressed furthest of any of these efforts, with the open-source-oriented Electronic Frontier Foundation shining its favor upon the proposed legislation, calling it “the best bill yet when it comes to fighting patent trolls.”  It would heighten the pleading requirement for patent cases; make it easier for the prevailing party in a patent litigation to receive its fees; limit the scope of discovery; require the patentee to identify the “real party in interest”; suspend litigation against customers; and alter certain aspects of the America Invents Act—patent reform legislation enacted in September 2011.

All of these proposals merit careful attention, and I will therefore examine a few of them at a time in a series of posts. As an initial matter, though, I believe strongly in the need to maintain balance in the patent system between, on the one hand, promoting the rights of inventors and innovation in general, and, on the other, ensuring these rights are not abused. While PAE activity does seem to have become more aggressive in recent years, we mustn’t overreact and destabilize the patent system in general.

As Chief Judge Randall Rader of the Federal Circuit Court of Appeals, the special court that handles appeals of all patent cases, remarked at a recent patent law conference, “our nation is experiencing a crisis of confidence in its proven innovation system.”  But this crisis, Rader argued, “stems primarily from the tendency to blame patent law for missing objectives it was never designed to achieve.”

Keeping that in mind, let’s examine the Goodlatte bill with an eye toward maintaining the patent statute’s delicate balance.

Pleading requirements

Federal courts generally require only broad types of disclosure in initial pleadings: the who, what, when, where, and why of the complaint that a plaintiff files against a defendant. In the patent context, this means establishing that the plaintiff is the rightful owner of the patent; that the defendant makes, uses, or sells a product or method that infringes the patent, or encourages others to do so; that the infringement has harmed the defendant; and that the court has jurisdiction over the parties.

The Innovation Act would heighten those requirements by compelling the patent-holder to identify the specific claims of the patent it believes are infringed and to provide a chart explaining “with detailed specificity, how the terms in each claim…correspond to the functionality of the” product accused of infringing the patent.

While this sounds like an onerous task designed to deter plaintiffs from filing patent cases, in truth, virtually every court in the U.S. mandates similar disclosures—known in the trade as “infringement contentions”—at some point during the course of a patent litigation. And while the Goodlatte bill would accelerate these contentions and convert them into a prerequisite before filing a complaint, patentees generally prepare detailed drafts of these charts prior to launching suit.

One important caveat, however: in many instances, and in particular in the highly technical software realm, the patent-holder requires the defendant’s confidential business information in order to present its infringement case.  Without recourse, for example, to the computer source code running on the products accused of infringement, the patentee often cannot tell for certain if those products infringe.

Currently, the patent-holder can access these materials during discovery, but under the Innovation Act, it would have to prepare its infringement charts without the benefit of this information. Fortunately, the Goodlatte bill offers some relief to the patentee, who is obligated to provide “a description of any information…that is not disclosed, why such undisclosed information was not readily accessible, and the efforts made by such party to access such undisclosed information.”

On top of this provision, though, it would be better to furnish the patentee with the express right to later modify its infringement contentions, once discovery gets underway, to include the confidential information it gleans from the defendant. If the patentee is held strictly to the contentions it provides with its complaint, an unnecessary chilling effect will result.

The Innovation Act also requires the patentee to provide, in the body of its complaint, a list of all other complaints it has filed involving the same patents, as well as a statement about whether any of those patents is “essential to any standard-setting body,” such as the MPEG family of video encoding standards so critical to the transmission of information and consumer content. These all sound like fairly reasonable obligations, although there is always uncertainty as to how courts will interpret and apply them.

In general, then, the Goodlatte bill’s pleading requirements, with some tweaks, offer some measured improvements without overturning the innovation apple cart. In the next installment, I will examine the fee-shifting and discovery-restricting provisions of the Innovation Act.

 

 

One Response to "A closer look at patent troll legislation (pt. 1): Pleading requirements"

Leave a reply