Steve Hansen Featured in Straight From the Top: Strategies and Tactics from Leading IP Lawyers

 

March 2013, Bloomfield Hills, MI - In December 2012 we reported that Steve Hansen authored a chapter of an eBook concerning IP strategies and tactics. The book was published in February by ExecSense and is entitled Straight From the Top: Strategies and Tactics From Leading IP Lawyers. Mr. Hansen's chapter is entitled "Developing and Maintaining a Patent Portfolio". The book is available on Amazon.com by clicking here. 

Congress Goes After Patent "Trolls" - the SHIELD Act

  

The topic of "patent trolls" or as they are more affectionately known "non-practicing entities" (NPEs) or "patent assertion entities" (PAEs) remains controversial. These are companies that typically hold patents but make no products. Instead, their business is to generate licensing revenue streams from their patents. They also typically do not do any inventing, but instead, buy up other companies' or individuals' patents.

 

Many companies in the business of supplying computers, DVD players, smart phones, and other electronic devices are frequent and repeated targets of NPEs and suffer the financial and operational disruptions that come with patent infringement litigation. The NPEs often look for patents to assert against ubiquitous features in these types of products, particularly software features in widely used programs, including Microsoft Windows. The targets of these lawsuits often complain that the NPEs assert patents of questionable validity and applicability to their products and that the attendant risks and disruption of litigation often force them to settle otherwise dubious claims. On the other side of the debate, the NPEs assert they are merely leveraging the freely alienable nature of patents and that without NPEs many inventors would have no way to exploit their patents and benefit from the fruits of their creative endeavors.

 

The Scope of the SHIELD Act

 

Congress has weighed in with proposed legislation entitled the "Saving High-Tech Innovators From Egregious Legal Disputes Act of 2013" or the "SHIELD Act." The SHIELD Act provides a "loser pays" system for NPEs so that if an accused infringer prevails because the asserted patent is invalid and/or not infringed, the NPE would be required to pay the accused infringer's "full costs . . . including reasonable attorney's fees." Under the Act, an accused infringer may file a motion to have a patent holder declared an NPE, which the SHIELD Act defines as someone who 1) Is not the inventor, 2) Is not the original assignee of the inventor, 3) has not made "substantial investment . . . in the exploitation of the patent through production or sale of an item covered by the patent," and 4) is not a University or University technology transfer company. If the patent holder is adjudged an NPE, it will be required to post a bond to cover the recovery of the accused infringer's costs and attorney fees in the event the NPE loses.

 

The SHIELD Act seeks to re-balance the economic leverage that exists between NPEs and their targets. However, one can rightly ask whether carving out a specific regime for a particular type of patent holder is the correct approach for addressing what is perceived to be an abuse of the patent system.

 

Sources of NPE Leverage

 

Regardless of whether a particular NPE's patent claims are legitimate or substantial, the NPE's power derives from its exploitation of the process of patent litigation. In particular, there are several factors that provide this leverage: 1) the huge expense of patent litigation, 2) the risk of a large damages award, and 3) judicial reluctance to use tools such as Rule 11 of the Federal Rules of Civil Procedure or summary judgment to screen out frivolous cases before significant discovery begins, and 4) the Patent Office's issuance of patents with claims that cover subject matter far broader than anything the inventors could possibly have conceived of or enabled.

 

Because NPEs make no products themselves, they do not have to worry about their targets asserting claims of patent infringement against them. In addition, NPEs often have few employees and few documents to produce relative to their targets. As a result, the burdens of discovery weigh far more heavily on the NPEs' targets than on the NPEs themselves. Thus, the litigation process itself provides NPEs with significant leverage because there is no effective way to terminate even frivolous cases before significant fees and costs are incurred. To the contrary, some courts will not even entertain summary judgment motions until discovery is completed.

 

When faced with these realities, many accused infringers conclude that the economically rational decision is to settle frivolous or weak claims. The NPEs count on this and often pursue settlement aggressively and early. This has been a successful business model for the NPEs.

 

Other Approaches for Dealing with NPEs

 

Possible alternatives or complements to the SHIELD Act include changes that address the foregoing sources of the NPEs' leverage. One approach would be to require patent holders (including NPEs) to demonstrate that they have a good faith, objectively demonstrable basis for believing that their patent is infringed before they are allowed to take discovery.

 

Many courts now require an infringer to provide infringement contentions early in a lawsuit. However, infringement contentions have not proven to be a strong device for screening out frivolous infringement cases. The courts often let patent holders get away with merely asserting that an accused product meets the claim limitations (often by simply parroting the claim language) without specifically providing any evidence or basis for believing the limitations are met. Case law applying Rule 11 of the Federal Rules of Civil Procedure generally requires a patent holder to have a good faith basis for asserting that each element of at least one patent claim is met by an accused infringer's products. However, courts generally refuse to adjudicate Rule 11 motions until after there is a judgment on the merits, i.e., after substantial litigation costs have been incurred. Patent holders are often not required to show that they conducted a sufficient infringement investigation before filing suit unless and until they lose. Thus, as presently applied, infringement contentions and Rule 11 seem to do little to diminish the leverage that the patent litigation process provides to NPEs.

 

Also, some Rule 11 decisions seem to at least implicitly condone the filing of patent infringement suits when the patent claims are such that infringement could only be shown by evidence that is not publicly available, for example, computer source code. In such cases, the patent holder is effectively allowed to go on a "fishing expedition" to find evidence of infringement through the discovery process. Of course, this begs the question of whether an accused infringer should bear the cost of helping a patent holder determine whether any infringement is even occurring. Unfortunately, the courts seem unwilling to look at this issue.

 

In order to infringe a patent, each limitation of at least one claim must be met by the accused product. It is not enough for a patent holder to simply demonstrate that some of the claim limitations are met, especially when those limitations bear no relationship to the alleged novelty and non-obviousness that led the Patent Office to issue the patent. Thus, requiring patent holders to demonstrate a basis for believing that each limitation of at least one claim is met before filing suit could help diminish the leverage that NPEs currently enjoy by forcing them to show their hand early.

 

Changes in the Patent Office could also help shift the balance of power between NPEs and their targets. In our experience, the patents that NPEs buy up are those that have broad claims with large numbers of potential lawsuit targets. Thus, their ability to obtain claims that can be asserted against entire industries is an important source of NPE leverage.

 

The patent law has three key features that constrain the breadth of patent claims: 1) the requirements of novelty and non-obviousness, 2) the written description requirement, an 3) the enablement requirement. The U.S. examination process focuses heavily on the novelty and non-obviousness requirements. Thus, if the best prior art is uncovered by the Patent Office, it will constrain the breadth of claims.

 

The same is not necessarily true for the enablement and written description requirements. Unlike many foreign jurisdictions, the US Patent Office allows applicants to freely broaden their claims during prosecution even if the scope of the claims goes well beyond what is disclosed and enabled. As a result, patentees are often constrained only by the prior art during prosecution, enabling them to obtain broad claims that may embrace huge numbers of embodiments that the inventor never would have contemplated, much less enabled, at the time the patent application is filed. In places like Europe, Japan, and China such claim broadening is typically not possible. In part, this difference reflects a difference in the substantive law between the U.S. and those jurisdictions. However, a more vigorous application of the written description and enablement requirements by the USPTO during prosecution would likely reduce the numbers of patents issuing with such broad claims. In our experience, especially outside of the life sciences or chemistry fields, little emphasis seems to be placed on the written description or enablement requirements during prosecution. Of course, accused infringers may rely on these requirements to invalidate patents during litigation, but then the NPE continues to enjoy the lopsided advantage the litigation process affords it.  

 

It will be interesting to see how the SHIELD Act plays out. In any event, unless and until something changes the lopsided leverage that the patent litigation process provides to NPEs, they will continue to sue - and thrive.
In This Issue
Congress Goes After Patent "Trolls" - the SHIELD Act
Attorney Spotlight
  
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About Hansen IP Law PLLC

  
Hansen IP Law is an intellectual property law firm that provides "Big Law" caliber services using a small firm platform.  Although based in suburban Detroit, we represent clients throughout the United States and abroad. We do not operate on a leveraged model.  Each of our clients is represented by an experienced intellectual property attorney with over a decade of "Big Law" experience, including as a partner in Los Angeles and Detroit firms. Unlike many firms of our size, we have substantial patent litigation experience in courts throughout the United States, which allows us to strategically strengthen your intellectual property portfolio.  For more information, please contact Steve Hansen at 248 504 4849 or [email protected]. You can also visit us on the web at www.hanseniplaw.com.